Prepare for the employer mandate of the Affordable Care Act

by DLA Piper
Contact

Effective January 1, 2015, you could face tax penalties under the employer shared responsibility rules of the Affordable Care Act (ACA) if you fail to offer health care coverage to your full-time employees and their dependents. These 10 questions will help you determine your company’s risk.

1.                  What is the employer mandate?
Nothing in the ACA requires an employer to offer its employees group health coverage. However, certain large employers will have to pay tax penalties in 2015 under the employer shared responsibility rules if they fail to offer coverage to their full-time employees and their dependents. A large employer will either elect to "play" by providing affordable minimum essential health coverage to full-time employees and their dependents or will "pay" a penalty.

2.                  When is the employer mandate effective?
Final rules issued in February 2014 say that the employer mandate is effective on January 1, 2015, for calendar year plans of employers with 100 or more full-time equivalent employees. The employer mandate is delayed until 2016 for employers with 50 to 99 full-time equivalent employees.

3.                  Who is subject to the mandate?
The new rules will apply in 2015 to employers with at least 100 full-time employees or an equivalent combination of full-time and part-time employees. As noted above, the rules will apply in 2016 to employers with 50 to 99 full-time equivalent employees. To determine whether an employer is a large employer for the current year, look at all hours worked by all employees of the employer in the prior year.

In determining whether a company is a large employer, add together employees of entities that are part of a group of trades or businesses considered a single employer under the controlled group rules of the Internal Revenue Code. All employers with a common owner or which are otherwise related under the controlled group rules must be counted together to determine large employer status.

4.                  Who must be offered coverage?
Large employers will need to offer coverage to full-time employees and their dependents in order to avoid penalties. No penalty applies for failing to offer coverage to part-time employees or to spouses.

5.                  Which employees are considered full-time employees?
The ACA generally treats anyone employed by an employer for an average of 30 or more hours a week as a full-time employee. An employee's hours of service include hours when the employee actually performs duties, as well as hours for which the employee is paid but does not actually perform duties, such as vacation, disability and leaves of absence.

6.                  Who are considered dependents?
A dependent is an employee's child under age 26. The term dependent does not include the spouse of an employee. An employer does not have to contribute toward dependent coverage.

7.                  How does an employer handle variable hour employees?
For companies with employees who work a variable schedule, the IRS has provided some optional safe harbors to use to determine whether an employee is full time. The IRS safe harbor approach involves a look-back period during which you measure an employee's hours of service; an administrative period during which you identify which employees qualify as a full-time; and a stability period during which those employees must be offered coverage. The way an employer applies the safe harbors differs slightly depending on whether the employee is a new employee or an ongoing employee.

8.                  What penalties will apply to large employers who do not provide adequate coverage?
One penalty applies to large employers that do not offer minimum essential health coverage to substantially all full-time employees and their dependents. Final rules issued in February 2014 indicate that large employers with 100 or more full-time equivalent employees will need to offer coverage to at least 70 percent of full-time employees and their dependents in 2015, and 95 percent in 2016 and beyond. The no coverage penalty is equal to $2,000 annually for each full-time employee, not counting the first 30 full-time employees (80 in 2015), if at least one full-time employee receives a subsidy to buy coverage on a government insurance exchange.

Another, smaller penalty applies to large employers that offer coverage, if the coverage is unaffordable or does not provide minimum value. The inadequate coverage penalty is $3,000 annually for each full-time employee who actually receives a premium tax credit to purchase coverage through a government insurance exchange.

9.                  What kind of coverage must a large employer provide to comply with the employer mandate?
Coverage must provide minimum value and must be affordable. To provide minimum value, a plan must provide for at least 60 percent of the covered health expenses for a typical population. Coverage is affordable if the employee portion of the premium for self-only coverage does not exceed 9.5 percent of the employee's income.

10.              What steps should an employer take now?

  • Figure out whether your business is subject to the employer mandate, and if so, whether it applies in 2015 or 2016.
  • If your company decides to offer coverage, figure out whether your plan offers coverage to substantially all full-time employees and their dependents.
  • Figure out whether your coverage is affordable and provides minimum value.
  • Review plan terms for 2014 compliance, because new insurance protections became effective for 2014.
  • Amend plan documents to reflect plan design, and review and update service provider agreements.
  • Prepare and distribute employee communications about your decision.
  • Pay required fees applicable to health plans.
  • Keep good records and plan for new health care reporting to the government and to employees.
  • Involve interested constituencies within your company in ACA planning (such as payroll, benefits, legal, HR, finance).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper
Contact
more
less

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!