Under the Affordable Care Act (ACA), all employers that are “applicable large employers” (ALE) including for-profit, non-profit and government entities, are subject to the Employer Shared Responsibility provisions, also known as the “employer mandate.”
Therefore, starting in 2015, if an ALE does not offer affordable health insurance that provides a minimum value of coverage to full-time employees (and their dependents), the ALE may be subject to a penalty payment. Also, effective in 2015, an ALE is required to file information returns with the IRS and provide statements to its full-time employees about the health insurance coverage offered to them.
You are an ALE if you employ 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).
For employers that employ on average at least 50 full-time employees, but fewer than 100 full-time employees on business days during 2014, and that meet certain other conditions, no Employer Shared Responsibility payment will apply until 2016. For employers with non-calendar-year health plans, this transition relief applies to any calendar month during the 2015 plan year, including months during the 2015 plan year that fall in 2016.
An employer identifies its full-time employees based on each employee’s hours of service. An employee is generally considered a full-time employee for a calendar month if he or she averages at least 30 hours of service per week.
If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.56 percent 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. Most employers will likely use the employee’s W-2 for the calculation.
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, but usually the health insurance company will provide assurance of this value.
The ACA also requires an ALE to file information returns with the IRS and provide statements to its full-time employees about the health insurance coverage the employer offered. The IRS will use the information provided on the information return to administer the Employer Shared Responsibility provisions of the ACA. The IRS and the employees of an ALE will use the information provided as part of the determination of whether an employee is eligible for the premium tax credit.
An ALE that sponsors a self-insured group health plan is also required to report information about the health coverage it provides. Combined reporting is permitted by an ALE reporting both as an ALE and as the provider of a self-insured plan.
An ALE must file information returns with the IRS and furnish statements to employees beginning in 2016 to report information about its offers of health coverage to its full-time employees for calendar year 2015. However, in preparation for the application of the Employer Shared Responsibility provisions beginning in 2015, employers and other affected entities may comply voluntarily for 2014 with the information reporting provisions and are encouraged to maintain or expand coverage in 2014. Returns filed voluntarily will have no impact on the employer’s tax liability.
In general, each ALE may satisfy the information reporting requirement by filing a Form 1094-C (transmittal) and, for each full-time employee, a Form 1095-C (employee statement), or other forms the IRS may designate. An ALE that maintains a self-insured plan may also complete Part III of Form 1095-C to satisfy the additional reporting requirements for self-insured plans. Alternative reporting methods for an eligible ALE are available.
An ALE is required to report information about the health coverage, if any, offered to its full-time employees, including whether an offer of health coverage was (or was not) made. This requirement applies to each ALE, regardless of whether it offered health coverage to all, none, or some of its full-time employees. Therefore, even if an ALE does not offer coverage to any of its full-time employees, it must file returns with the IRS and furnish statements to each of its full-time employees to report information specifying that coverage was not offered.
The vast majority of businesses fall below the threshold that makes them subject to the Employer Shared Responsibility provisions. However, for an ALE, 2015 is a significant year in the implementation of the Affordable Care Act. This letter provides highlights of the Employer Shared Responsibility provisions. If you have additional questions related to identifying full-time employees, whether or not you are eligible under the transition rules, the role of dependent coverage, or details on minimum value, please call our office.