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Affordable Care Act Frequently Asked Questions:

What are the Employer Shared Responsibility provisions?

For 2015 and after, employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) will be subject to the Employer Shared Responsibility provisions under section 4980H of the Internal Revenue Code (added to the Code by the Affordable Care Act). As defined by the statute, a full-time employee is an individual employed on average at least 30 hours of service per week. An employer that meets the 50 full-time employee threshold is referred to as an applicable large employer. 

Under the Employer Shared Responsibility provisions, if these employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents), the employer may be subject to an Employer Shared Responsibility payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called a Health Insurance Marketplace (Marketplace).

When do the Employer Shared Responsibility provisions go into effect?

The Employer Shared Responsibility provisions generally are not effective until Jan. 1, 2015, meaning that no Employer Shared Responsibility payments will be assessed for 2014. Employers can use information about the number of employees they employ and their hours of service during 2014 to determine whether they employ enough employees to be an applicable large employer for 2015. 

Under what circumstances will an employer owe an Employer Shared Responsibility payment?

For 2015 and after, an applicable large employer will be liable for an Employer Shared Responsibility payment only if:

(a) The employer does not offer health coverage or offers coverage to fewer than 95% of its full-time employees and the dependents of those employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace;
OR
(b) The employer offers health coverage to all or at least 95% of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value.

For 2015 transition relief for certain employers with fewer than 100 full-time employees (including full-time equivalents), and relief for all other employers with respect to the percentage of full-time employees to whom coverage must be offered to avoid the payment described in paragraph (a) above. 

How does an employer know whether the coverage it offers is affordable?

If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee. Because employers generally will not know their employees’ household incomes, employers can take advantage of one or more of the three affordability safe harbors set forth in the final regulations that are based on information the employer will have available, such as the employee’s Form W-2 wages or the employee’s rate of pay. If an employer meets the requirements of any of these safe harbors, the offer of coverage will be deemed affordable for purposes of the Employer Shared Responsibility provisions regardless of whether it was affordable to the employee for purposes of the premium tax credit.

The three affordability safe harbors are (1) the Form W-2 wages safe harbor, (2) the rate of pay safe harbor, and (3) the federal poverty line safe harbor. These safe harbors are all optional. An employer may use one or more of the safe harbors only if the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that provides minimum value for the self-only coverage offered to the employee. An employer may choose to use one or more of the safe harbors for all of its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category. If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost self-only option available to the employee that also meets the minimum value requirement.

The Form W-2 wages safe harbor generally is based on the amount of wages paid to the employee that are reported in Box 1 of that employee’s Form W-2. The rate of pay safe harbor generally is based on the employee’s rate of pay at the beginning of the coverage period, with adjustments permitted, for an hourly employee, if the rate of pay is decreased (but not if the rate of pay is increased). The federal poverty line safe harbor generally treats coverage as affordable if the employee contribution for the year does not exceed 9.5% of the federal poverty line for a single individual for the applicable calendar year. 

How does an employer know whether the coverage it offers provides minimum value?

A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. The Department of Health and Human Services (HHS) and the IRS have produced a minimum value calculator. By entering certain information about the plan, such as deductibles and co-pays, into the calculator employers can get a determination as to whether the plan provides minimum value. Generally your Healthcare provider should be able to verify if you plan meets this requirement.

 What is the individual shared responsibility provision?

Under the Affordable Care Act, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have qualifying health care coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. The forms for reporting coverage, exemptions or making a payment with the federal income tax return can all be prepared and filed electronically.

 Who is subject to the individual shared responsibility provision?

The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

When does the individual shared responsibility provision go into effect?

The provision went into effect on Jan. 1, 2014. It applies to each month in the calendar year. 

Why does this information need to be reported to the IRS?

The information reported to the IRS under section 6055 will be used to verify that the individual has been provided with MEC and has satisfied the individual mandate for the prior calendar year. Responsible individuals will use this information to avoid paying an additional tax when they prepare their tax returns.

When does the information need to be submitted to the IRS?

The insurers (in the case of fully insured group plans) and employers or other sponsors (in the case of self-funded plans) must make annual filings to the IRS and furnish statements to individuals reflecting the months during the preceding calendar year that an individual and his or her dependents had at least “minimum essential coverage” under the group health plan. Reporting will begin in 2016 for the 2015 calendar year. Reports are due to the IRS by February 28, 2016 or March 31, 2016 (if electronic).

An applicable large employer has a policy year plan that renewed on May 1, 2015. Since the plan
does not renew on a calendar year, would the 6055 and 6056 reporting requirements begin on
May 1, 2016 or January 1, 2016?

Section 6055 and 6056 reporting is based on the tax (calendar) year regardless of a plan’s policy year.

If I offer affordable health care to an employee, but he declines and goes through the exchange, will I still be fined?

Not if you meet the affordability standard and minimum essential coverage requirements (4980H(a)
and (b), referred to as the “A and B requirements”). As long as the employer offers both affordable
and minimum-value coverage, the employer will not be fined if the employee elects to enroll in
health coverage through another venue such as the exchanges. In this case, if the employee is full time,
he/she would not receive any assistance/subsidy for the exchange because affordable minimum value coverage is available through his/her employer.
 
Are variable pay employees (i.e., full-time sales personnel who are paid on draws/commissions and able to select medical benefits) considered exceptions?

There are specific safe harbors to determine status of employees with optional measurement periods, preceding a stability period. If an employee is deemed full-time during a measurement period, he/she must be treated as a full-time employee and offered coverage, regardless of what occurs with salary or hours worked, during the entire stability period.