The Affordable Care Act (ACA) is broad and dense. Few people have read it in its entirety, and fewer still have the expertise to understand all its elements. Much of the law has to do with new requirements for employers, including additional administrative burdens required for compliance. Given the demands of the law—including already passed and upcoming deadlines—executive leadership needs a blueprint for ACA compliance.
Here are some concerns to keep in mind
As an Applicable Large Employer (a business with 50 or more full-time plus full-time equivalent employees, ACA compliance requirements present several direct concerns to executives:
- Employer Shared Responsibility: The ACA defines “full-time” employees as those having 30 hours of service/week. Your business must offer group medical benefits to at least 70% of the full-time employees or face financial penalties. This percentage will increase to 95% in 2016.
- Minimum Value: The medical plan(s) you offer must cover at least, on average, 60% of an employee’s medical expenses. This is known as the minimum value requirement under the ACA.
- Affordable: The cost of coverage cannot exceed 9.5% of the employee’s annual household income. Several different “safe harbors” based on the employee’s Form W-2 wages, the employee’s rate of pay or a calculation based on the Federal Poverty Line are available to employers in order to show affordability.
Failing to comply with these mandates invites significant penalties for the employer:
Employers who fail to comply with the ACA’s Employer Shared Responsibility mandates are subject to costly penalties:
- Employer Shared Responsibility – If your business does not offer medical insurance to at least 70% of its ACA full-time employees in 2015 (the number increases to 95% in 2016), your business will be assessed $2,000 for each full-time employee who obtains a tax credit subsidy for purchasing coverage in a public exchange. In 2015, employers get to subtract 80 from the total number of full-time employees in calculating the penalty (in 2016, employers get to subtract 30 from the total number of full-time employees in calculating the penalty). .
- Issues of Adequacy and Affordability – If the lowest cost individual plan you offer does not meet the tests for adequacy (minimum value) and affordability, you will pay a penalty. Your business will be assessed $3,000 per full-time employee who receives a subsidy. This penalty cannot exceed the penalty described above.
You must act now to create a blueprint for implementation that simplifies the process, meets the compliance needs, serves your employees well, and benefits from the best intent of the Affordable Care Act.