18 Jul The Ultimate Guide to the Affordable Care Act for Employers
The Patient Protection and Affordable Care Act of 2010, also known as ACA or Obamacare, altered the face of U.S. health care for individuals and employers. Sweeping changes in financing and regulations required corresponding overhauls in employee benefits to provide the proper amount of coverage. Some of the new rules can be confusing, but it’s essential for employers and HR managers to understand the provisions and update policies as necessary.
First Phase Nears Completion
Provisions of the ACA were slowly phased in over the last six years, and the act is slated to be in full operation in 2018. However, the benefits and responsibilities shared under the act have already been experienced by the vast majority of people and entities in the U.S. at all levels, including the federal government, state governments, health care providers, insurance companies, individuals, employees and employers.
Because this broad-sweeping piece of legislation is so complex, it was decided that the ACA would be established through the health care structures already in place, and because most people are insured through their jobs, employers have a large set of new responsibilities for which compliance is mandatory.
Employer Responsibilities Depend on Size
Obamacare was designed to minimize the burden on small businesses by providing exemptions for many employer-related provisions, the most notable of which are the employer-shared responsibility provisions. The full responsibilities only apply to what are known as applicable large employers, or ALEs.
All businesses are evaluated annually on their size in order to determine whether they are ALEs. If the employer has 50 or more full-time and full-time-equivalent employees as an average for the previous year, then the business is considered an ALE for the current year, making it subject to both the employer-shared responsibility provisions and employer information reporting provisions.
To get the average, employers are advised to count how many full-time and full-time-equivalent employees are on the payroll each month of the prior year. The results are then added together and divided by 12 for the purposes of ALE evaluation. However, employees who have medical coverage through the military for the month in question are not counted when determining ALE status.
For the ACA, a full-time employee is one who works at least 30 hours per week or 130 hours per month. Full-time-equivalent employees are fictitious entities comprised of the number of part-time workers it takes to make one full-time employee. This can easily be calculated by adding the amount of hours worked by all part-time employees during a month. The sum is then divided by 120, which is the usual number of hours worked by full-time employees. Drop any fractions, and the whole number remaining is the company’s full-time-equivalent employees for the month.
Employer-shared Responsibility Provisions
Employers meeting the definition of an ALE are required to offer minimum essential health care coverage for affordable terms to avoid having to make up to two shared responsibility payments to the Internal Revenue Service (IRS). These provisions are often referred to collectively as the employer mandate.
The first type of payment that may have to be made occurs when the minimum essential coverage is not offered to at least 95 percent of full-time employees while at least one part-time employee receives the premium tax credit for health insurance purchased through the Marketplace.
The second type of payment that an ALE may have to make is triggered when the company offers minimum essential coverage to 95 percent of full-time employees, but some full-time workers have received the premium tax credit for coverage through the Health Insurance Marketplace. This may occur in three different scenarios:
- The employee is not one of the 95 percent offered minimum essential coverage.
- The coverage offered by the employer fails to provide minimum value.
- The policy offered by the employer is not affordable.
For a health care plan to provide minimum value, it must cover at least 60 percent of the total cost of benefits that are reasonably expected to be incurred. A spreadsheet calculator has been made available by the Centers for Medicare & Medicaid Services to help determine minimum value. In addition, employers are allowed to use three easily accessible elements to determine whether the coverage they provide is affordable: W-2 wages, pay rate and the federal poverty line.
Generally, when an employer owes a payment belonging to the first category because 95 percent of workers were not offered coverage, it is $2,000 per full-time employee after the first 30, which are exempt. If coverage is offered to 95 percent of workers but some receive premium tax credits, the fee is $3,000 per employee receiving the credit.
Essential Health Benefits
Because the goal of the Affordable Care Act is to ensure that all U.S. citizens and residents have access to affordable health insurance, the act mandates that plans, including those offered by employers, provide what are called essential health benefits. These benefits must be offered without any dollar limits, and they were chosen because they are the basic services required to treat and prevent illnesses.
All major health care policies in small-group plans, on the Health Insurance Marketplace and from the government, such as Medicaid and Medicare, are required to offer these services without regard to cost. Large employers, however, may still meet the employer mandate with grandfathered plans that may not necessarily provide all the listed essential health benefits.
The essential health benefits outlined in the Affordable Care Act are as follows:
- Outpatient care – Also known as ambulatory services, outpatient care is provided without requiring admittance to a hospital. This includes doctor’s office visits, clinic visits, outpatient surgery and home health services.
- Emergency services – Trips to the emergency room, whether by ambulance or not, for serious or severe conditions are covered. There can be no out-of-network penalties for these services.
- Inpatient care – Treatments requiring admittance to a hospital are required coverage and include care from all levels of health care staff, laboratory tests, pharmaceuticals, and room and board.
- Maternity care – Prenatal care, maternity care and care for newborn babies are considered essential health benefits.
- Mental health services – Mental health care, whether inpatient or outpatient, is covered as an essential benefit. These services include counseling, psychotherapy and addiction treatment.
- Prescription drugs – Medications that require a prescription written by a doctor or nurse practitioner are covered as essential benefits, but some prescriptions not deemed vital are excluded.
- Rehabilitation – Rehabilitative services are those that help children or adults recover skills they once had but lost because of a medical condition or illness, such as speech, walking and other motor skills.
- Laboratory services – Laboratory testing that is required by doctors for diagnosing illnesses and injuries is considered an essential benefit.
- Pediatric services – Care for children and infants, including vaccinations, immunizations, dental and vision, must be available for anyone under 19 years of age.
- Preventative care – Preventative services and treatment for chronic conditions must be available.
While most of the essential health benefits can be made available through cost sharing, some preventative services must be offered with no out-of-pocket costs for covered individuals.
Grandfathered Health Plans
Many large employers benefit from having had an established health care plan for employees in place before March 2010, which was when Obamacare was signed into law. Job-based grandfathered plans remain viable as long as there have been no significant changes to the benefits and services provided to covered individuals or to the terms of the policy. Such changes include changing or eliminating benefits, increasing co-insurance payments and increasing fixed-dollar cost sharing.
This provision was originally put in place to preserve the rights of consumers to keep their existing coverage, which was made clear in President Obama’s campaign promises. Grandfathered plans, however, have been largely eliminated because insurance companies have needed to alter their offerings.
Small Business Health Options Program
The Small Business Health Options Program, or SHOP, is made available to all employers with fewer than 50 full-time and full-time-equivalent employees who would like to provide affordable health care to personnel. SHOP is basically an extension of the Health Insurance Marketplace, and it is a valuable tool for comparing high-quality coverage and increasing the purchasing power of small groups. SHOP enrollment can be completed throughout the year, and under certain conditions, an employer with 26 to 50 employees may take advantage of the small business tax credits offered by the Affordable Care Act.
Small Business Tax Credits
Businesses that employ fewer than 25 full-time employees and pay annual wages averaging less than $50,000 per employee may qualify for small business tax credits to offset the cost of health care coverage. The employer must pay at least 50 percent of the policy premiums, and the amount of the credit may total up to 50 percent of the employer’s share for individual insurance plans.
Employer Health Care Arrangements
Employers who opt to provide employees with reimbursement for purchasing their own health care plans rather than offering a group plan may be faced with penalties as these reimbursement plans are considered group plans under the Affordable Care Act. This is explained in more detail in IRS Notice 2013-54, which clarifies that employers are subject to a $100 per day per employee excise tax when these arrangements do not meet ACA stipulations.
Summary of Benefits and Coverage
All employers offering health care to workers must provide each covered employee with a summary of their benefits and coverage to help them understand their insurance. The summary must be written in clear and concise language and accompanied by a uniform glossary of terms. The summary is also meant to be used as a comparative tool in choosing different coverage options, and it must be made available when shopping for new coverage, when enrolling in a plan, at the beginning of each plan year and within seven days of requesting a copy from the insurer or group-plan administrator.
The glossary of terms that accompanies the summary includes the jargon commonly used by insurance companies and others when discussing health insurance. Copies of the glossary must be provided upon request, but they can also be obtained online at HealthCare.gov.
One of the largest provisions in the Affordable Care Act regarding employers concerns information reporting. ALEs must provide the IRS and all full-time employees with information regarding the health care coverage they offer to workers. This reporting was deemed necessary for the administration of employer-related provisions of the act and to determine if employees denying workplace plans are eligible for premium tax credits.
Employers are required to complete IRS Form 1095-B or Form 1095-C for each full-time employee, and if 250 or more of these forms need to be submitted, it must be done electronically. The most important information required on these forms is as follows:
- Employer name, address and employer identification number (EID)
- Name, address and phone number of the employer’s insurance administrator
- Certification that the employer offered all full-time employees a chance to enroll in a plan providing minimum essential coverage
- Share of monthly premiums paid by each employee
- Name, address and tax ID of each full-time employee
In addition, some of the information must be reported using standardized indicator codes:
- Coverage provides minimum value
- Total number of employees each month
- Waiting periods and how they affect the date of coverage
- Designation of the employer as part of an aggregated group and EID numbers for all other members of the group
- Name, address and ID number of third-party reporting agencies
Some information is prohibited from being reported according to Section 6056 of the ACA:
- Length of waiting period
- Employer’s share of the costs of benefits
- Monthly premium for the lowest-cost option in each category of coverage
- Months when each employee’s dependents were covered
Maximum Waiting Period
The effective date of coverage under employer plans may be subject to a waiting period for new employees, employees who are enrolling for the first time and employees changing health plan enrollment, but it may not exceed 90 days. Some exceptions to this provision are in place, but they are null and void if it is found they are used only for avoiding compliance with the 90-day rule.
Complying with all provisions of the Affordable Care Act is complex and time consuming, and those who are not familiar with it may make mistakes along the way. The most effective and efficient way around this is to use a staffing agency to handle all compliance and reporting rather than having it done in house. We specialize in providing a turn-key solution for staffing: handling payroll, relocation and compliance (including navigating the Affordable Care Act) all for a simple flat hourly rate. Call us at 855-WE-STAFF to find out more today.