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Affordable Care Act:Frequently Asked Questions and Defined Terms for EmployersOriginal publication: May 2013Update: June 2014

Prepared for:

General Information

Q-1: What is the Affordable Care Act (“ACA”)?

A-1: The ACA was enacted into law on March 23, 2010, with the primary goals of ensuring that affordable health insurance coverage is available to all Americans and lowering the overall cost of health care in the U.S. The key ACA provisions that affect employers and their workforce include:

1. An “individual mandate” that requires individuals to obtain health insurance coverage or pay a penalty tax beginning in 2014.

2. The creation of “Exchanges” (also referred to as the “Health Insurance Marketplace”) to help provide individuals with accessible and affordable (Q&A-39) health insurance coverage.

3. Government-provided premium tax credits and cost sharing subsidies for certain eligible individuals who purchase health care coverage through an Exchange, including employees whose employer fails to offer affordable health care coverage that meets a minimum value standard (Q&A-42) beginning in 2014.

4. The optional state expansion of Medicaid for individuals up to 138% of the federal poverty level.

5. An “employer mandate” that requires “large employers” to offer their full-time employees affordable health care coverage or potentially pay an excise tax penalty (referred to as the “employer shared responsibility excise tax”) beginning in 2015.

6. Employer filings and information reporting beginning in 2016 for information dating from January 1, 2015.

7. Other taxes and fees imposed on health insurance plans. 1

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.


Q-2: When is the ACA effective?

A-2: While certain provisions became effective earlier, key provisions of the ACA for individuals became effective January 1, 2014. Key provisions affecting employers were delayed to January 1, 2015 in order to give employers and the government more time to plan for implementation. The Administration issued final regulations regarding the employer shared responsibility excise tax and the information reporting requirements. Employers now have all of the necessary regulatory guidance to implement the rules affecting employers that go into effect in 2015.

Q-3: Which government agencies oversee and enforce the ACA?

A-3: Three Federal government agencies are responsible for enforcing the ACA: (1) the Department of Health and Human Services (specifically, the Center for Consumer Information & Insurance Oversight), (2) the Department of Treasury (specifically, the Internal Revenue Service), and (3) the Department of Labor (specifically, the Employee Benefits Security Administration).

The Individual Mandate

Q-4: What is the ACA’s “individual mandate”?

A-4: Beginning in 2014, all individuals, with a few exceptions, are required to maintain “minimum essential coverage” (MEC) for themselves and their families. The requirement to obtain MEC – the so-called “individual mandate” – was the subject of the U.S. Supreme Court’s review of the ACA, which the Court determined to be constitutional under Congress’ power to tax. Consequently, individuals who fail to purchase health insurance that is MEC will be subject to a tax penalty for each month they do not obtain such coverage. The individual mandate was not delayed.

Q-5: What is minimum essential coverage (MEC)?

A-5: MEC includes government coverage, such as Medicare or Medicaid, individual coverage, and most employer-sponsored coverage. If the individual is employed and the employer offers group health coverage, the

2This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

http://www.dol.gov/ebsa/healthreform/

http://www.dol.gov/ebsa/healthreform/

http://www.irs.gov/uac/Legal-Guidance-for-Group-Health-Plan-Requirements

http://www.irs.gov/uac/Legal-Guidance-for-Group-Health-Plan-Requirements

http://cciio.cms.gov/programs/marketreforms/index.html

http://cciio.cms.gov/programs/marketreforms/index.html


individual mandate can be satisfied by enrolling in the employer’s health care plan.

Q-6: Is my business required to offer health care coverage to my employees?

A-6: The ACA does not require any business to offer health care coverage to its employees. However, if your business is considered a “large employer,” you may be subject to an excise tax beginning in 2015 if you fail to offer affordable coverage that meets a minimum value requirement. (See Q&A-20 and Q&As–37, 38)

Q-7: Are all individuals without MEC subject to the individual mandate excise tax?

A-7: No, there are a number of exemptions. For example, family members of an employee who is offered affordable self-only (employee only) coverage will not incur individual mandate tax penalties if the employee's premium share for family coverage exceeds 8% of household income and the family members do not enroll in the coverage.

Q-8: What is the amount of the individual mandate excise tax with respect to an individual who fails to obtain MEC?

A-8: The amount of the excise tax is based on a formula. For each month in which the individual does not have MEC (and does not meet an exception) the monthly penalty amount is equal to 1/12 of the greater of (1) the flat dollar amount or (2) the percentage of income amount. For 2014, the flat dollar amount is $95 and the percentage of income amount is 1% of the individual’s household income in excess of his or her Federal income tax return filing threshold. The amount of the individual mandate excise tax increases each year after 2014. In 2015, the flat dollar amount is $325 and the percentage of income amount is 2% of household income, and increases each year thereafter. In total, however, the annual excise tax cannot exceed the dollar amount of the national premium for a “bronze level” health plan sold in the Exchanges for a family of the same size as the individual’s.

State or Federal Health Insurance Exchanges



Q-9: What is a health insurance Exchange?

A-9: A health insurance Exchange provides a structured marketplace for the sale and purchase of health insurance. “State Exchanges” are Exchanges established by a state itself. “Federal-Facilitated Exchanges” are established by the Secretary of Health and Human Services, often either in partnership with the state or to supplement in cases where the state opts not to establish an Exchange.

An Exchange’s primary function involves determining individual eligibility and plan enrollment, assisting consumers and taxpayers, plan management, consumer assistance and accountability, and financial management. The Exchanges will also determine whether the individual is eligible for an advanced payment of the premium tax credit to purchase insurance (Q&A 13).

The Exchanges’ open enrollment period was from October 1, 2013 through March 31, 2014 for enrollment in coverage for 2014; the Exchanges open enrollment period will be November 15, 2014 through February 15, 2015 for enrollment in coverage for 2015. Individuals who fail to enroll in coverage during the open enrollment period will be eligible to enroll during the year only if they qualify for a special enrollment period.

Q-10: Who is eligible to participate or purchase health insurance from an

Exchange?

A-10: Generally, all individuals who are U.S. citizens, U.S. nationals, or non-citizen residents who are legally in the U.S. are eligible to purchase health insurance from the Exchange.

Q-11: Does an individual also have to be eligible for a premium tax credit to purchase health insurance from an Exchange?

A-11: No, an individual does not need to be eligible for, nor use, a premium tax credit to purchase health insurance from an Exchange.

Q-12: What is a “SHOP” Exchange?

A-12: “SHOP” is an acronym for “Small Business Health Option Program” Exchange. It is an Exchange for small businesses and has responsibilities



similar to an individual Exchange in that it is also responsible for collecting and verifying information from employers and employees, determining eligibility, and facilitating enrollment. A small business for these purposes is generally an employer with 100 or fewer employees, although states have an option before January 1, 2016 to define a small business as having 50 or fewer employees. (Beginning in 2017, each state may allow large employers to participate in SHOP Exchanges).

Federal Premium Tax Credit and Cost Sharing Subsidies

Q-13: What is the premium tax credit (PTC) and Federal cost sharing subsidy?

A-13: The PTC is a refundable government tax credit intended to enable low and moderate income taxpayers to purchase individual health care coverage on an Exchange (see Q&As-9 - 11). Unlike other government tax credits, from which taxpayers benefit only when they file their federal income tax return, the PTC is an “advance” credit that an eligible individual can claim in advance of filing his or her return, and that is paid directly to the taxpayer’s insurer to offset the taxpayer’s cost of coverage.

The cost-sharing subsidy reduces an individual’s out-of-pocket costs for health care deductibles, co-payments, co-insurance, and other amounts.

Q-14: Who is eligible for the PTC and cost-sharing subsidy?

A-14: To be eligible for the PTC, an individual must have “household income” between 100% and 400% of the federal poverty level; to be eligible for the cost-sharing subsidy, an individual must have “household income” below 250% of the federal poverty level. Individuals who are eligible to receive MEC from another source generally will not be eligible for the PTC or the cost sharing subsidy. For example, if an employee is offered employer-sponsored health care coverage, the employee is eligible to purchase coverage through an Exchange with the benefit of a PTC (and cost-sharing subsidy, if otherwise eligible) only if the offer of self-only employer coverage is not affordable or fails to meet the minimum value requirements. The mere eligibility for affordable self-only employer-sponsored minimum value coverage will prevent the employee from being eligible for the credit, even if the employee declines to enroll in the employer plan.



Note that if an employee is offered affordable self-only health care coverage by his or her employer, the employee and any of the employee’s family members who are offered coverage by the employer will not be eligible for premium tax credits to purchase Exchange coverage, regardless of the employee premium cost amount for family coverage under the employer’s plan.

Q-15: What happens if an individual receives an advanced payment of the PTC but it is later determined that the amount of the PTC exceeds the tax credit to which the individual was entitled?

A-15: If the advance payment of the PTC exceeds the permitted tax credit, the individual will be liable for an additional tax equal to the excess. In certain cases when the advance payment of the PTC exceeds the allowable tax credit, the amount owed by the individual may be capped.

Q-16: How will the Exchange know if a business has offered a particular employee affordable, minimum value coverage under a company group health plan, making the employee ineligible for the PTC?

A-16: The Exchange or other entity administrating the PTC program will generally have received information regarding an employee’s household income from the IRS. The employee is required to provide the Exchange with information about the offer of employer-sponsored coverage, the cost of the coverage and whether the coverage meets the minimum value standard. It is important that all large employers provide their employees with the necessary information regarding the employers’ sponsored health care plan, so that the Exchanges can make a decision whether an employee is eligible for an advanced payment of the PTC. The ACA also amended the Fair Labor Standards Act (FLSA) to require employers to disclose certain information to their employees on the employers’ health plan coverage options.

The Department of Health and Human Services has published a template that employers may complete to satisfy the FLSA obligation, which includes the information employees will need to provide the Exchanges. Going forward, employers must provide this information at the time of hiring the employee.



Q-17: Will the Exchanges notify businesses if they determine that an employee is eligible to purchase coverage through the Exchange with the advance payment of the PTC?

A-17: Regulations state that the Exchanges are to notify an employer when they make the determination that its employee is eligible to purchase coverage through the Exchange with an advance payment of the PTC. An employer will have 90 days to appeal the notice if the employer believes that the Exchange has authorized the advanced payment of the PTC in error, such as may be the case if the employer is offering affordable self-only coverage (that also meets the minimum value requirements). An employer will have an interest in responding to the notice with an appeal for at least two reasons. First, the employer may want to ensure that the employee will not become subject to an additional income tax liability at the end of the year equal to the amount by which the advance payment of the PTC exceeded the allowable PTC (or some lesser capped amount). Second, beginning in 2015, the employer may want to mitigate the possibility that the IRS may erroneously assess the employer with an excise tax, should a notice be received when the employer believes it has offered MEC that meets the affordability and minimum value standards. (See Q&A-19 and Q&As–37,38 regarding the Employer Shared Responsibility excise tax). Because the employer shared responsibility excise tax was delayed until 2015, the Exchanges have not found an urgent need to issue the notices this year and have done so only in rare circumstances. For the Exchanges’ open enrollment period beginning November 15, 2014 for 2015 coverage, it is expected that the Exchanges will be providing employer notices.

Q-18: What impact do the ACA’s Medicaid expansion rules have on a company’s workforce and their ability to obtain a PTC?

A-18: The ACA expanded adults’ eligibility for Medicaid. Under the ACA, some working adults may be eligible for Medicaid if their household income is as high as 138% of the federal poverty level. However, each state has a choice whether to expand Medicaid to this higher threshold. Lower wage employees’ eligibility for Medicaid will depend in part on the states in which a company does business and the employees reside, and whether those states are choosing to expand Medicaid. If an employee is eligible for Medicaid, the employee is not eligible for a PTC. The expansion of Medicaid is not delayed.



Employer Shared Responsibility Excise Tax

Q-19: What is the “employer shared responsibility excise tax” under the ACA?

A-19: The employer shared responsibility excise tax is sometimes referred to as the “employer mandate” or the “play or pay” provision. The requirements related to this excise tax are effective January 1, 2015.

This employer shared responsibility excise tax applies to any “large employer” and essentially has two prongs:

First, if a large employer does not offer MEC to at least 95% (70% in 2015) of its full-time employees and their dependents, and at least one full-time employee receives a PTC (which is discussed in Q&As-13, 18), then the employer will face a monthly excise tax equal to $167 (up to $2,000 annually) multiplied by the total number of full-time employees, minus the first 30 full-time employees (minus the first 80 full-time employees in 2015).

Second, if a large employer does offer MEC to full-time employees and their dependents, but the coverage is “unaffordable” or does not provide a “minimum value,” the employer may face a monthly excise tax equal to $250 (up to $3,000 annually) multiplied by the number of full time employees receiving a PTC. This excise tax can never be greater than the annual $2000 per employee excise tax described above.

An employer’s status as a “large employer” is determined on a “controlled group” basis with other related companies (See Q&A-22). However, for purposes of determining the liability for, and assessment of, the two potential excise taxes, the standards apply separately to each member employer of the controlled group comprising the large employer. Each member employer is liable for its own assessed excise tax and is not liable for the excise tax assessed on any other member employer in the controlled group.

Q-20: Who is a “large employer”?8

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.


A-20: A large employer is an employer with an average of 50 or more (100 or more for 2015) full-time equivalent employees. See Q&A-22 for a discussion how the determination of a large employer is made.

Q-21: Who is the “employer” subject to the employer shared responsibility excise tax?

A-21: The ACA and the regulatory guidance provides that the “common law employer” is responsible for offering its employees affordable coverage that meets the minimum value requirement or liable for the excise tax if any full-time employees purchase coverage on an Exchange with the benefit of a PTC. In many circumstances, it will be readily apparent which business is the common law employer. In other circumstances, however, the determination of the common law employer is made under the Internal Revenue Code standard, which weighs the facts and circumstances relating to who controls the employment relationship.

A staffing firm often will be considered the common law employer. Some of the factors to determine whether the staffing firm or the client is the common law employer include:

(i) Responsibility to recruit, screen, hire, fire, and reassign the workers;

(ii) Responsibility for the payment of the workers’ wages and benefits and withholding and payment of the employment taxes;

(iii) Right to control and direct how the workers perform their work (even if actual control is not exercised).

Q-22: How does an employer determine if its business is a “large employer”?

A-22: There are several steps to making this determination:

For purposes of determining who is a large employer, the employer is determined on a “controlled group” basis. This means that companies within the same parent-subsidiary or brother-sister group of companies (whether or not the companies are incorporated), as well as companies within the same “affiliated service group,” may have to be treated as a single employer. Because the ownership structures of related



companies are often complex, especially for large companies, this first step alone may be surprisingly challenging. These common control rules also apply to entities organized as partnerships, LLCs, and unincorporated businesses.

The next step is to determine whether the employer had an average of 50 or more full-time equivalent employees during the preceding calendar year. (For 2015, employers with fewer than 100 full-time equivalent employees are not subject to the employer shared responsibility excise tax requirements.) To make the determination whether the employer had in the preceding calendar year an average of 50 or more full-time equivalent employees (100 or more full-time equivalent employees for the 2015 transition year), in the preceding calendar year, one must:

1. Count the number of employees (including seasonal workers) who worked an average of at least 30 hours per week per month (“full-time employees”) in each month of the preceding calendar year.

2. Convert the non-full-time employees (including seasonal workers) into full-time equivalent employees by aggregating the number of hours worked by the non-full-time employees (including seasonal workers) and dividing by 120.

3. Add the number of full-time employees and full-time equivalent employees for each of the 12 months of the preceding calendar year and divide by 12. This is the number of full-time equivalent employees.

If the average in steps 1 through 3 results in 50 or more, then the employer is a large employer subject to the employer shared responsibility excise tax requirements. There is a further exception, however, for seasonal workers. Under these rules, a business is not a “large employer” if it exceeds 50 full-time employees not more than 120 days or four calendar months during a calendar year, and the employees in excess of the 50 during that period were seasonal workers.



Q-23: Would a business or franchise with 25 employees not be considered a “large employer”?

A-23: Maybe. As indicated in Q&A-22, whether you are a large employer is determined on a “controlled group” basis. This means that for purposes of determining your large employer status, you will have to count the number of full-time employees in your own individual business/division/franchise as well as other businesses that are considered part of the same controlled group or affiliated service group. The controlled group rules are complex but, in general, they do not allow a business to break up its operations into separate legal entities (all with a number of full time equivalent employees below the threshold) to avoid the application of the large employer rules.

Q-24: Who is considered a “full-time” employee?

A-24: Any employee who works at least an average of 30 hours a week per month (or 130 hours per calendar month) will be considered a full-time employee under the ACA. If a large employer does not offer its full-time employees (and their dependents) coverage, or if the coverage offered is not affordable and having minimum value, the employer may be subject to an excise tax (see Q&A-19 and Q&As-37, 38). For most large employers, identifying their full-time employees will be critical to determining how to address the potential for an assessed excise tax. Employers with large populations of workers who do not perform services on fixed schedules – such as variable hour employees and seasonal employees – face particular challenges. It is possible for workers in these categories to be full-time employees in one month but not in another depending upon their actual work schedules during the year.

Q-25: How are an employee’s “hours of service” determined for purposes of identifying the employee’s full-time status?

A-25: An “hour of service” is defined to include each hour for which an employee is paid, or entitled to payment, for the performance of services for the employer. This includes hours of pay where no duties are performed due to vacation, holiday, illness, incapacity/disability, layoff, jury duty, military duty, or leave of absence.

Certain hours of service do not count for purposes of determining an employee’s full-time status. Hours that do not count include:



Hours of service for employees working outside of the US that do not generate US source income;

Hours of service to the extent that service was performed as part of a Federal Work Study program; and

Hours of service for bona fide volunteers.

Q-26: How does one determine the “hours of service” for employees who are not “paid by the hour”?

A-26: For employees paid on a non-hourly basis, an employer may calculate hours of service by using one of the following methods:

1. Counting the actual hours of service and any hours not worked (paid sick days, for example) for which the employee is entitled to be paid.

2. Using a days-worked equivalency under which you must credit an employee with eight hours for each day in which the employee credited with at least one hour of service.

3. Using a weeks–worked equivalency under which you must credit the employee with 40 hours for each week in which the employee is credited with at least one hour of service.

An employer is not permitted to use the days-worked or weeks-worked equivalencies if the result would substantially understate the hours worked. For example, an employer may not use the days-worked equivalency for an employee who generally works three 10-hour days per week because it would substantially understate the employee’s hours of service per week.

Q-27: What are the methods for identifying full-time employees?

A-27: There are two basic methods to determine an employee’s full-time status: (a) the monthly measurement method, and (b) the look-back measurement method. The rules under both methods can be complex in certain fact patterns and they require significant coordination of payroll information across the different employers in a controlled group and consistency among the different categories of employees within a controlled group.



The monthly measurement method, which tracks employees’ service hours on a month-by-month basis is, in essence, the default rule under section 4980H. The look-back measurement method may be used by employers to determine the full-time status of new variable hour, seasonal, and part-time employees. Employers with a workforce that includes both variable hour and fixed schedule hourly employees will have a key decision to make as to which method to adopt. The two methodologies may present planning opportunities, but they also present recordkeeping and associated technology configuration requirements. The application of the rules is highly fact-specific and without detailed review may contain potential traps for the unprepared. The following questions highlight some of the key operational challenges the rules present.

Q-28: How does an employer determine an employee’s full-time status based on the monthly measurement method?

A-28: Under the monthly measurement method, an employee is a full-time employee for the month if he or she works the requisite number of hours (and therefore, could generate the employer shared responsibility excise tax for that month) even if the employee works less than 30 hours for all other months during the year.

An employer is permitted to determine an employee’s full-time status under the monthly measurement method based on hours worked either in a calendar month or using successive one-week periods (referred to in the regulations as the “weekly rule”). Thus, for certain calendar months, hours of service are counted over four-week periods and, for other calendar months, hours of service are counted over five-week periods. In general, the period measured for the month must contain either the week that includes the first day of the month or the week that includes the last day of the month, but not both. For calendar months using four week periods, an employee with at least 120 hours of service is considered full-time, and for calendar months using five week periods, an employee with at least 150 hours of service is considered full-time. This monthly measurement method, along with the weekly rule for counting hours, presents helpful clarifications compared to the proposed regulations, which required counting only on a strict calendar month basis.

Q-29: It may be challenging to determine on a month-by-month basis who meets the full-time employee definition and, thus, who must be offered



coverage for that same month. How does an employer determine an employee’s full-time status based on a look-back measurement method?

A-29: Employers may use the look-back measurement method to determine the full-time status of new “variable hour employees,” new “seasonal employees,” new “part-time employees,” and all “ongoing employees.” Under the look-back measurement method, the employee’s status is determined by averaging the employee’s hours of service over a 3- to 12-month “measurement period.” The average hours of service provided during this measurement period will then determine if the employee will be treated as having full-time status in a subsequent “stability period.”

The benefit of using the look-back measurement method to test the full-time status of a variable hour or seasonal employee is that employers are not subject to the employer shared responsibility excise taxes during the entire initial measurement period with respect to those employees even if they actually work enough hours to be treated as a full-time employee for purposes of section 4980H. Rather, the employer can wait and treat such employees as full time as of the start and through the end of the stability period (provided that the employee continues to be employed through the stability period).

A disadvantage of the look-back measurement method is that all ongoing employees (i.e., an employee who was employed for at least one complete measurement period) in the same employment category as the new variable hour employees must also be tested based on the look-back measurement with the application of the corresponding stability period. This means that an employer may not adopt the look-back measurement approach to determine the full-time status of variable hour employees, but use the monthly measurement method to determine the full-status of employees in the same employment category with a fixed-hour or more predictable schedule.

The rules for determining who is a full-time employee define the permissible employment categories that may be used to apply different measurement methods. These categories are:

Hourly and salaried employees Collectively bargained and non-collectively bargained employees Employees in different states



Employees working for different employers with the aggregated group of employers

Q-30: How does the “look-back measurement” method work and when may it be used?

A-30: The look-back measurement rules apply differently for newly-hired employees who are tested under the “initial measurement period” and ongoing employees who are tested under the “standard measurement period.” The look-back measurement period must be applied equally to all employees in the same employment categories.

The initial measurement period is designed to permit employers to determine the status of newly-hired variable hour, seasonal, and part-time employees by averaging hours of service over a period of at least three but no more than 12 consecutive months beginning on the employee’s date of hire or a date up to the first of the month thereafter (or first day of the following payroll period, if later). Further, the initial measurement period and the administrative period together cannot extend past the last day of the first calendar month beginning on or after the first anniversary of the employee’s start date. Under this testing method, the employer must provide the employee with a stability period of equal length to the look-back measurement period (but no less than six months) during which the employee retains the employment status determined during the measurement period.

Because newly-hired employees will have different start dates throughout the year, under these rules an employer could easily end up with 12 separate measurement periods (and stability periods) beginning and ending in each calendar year – and this could necessitate detailed tracking and administration to avoid inadvertent failures to offer coverage to these employees when they are determined to be full-time.

The standard measurement period is a period of at least three but not more than 12 consecutive months that a business may select and use to determine whether an “ongoing employee” is full-time. An ongoing employee is one who has been employed by a large employer for at least one complete standard measurement period.



Q-31: What is the “stability period”?

A-31: The stability period is the time period that follows, and is associated with, an initial or standard measurement period. Generally, the stability period may not be shorter than the measurement period and must be at least six calendar months. (The stability period for these newly-hired variable hour and seasonal employees must be the same length as the stability period for ongoing employees.) An employee who is determined to be a full-time employee during the look-back measurement period will retain full-time status for the entire stability period, with limited exceptions.

With respect to a newly-hired variable hour or seasonal employee who has, on average, at least 30 hours of service per week during the initial measurement period, the employer must treat the employee as full-time during the stability period that begins after the initial measurement period and any associated administrative period. If the newly-hired variable hour or seasonal employee does not meet the 30-hour threshold during the initial measurement period, the employer may treat the employee as not full-time during the stability period that follows the initial measurement period. For these employees, the stability period cannot be more than one month longer than the initial measurement period (in addition to being the same length as the stability period for ongoing employees) and cannot exceed the remainder of the standard measurement period (plus any associated administrative period) in which the initial measurement period ends.

Q-32: What is the optional administrative period?

A-32: The optional administrative period is generally a period of no more than 90 days that begins immediately after the end of a measurement period and that ends immediately before the beginning of the associated stability period. You may use this period to determine whether an employee has attained full-time status treatment for the stability period and carry out the administrative tasks needed to make an offer of coverage.

Q-33: Must employers determine the full-time status of a newly-hired employee with a fixed schedule differently than a newly-hired employee with a variable schedule?



A-33: Generally, yes. The rules apply differently for newly-hired employees who are non-variable hour and non-seasonal employees and to newly-hired employees who are variable hour or seasonal employees.

A new employee who at his or her start date is “reasonably expected” to work an average of 30 hours or more per week is considered a full-time employee regardless of which measurement method the employer is utilizing. An employee who is reasonably expected to work full-time may be a salaried employee or may be an hourly employee who is hired with a fixed scheduled of 30 hours or more per week. Unless the exception for “seasonal employees” applies, any new hire that is reasonably expected to work 30 or more hours or more per week is a full-time employee and the employer cannot utilize a look-back with respect to this employee at the time he or she is hired.

The full-time status of a variable hour employee or a seasonal employee may be determined by using the look-back measurement method (see Q&A-30).

A variable hour employee is an employee who, as of the date of hire, is not reasonably expected to work on average at least 30 hours per week.

A seasonal employee is an employee in a position for which the customary annual employment is six months or less. To be a seasonal employee, the nature of the employment position must typically be for six months or less and the period should begin each calendar year in approximately the same part of the year.

Q- 34: What if an employee with “part-time” status attains “full-time” status?

When does an employer have to provide an offer of affordable coverage to these employees?

A-34: An employee who has a material change in status from part-time to full-time must be provided an offer of affordable coverage within a certain time period of their change in status. Those employees whose statuses change from “not reasonably expected to work an average of 30 hours per week” to “reasonably expected to work an average of 30 hours per week” must be offered affordable coverage by the first day of the fourth month following the change in status.



Q-35: What happens if an employee who is determined to have full-time status, based on hours of service during a measurement period, begins to only work part-time hours during the stability period? Does an employer still have to offer affordable coverage to this individual?

A-35: Yes. If an employee is determined to have attained full-time status based

on his or her hours of service during a measurement period, then the employee must be treated as having full-time status for the entire duration of the stability period.

Q-36: Does an employer have to offer coverage to workers at its site location who are employed by a staffing company?

A-36: The current rules recognize that when a staffing company is the employee’s “common law employer” it is the staffing company that has the responsibility to offer affordable coverage to the employees with full-time status (or risk a potential penalty). Determining which party is the common law employer is critical to the determination of which party retains the potential excise tax liability.

Q-37: What is the penalty for not providing affordable health care coverage to all or some employees who may have attained full-time status?

A-37: As was referenced in Q&A-19, either (but not both) of two potential penalty taxes may apply beginning in 2015 if a member employer of a large employer does not offer coverage to full-time employees, or if the member offers coverage but such coverage is not affordable or does not have minimum value.

The first penalty is imposed by Internal Revenue Code section 4980H(a) and, thus, is commonly referred to as the “A Penalty.” The “A Penalty” applies to a member employer if it does not provide an offer of coverage to all its full-time employees (and dependents) and if any one of the member’s full-time employees becomes certified for a PTC. If health care coverage is not offered and even one full-time employee becomes certified, the annual excise tax is $2,000 times the number of all the member employer’s full-time employees, minus an employer’s allocated reduction of 30 full-time employees (first 80 full-time employees in 2015).



The second potential penalty is imposed by Internal Revenue Code section 4980H(b) and, thus, is commonly referred to as the “B Penalty.” The “B Penalty” will apply to a member employer if the member offers MEC to all of its full-time employees (and dependents) but such offer is not considered affordable or not of minimum value. The annual “B Penalty” is equal to the lesser of $3,000 times the number of full-time employees not provided an offer of affordable coverage of minimum value who actually purchase coverage through the Exchange and receive a PTC, or the amount of $2,000 times the full-time employees that would otherwise be determined under the “A Penalty.”

Q-38: Is an employer automatically subject to an excise tax equal to $2,000 multiplied by all full-time employees in 2015 if it overlooks one full-time employee and fails to offer coverage?

A-38: No. For 2015, an employer is treated as having offered coverage to its employees as long as 70% of its full-time employees (and their dependents) receive the offer of MEC. After 2015, employers will be treated as offering coverage to their full-time employees as long as 95% or more of their full-time employees (and dependents) receive the offer of MEC. Even with this cushion provided in the regulations, employers will need to ensure that they have properly identified and counted their full-time employees (using the 30-hour definition) to ensure that they do not become subject to the “A penalty.”

Q-39: What is “affordable” health care coverage?

A-39: An offer of coverage will be “affordable” if the cost for an employee to enroll in self-only coverage under the health care plan does not exceed 9.5% of the employee’s annual household income. An employee’s household income means the modified adjusted gross income of the employee and any members of the employee’s family who are required to file a Federal income tax return. (See Q&A 41 for a discussion of an employer safe harbor on affordable coverage).

Q-40: What if an employee has a family and needs family coverage? Does an employer have to also offer affordable family coverage?

A-40: No. The employer shared responsibility excise tax requires only that self-only MEC be affordable.



Q-41: How is an employer expected to know an employee’s annual household income?

A-41: The IRS has provided a few safe harbor methods an employer can use.

Form W-2 safe harbor: Under this safe harbor, coverage will be considered affordable if the employee’s required contribution for the calendar year for the employer’s lowest cost self-only coverage that provides minimum value during the entire year does not exceed 9.5% of that employee’s Form W-2 wages from the employer for the calendar year. Application of this safe harbor is determined after the end of the calendar year and on an employee-by-employee basis taking into account the employee’s Form W-2 wages from the employer and the employee contribution to the health plan.

Rate of pay safe harbor: Under this safe harbor, the affordability test will be considered met if the employee’s required contribution for the month for the employer member’s lowest cost self-only coverage that provides minimum value does not exceed 9.5% of an amount equal to 130 hours multiplied by the employee’s hourly rate of pay as of the first day of the coverage period. For salaried employees, monthly salary is used as the rate of pay.

Federal poverty line safe harbor: Under this safe harbor, the affordability test is met if the employee’s required contribution for the calendar month for the employer member’s lowest cost self-only coverage that provides minimum value does not exceed 9.5% of a monthly amount determined as the Federal poverty line for a single individual for the applicable calendar year, divided by 12 (approximately $92 per month for 2014).

Q-42: When will the health care coverage offered by an employer not be considered to provide minimum value? How does this determination relate to the so-called “metal” plans that are being sold in the Exchanges (i.e., bronze, silver, gold, and platinum plans)?

A-42: A plan will fail to provide minimum value if the plan’s share of the total allowed costs of benefits provided under the plan is, on an actuarial basis, less than 60% of such costs. This does not mean than any particular



individual covered by the plan will receive 60% of his or her health care expenditures paid by the plan. Rather, the 60% value is determined on the basis of the expected experience of the plan over a standard population.

The factors that are most important in calculating minimum value are the actual health benefits that are provided by the plan (e.g., hospitalization, physician visits, and prescription drugs) and the enrollee’s out-of-pocket costs. The ACA has defined an essential health benefits (EHB) package of specific types of health benefits that must be provided by a qualified health plan offered on an Exchange and plans offered in the small group market. Although self-insured plans and large group market plans are not required to cover all of the EHBs, the benefits that are covered by the plan are taken into consideration in determining whether the plan meets the minimum value standard.

A variety of approaches may currently be used for determining if minimum value is provided. These approaches include (1) the minimum value (MV) calculator made available by the Department of Health and Human Services and the IRS, (2) a choice of design-based safe harbors, and (3) for plans with non-standard features that cannot determine MV using the calculator or a safe harbor, obtaining an actuarial certification from a member of the American Academy of Actuaries.

Q-43: How will an employer know if an employee becomes certified for a PTC causing it to be assessed a penalty for not offering affordable health care coverage of minimum value?

A-43: Although a business should be provided with written notice by the applicable state or Federal Exchange where an employee has applied for a PTC, the IRS will certify that the employee was entitled to the PTC. If a full-time employee is certified as being eligible for the PTC, the IRS may assess the employer with the shared responsibility excise tax.

Q-44: How does an employer correct errors if an employee is erroneously certified for a PTC?

A-44: The employer may appeal the notice received from the Exchange (see Q&A-17), which provides the employer with the first opportunity to correct an error. The employer will also have an opportunity through the normal



IRS procedures to appeal in the event that the IRS assesses the employer with an excise tax.

Q-45: Aside from the potential “A Penalty” and “B Penalty,” are there any additional penalties that a company will be subject to beginning in 2015 if it does not provide an offer of affordable health care coverage to full-time employees (and their dependents)?

A-45: Generally, there are no other ACA penalties imposed on an employer for failing to offer affordable, minimum value health care coverage to employees.

Q-46: If a company has always self-insured its employees’ health coverage, does the ACA require it to buy commercial insurance instead?

A-46: No. Employer group health plans may continue to be either self-insured, insured, or a combination of both.

Reporting and Disclosure

Q-47: How will the appropriate government agencies know if an employer has provided affordable MEC to its employees?

A-47: Generally, an employer is required to report and disclose a significant amount of information to the Internal Revenue Service.

Beginning in 2013 (for the 2012 calendar year), employers were required to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, Box 12, using Code DD.

Beginning in 2016 (for the 2015 calendar year), employers will be required to report the following information to their employees and the IRS:

Information about their employees (and their dependents) who are enrolled in their health care plans (this information reporting is required by Internal Revenue Code Section 6055);



Information about all of their full-time employees, whether they were offered coverage, and the cost of the lowest cost coverage (this information reporting is required by Internal Revenue Code Section 6056).

Q-48: What information is provided to individuals and the IRS for the 2015 calendar year?

A-48: The information employers are required to provide to employees and file with the IRS under Sections 6055 and 6056 is summarized below:

Section 6055(Reporting of enrollment in

coverage)

Section 6056(Reporting of offer of coverage)

How will individuals and the IRS use the information reported?

Individuals: to evidence minimum essential coverage

IRS: to enforce the individual mandate

Individuals: to assess availability of PTC

IRS: to enforce the employer excise tax and the PTC

Who is responsible for the reporting?

Self-funded plan: the plan sponsor (each employer in the controlled group is separately responsible)

Insured plan: the insurer

Each employer in the controlled group

What information is reported and how often?

Employer– and employee-specific data including name, address, and TIN for covered individuals (including dependents)

Each month during which individual is covered

Employer EIN All full-time employees’ TINs Plan data including

employee cost for lowest cost plan, time offered, etc

Month-by-month basis

On what form is the information reported?

IRS transmittal: Form 1094-C

Individual statement:Self-funded - Form 1095-CInsured plan – Form 1095-B

(Forms are not yet published)

IRS transmittal: Form 1094-C

Individual statement:Self-funded plan: Form 1095-CInsured plan: From 1095-C, except that employer omits items addressed by the insurer’s Form 1095-B

What is the deadline to deliver the form?

Individual statement: 1/31 (2/1 for 2016)

IRS transmittal: 3/31 for electronic filers

Same



Q-49: Are there any simplified reporting methods that would permit an employer to avoid reporting information on a month-by-month basis?

A-49: Yes. For the Section 6056 reporting, there are two alternative reporting methods that are available in limited circumstances. Employers may use either or both of these alternatives for some or all of their employees.

Employers that make a “qualifying offer” (as defined below) to their full-time employees (and their spouses and dependents) are permitted to send a simplified letter, in lieu of the Form 1095-C, to employees who received the qualifying offer for all 12 months. The letter will provide a statement to the effect that the employee (and his or her family) is not eligible for the premium tax credit in the prior year. This alternative reporting method is available only if the offer of employer-sponsored coverage satisfies the following conditions:

o The offer must be a qualifying offer, which means that (i) the coverage offered meets the minimum value standard; and (ii) the employee contribution to self-only coverage does not exceed 9.5% of the federal poverty level for a single individual (i.e., for 2014, $92 per month);

o Qualifying offer must be made for all 12 months in the calendar year (the simplified reporting is available only for employees who were employed for all 12 months and received the qualifying offer); and

o An offer of coverage must be made to employee’s spouse, as well as dependents.

For 2015 only, the simplified reporting is available for all employees if at least 95% of the full-time employees received a qualifying offer. In this case, employees who received a qualifying offer for less than 12 months would receive a modified letter explaining that the employee or the family may be eligible for a premium tax credit in one or more of the months during which they did not receive the offer of coverage.

Employers that offer MEC to at least 98% of all full-time employees and part-time employees who are eligible for coverage are not required, for Section 6056 reporting purposes, to distinguish between full-time and part-time employees. Under this alternative, the employer would report on all full-time employees and any part-time employees who received



the offer of coverage. This alternative reporting method is available to employers if the MEC that is offered to the employees (and their dependents): (1) satisfies the minimum value requirements; and (2) is affordable to the employee under any of the employer affordability safe harbors.

Q:50: Are there any penalties for failing to file or inaccurate reporting of this information to employees or to the IRS?

A:50: Yes. Failure to comply with the Section 6055 reporting and Section 6056 information return and employee statement requirements are subject to sections 6721 (failure to file correct information returns), and 6722 (failure to furnish correct payee statement) penalties.

Section 6721 provides that a taxpayer who fails to file correct information by the due date is subject to $100 per return (up to $1.5 million). This penalty is reduced if the failure is corrected within 30 days of the due date or if corrected by August 1 of the calendar year when the filing was due.

Section 6722 provides that a taxpayer who fails to provide a correct payee statement is subject to $100 per return (up to $1.5 million). This penalty is also reduced if the failure is corrected within 30 days or if corrected by August 1 of the calendar year when the payee statement was due.

The provision providing for a waiver of penalties for reasonable cause applies.

Also, for 2015, the IRS has confirmed that the accuracy-related penalties will not apply as long as the taxpayer makes a good faith effort to complete the filings and statements accurately.

Other Fees under the ACA

Q-51: What is the Patient-Centered Outcome Research Institute fee?

A-51: The ACA created a private, non-profit corporation called the Patient-Centered Outcomes Research Institute to conduct research and to evaluate and study health outcomes and clinical effectiveness, risks, and



benefits of medical treatments. The ACA requires that the Institute be financed in part by fees paid by health insurance issuers and plan sponsors of health care plans. This fee is commonly referred to as the “PCORI fee.”

Generally, the amount of the fee per year is based on the number of individuals covered under an employer’s health insurance plan multiplied by $1 for plan years ending between January 1, 2012 and December 31, 2012. The fee increased to $2 per covered individual for plan years ending in 2013 and increased each year thereafter based on an increase in the projected per capita amount of national health expenditure. For self-insured plans, this fee is paid by the plan sponsor and is a tax-deductible fee. For insured plans the fee is paid by the health insurance issuer. The fee will be paid on an IRS Form 720 and is first due on July 31st.

Q-52: What is the Transitional Reinsurance Fee?

A-52: Generally, the Transitional Reinsurance Fee is a fee imposed on insurance plans that provide “major medical coverage” to fund “reinsurance” payments to Exchanges to stabilize insurance premiums nationally. This fee is not considered a tax and is administered by the Department of Health and Human Services.

The amount of the Transitional Reinsurance Fee is based on the number of individuals covered under a plan times $63 for plan years ending in 2014, $44 for 2015. For self-insured plans, this fee is paid by the plan sponsor and is a tax-deductible fee. For insured plans the fee is paid by the health insurance issuer. The filing for this fee will be due to the Department of Health & Human Services in the fall of 2014.

Q-53: Is there a tax imposed on health care coverage that is considered to be “too good” or on the offer of very “generous” benefits?

A-53: The ACA includes a provision that, beginning in 2018, imposes a 40% excise tax on the value of health care coverage that exceeds certain dollar thresholds. This tax is sometimes referred to as the “Cadillac tax.” Regulations or other guidance have not yet been published on this tax.



Other Key Provisions of the ACA

Q-54: What are some of the other key provisions of the ACA that affect employers and how are they enforced?

A-54: The ACA imposes another excise tax on employers who offer health plan coverage that does not meet certain “market reforms” that are applied to both individual and employer group health plans. The excise tax is $100 a day per each affected participant in the health plan (the “$100 a day excise tax”). The market reforms that, if not complied with, could cause the $100 a day excise tax to be assessed include:

Beginning in 2014, a ban on annual and lifetime coverage limits on essential health benefits, such as physician, hospital, and pharmacy benefits.

If a plan includes coverage for children, a parent must be allowed to cover a child through age 26.

Certain preventive services must be provided with no cost-sharing for those services.

Expanded nondiscrimination rules preclude more favorable benefits to higher paid employees.


randstad usa · web viewthe rules apply differently for newly-hired employees who are non-variable...

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