Countdown to ACA Compliance
Part II. ACA Requirements and Penalties – 2015!
Yes, the 2,300 pages it took to write the law, followed by the 10,000+ pages of regulatory interpretation can be daunting, but with the January 1st launch of our transitional year just around the corner, we are taking the time to boil down the complication into the “critical few”—things our clients MUST KNOW about what lies ahead.
In Part I, we provided a complete glossary of ACA terms—just so you would have a playbook. In Part II, we are providing a simple outline of employer and employee requirements for 2015.
- Employer (Shared Responsibility) Requirements: In 2015, employers with 100 or more full time employees (or full time equivalents) must offer a healthcare insurance plan that provides Minimum Essential Coverage (MEC) to 70% of its full time employees and their dependent children or be subject to “failure to offer” penalties described below.
- Individual (Shared Responsibility) Requirements: As in 2014, individuals must enroll in a healthcare plan that provides themselves and their dependents with MEC level coverage. If they do not obtain MEC insurance, either through their employer or Medicaid, they are required to purchase an ACA approved plan through a State or Federal Exchange—in Washington we have a “working” Exchange.
- Employer Penalties: It is important for employers to distinguish between two important differences in mandated plans:
- MEC/Minimum Essential Coverage plans are typically very low cost plans that meet both the individual and the employer mandates.
- MVP/Minimum Value Plans are most costly plans that must meet ACA actuarial value standards in addition to “affordability” standards. Most MVP plans will meet MEC requirements, but not vice versa, making employers subject to two types of penalties.
1. Failure to Offer Penalties. Employers who fail to offer a MEC plan to 70% of their eligible employees (and their dependent children) will pay a monthly tax/penalty of $167 or $2,000/yr.—for each eligible fulltime employee. This tax/penalty is calculated on your entire eligible workforce and will include all those employees who have been offered and accepted coverage.
Deductions: In 2015, you can deduct 80 employees from your count of eligible employees. In each year after 2015, you can deduct only 30. For example, in 2015 if you have 100 employees working for you in a month and do not offer coverage to at least 70 of those employees, your monthly penalty will be based on 20 employees (100 minus 80) calculated at $167 each for a total of $3,340 tax or penalty each month you fail to offer.
2. “Inadequate Plan” Penalties. If the plan an employer offers is either “unaffordable” or does not provide “minimum value” (MVP) the tax/penalty per month for employers increases to $250/month (up to $3K annually). This penalty is unique and much more complicated to administrate in that it is applied only to those employees who seek and are granted a government subsidy as a result of applying for insurance on a State Exchange. If an employee is offered both a MEC and MVP plan and EITHER refuses both, or ELECTS only the MEC option, they WILL NOT BE ELIGIBLE FOR A SUBSIDY.
NOTE: Most employees are not aware of this special provision of the law and may enroll in a low cost MEC plan believing that by enrolling they will become compliant with the individual mandate while preserving the option of receiving subsidies at a later date. An employee who has been offered both MEC and MVP coverage and elects the lower cost MEC coverage, loses their eligibility for subsidy.
3. Individual Penalties/Taxes/Fees: For your employees, the penalty (technically referenced as a tax or fee) for failing to obtain the required insurance coverage is either a flat dollar amount per person or a percentage of household income. These penalties are already in effect for 2014, but go up significantly in 2015.
- In 2014: the penalty is $95 per person, $47.50 per child (up to $285 per family) or 1% of household taxable income, whichever is greater.
- In 2015: the penalty is $325 per person, $162.50 per child (up to $975 per family) or 2% of household taxable income, whichever is greater.
- In 2016: the penalty is $695 per person, $347.50 per child (up to $2085 per family) or 2.5% of household taxable income, whichever is greater.
- In 2017 and beyond: the penalty will be the same as 2016 with Cost of Living increases.
4. Your Employee’s Eligibility for Subsidies: Individuals with household incomes determined to be 100-400% of federal poverty levels may be eligible for government funded subsidies to buy their insurance. Employees become ineligible for these subsidies if:
- They are already on Medicaid.
- They have been offered and refused an employer’s offer of a healthcare plan that is both affordable and meets MVP requirements.
- They purchase insurance through venues other than a “qualified” Exchange—in our case the Washington Exchange.
In 2014, the poverty level for an individual is $11,670, which means that for families of four, subsidies will likely be available if the family earns anywhere from $23,050 and $92,200 annually. The eligibility boundary for 2015 is not yet available, although current estimates are that in 2015 over 26 million people will be eligible for subsidies.
5. Discrimination. The regulations relating to the new discrimination provisions embedded in the ACA have not been written and the IRS has promised it will not enforce any of its discrimination provisions until regulations have been published. We know that sometime in the near future employer funded plans will become subject to tests ensuring that differential treatment not be awarded to highly compensated employees, but it is the nature of these tests that has not been determined.
Employers need to be paying attention to these regulations likely to be published in 2015 as the challenge of avoiding discrimination will be a significant cost management issue for employers with diverse workforces and an historical pattern of providing unique benefit options to their highly paid employees.
In the meantime, in 2015 employers will be able to offer different plans to different employee groups and can contribute differently to employees based on “their group.” If the plans offered meet MEC, MVP and “affordability” tests, typical tiered/pay up plans are allowable in 2015 without risk of penalty.
6. Record Keeping. 2015 adds several new layers of administrative and reporting requirements for ACA defined “large” employers (50 or more employees), regardless of whether or not you are subject to the employer mandates in the 2015 transitional year.
Notices to Employees. Since October 2013, all “large” employers have been required to provide new hires with a statement of their eligibility for coverage that they can either obtain through you or the Exchange. The IRS has made this compliance requirement easy to administer by providing samples of required letters. They are available for download via the IRS website: http://www.dol.gov/ebsa/healthreform/regulations/coverageoptionsnotice.html
Forms 1095 C. In accordance with section 6056 of the IRS code, employers offering a self-insured MEC plan AND employers considered “large” under ACA standards will be required to report annually on all employees who worked for them as a full time employee for at least one month during 2015 and each reporting year thereafter.
These reports, using Form 1095-C need to be prepared monthly throughout 2015, but will not be submitted to the IRS until March of 2016 (if filed electronically). Form 1095-C must be submitted to employees by end of January 2016.
- The data required, organized by month, includes:
- The number of full time employees (each month).
- The name, address, and SSN of each full-time employee (each month).
- The months during which coverage was available.
- A certification, month by month, of the employer size.
- A certification, month by month, as to whether the employer offered the full time employee (and his or her dependents) the opportunity to enroll in employer-sponsored coverage.
- The amount the employee would need to pay if they accepted the lowest cost monthly premium (for self-funded programs only).
- The months, if any, during which the employee was covered.
Forms 1095 B. The ACA also added section 6055 to the IRS Code, requiring all insurers and self-insured employers providing minimum essential coverage (MEC plans) to submit annual reports (Form 1095-B) identifying the costs of their plan and who was covered. If you are an employer who offers a fully insured group health plan, your insurance issuer is required to submit the returns, but if you offer a self-insured plan, you are required to submit the returns (even though a third party may prepare the return).
Employers are generally subject to penalties for failure to file Forms 1095 -B and C; although the IRS has said that in 2015 they will not impose penalties for incomplete or incorrect information if the employer made a good faith effort to comply.
W-2 Reporting. The requirement to include the costs of certain healthcare benefits on the employees W-2 at the end of each year has been in effect since 2012, but has only been loosely enforced. From 2013 on, employers filing 250 or more W-2 forms annually are required to report the total value of certain employer-sponsored health benefits to all employees receiving this benefit. The amounts reported are strictly informational and have no impact on the employee’s taxable income.
In Part III of our Countdown to ACA Compliance, we will be discussing the special provisions of the ACA that apply specifically to temporary and contract workers—our specialty. There are provisions in the law that you should know about to protect yourself from unforeseen fines and penalties.
This article was prepared by Jeanne Knutzen, CSC, the President and Founder of the PACE Staffing Network. PACE remains committed to full compliance with the ACA and offers a variety of staffing products and services designed to ensure that our clients have options for containing the costs associated with ACA compliance. For a confidential discussion of how these services might be applied to your workforce, particularly your temporary and contract employees, contact a member of our PSN partnership team at firstname.lastname@example.org or 425.6376.3312.