Some people think that the Affordable Care Act will
somehow magically fall apart or disappear. While it might not remain completely intact, it’s probably here to stay—and business owners still need to comply with mandates as they become increasingly relevant over the next two years.
Failure to comply could have serious consequences, including costly fines and visits from the IRS. So if your organization employs fifty or more Full-Time Equivalents (FTEs), you need to understand your position, obligation, and strategy. Most important, you need to be capable of producing reports that prove compliance with the following mandates:
Obligation (originally 2014/delayed to 2015):
All employers with fifty or more FTEs must provide health insurance to a minimum of 95% of their full-time staff (those working an average of 30 hours per week or more), and their dependents up to age twenty-six. Non-compliance means facing a fine of $2000 per employee, per year, excluding the first 30 employees counted (e.g. 70 Full-Time Equivalents – 30 = 40 x $2000 = $80,000 per year). This is part of the Employer Shared Responsibility Provision.
Full-Time Equivalents (FTEs):
As an employer, you may classify employees as:
- Full-time: Those who work an average of 30 hours or more per week or 1560 hours per year.
- Part-time: Those who work less than an average of 30 hours per week or 1560 hours per year during a set measurement period.
- Variable-hour: Those who alternate between full and part-time.
Employees classified as full-time equate to one FTE. But the calculation for part-time and variable-hour employees isn’t so simple. For the full-time equivalency of each of the part-time and variable hour folks, employers need to divide each month’s hours worked by 120, while assuming a maximum value of one. Here’s an example:
Company ABC has 47 full-time employees, 1 part-time employee, and 6 variable-hour employees. How many FTEs does Company ABC have?
Answer: Company ABC must look at averages over a set measurement period (which is determined by the employer to be from between 90 days to one year). All full-time employees count as 1 FTE while all part-time and variable-hour employees will need to be measured independently from one another as follows:
Total Hours Worked Per Month By a Specific Variable Hour or Part-Time Employee
Obviously, the calculated value needs to be limited to 1 full unit or 1 FTE. All values need to be summed and averaged to get your Full-Time Equivalent total. If that total is fifty or greater, the employer is subject to the Employer Mandate and potential financial penalties.
All variable-hour employees who average more than 30 hours per week during the measurement period must be added to “affordable” company-sponsored health insurance within a 30-60 day window. This is called the administrative period.
Like the measurement period, the length of the administrative period is chosen by the employer: either 30 or 60 days. All variable-hour employees will immediately begin their stability period (which must be at least as long as the measurement period) upon enrollment into benefits.
Affordable and Minimum Value Coverage
Employers are obligated to ensure that they are providing “affordable” and “minimum value” coverage. So what is affordable and what is minimum value?
Affordable means less than 9.5% of an employee’s adjusted gross income for single coverage. Minimum value plans are defined as those covering a minimum of 60% of the actuarial value of claims.
In a Nutshell
If your head is spinning, join the crowd. At a minimum, any business that employs 50 or more people needs to have systems and information databases in place to produce the 6055 and 6056 reports due at the end of the first quarter of 2016. IRS audits of employers’ health plans will likely begin in 2015 and 2016 in response to subsidies being granted on state exchanges to employees who qualify financially.
Math, math, and more math means data, data, and more data. Your company must be capable of reporting and producing accurate data quickly. Are you ready?
Do you have a question for us about ACA compliance? Give us a call at 317-587-1019.
If you’d like to learn more about what the Affordable Care Act might mean for your business, check out this video explaining what you should know from an information, technology, and overall compliance viewpoint.
And for more information on navigating the murky waters of ACA, download our latest presentation.