Countdown to ACA Compliance
Part I. A Glossary of “ACA Speak”
With the employer mandate of the Affordable Care Act just around the corner (January 1st, 2015 for employers with 100+ FTEs), employers everywhere are facing the last round of ACA challenges.
To make sure our clients and friends are tracking with ACA requirements, particularly those that impact their use of temporary or contract staff, we will be publishing a series of informational pieces about the ACA called “ACA Smart.” We will be identifying those provisions in the law that we know will drive up your staffing costs, but also the opportunities we see to drive down these costs by making adjustments in how temporary and contract staff are put to work. “ACA Smart” will also cover the operational policies we recommend employers put in place to protect themselves from unanticipated costs or penalties stemming from misguided co-employment protocols.
In Part I of “ACA Smart,” we offer a dictionary of ACA terms – all those new words that will soon become part of the regulatory landscape.
Key ACA Terms and Definitions
Applicable Large Employer (ALE): In 2015, refers to an employer with 100 or more full time equivalent employees. In 2016 will be adjusted to include employers with 50 or more full time equivalent employees. Only ALE’s are subject to the employer mandates and related penalties.
Full Time Equivalent (FTE): A term frequently used in the context of determining an employer’s size – the number of people they employee. When applied to a part-time or non-classified employee, it is used to determine what percentage of a full time employee each part-time worker represents.
Employer Size: The size of an employer’s workforce is determined by counting all full time employees and adding to that number a calculation of the aggregate number of FTEs stemming from part-time or non-classified (variable hour) employees. The FTE assigned to a part-time employee is calculated as a percentage of the number of hours actually worked during a month divided by 120 hours. For example, if a part-time employee works 110 hours, their FTE = .917 or 110 divided by 120.
(Eligible) Full Time Employee: Any employee who averages at least 30 hours per week (130 hours per month; 1560 hours per year). Only full time employees are required to be covered under ACA employer mandates.
(Non-Eligible) Part-Time Employee: Any employee who averages less than 30 hours per week (130 hours per month; 1560 hours per year). Part-time employees are not required to be covered by an employer, but must be included in a calculation of company.
Seasonal Employees: Employees working less than 120 days in a year for “seasonal” reasons. Seasonal employees are automatically excluded from ACA coverage.
Variable Hour Employees: Refers to employees who, at the time of hire, cannot reasonably be classified as either part or full time. Variable hour employees are classified as either part or full time depending on the number of hours actually worked during either an “initial” (IMP) or “standard measurement” period (SMP). Many temporary or contract workers, but not all, will be classified as “variable hour” employees depending on how the conditions of their assignment is described. Your staffing agency is responsible to classify each employee as full, part or variable hour at the point of hire.
Ongoing Employee: An employee who has been employed for at least one standard measurement period (SMP).
Minimum Essential Coverage (MEC): The requirement to be ACA compliant is a healthcare plan must cover certain healthcare basics – “the diagnosis, cure, mitigation, treatment or prevention of disease.” All individuals are required to purchase MEC compliant plans, unless they are covered by Medicare, Medicaid, Children’s Health Insurance Programs (CHIPs) or a Veteran based plan that is automatically classified as MEC compliant. MEC plans are also referenced as “skinny” plans. Of note, is that most of the healthcare plans currently available for temporary or contract workers are “fixed indemnity plans” that do not meet MEC standards.
Minimum Value Coverage (MVC): The requirement to be ACA compliant is a healthcare plan must cover over at least 60% of the overall costs associated with, 1) physician and mid-level practitioner services, 2) hospital and emergency care, 3) pharmacy costs, and 4) laboratory/ imaging services. Of note, is that prior to the ACA, most employer plans had an actuarial value exceeding 85%. The lack of availability of 60% plans in the insurance marketplace is a significant issue for all employers focused on containing costs.
Affordability: Refers to the ACA requirement that the employee’s share of the costs associated with their purchase of a healthcare plan for themselves (not their spouse or family) can be no more than 9.5% of the employee’s gross income. If an employee earns $2,000 per month, (approx. $11.60/hr.), they cannot be asked to pay more than $190/month towards their healthcare plan in order for the plan to be considered “affordable.” A plan costing an employer $400/month will, therefore, require that employer to contribute $210/month.
Play: Refers to the decision an employer makes to offer a healthcare plan that provides Minimum Essential (MEC) coverage to 70% of its full time employees and their dependent children under age 26 in 2015, 95% in 2016. NOTE: 1) It is not mandatory to offer coverage for spouses, only dependent children under age 26 and 2) employers who “play” are still subject to penalties if:
- their plan is not affordable,
- they fail to offer the mandated coverage to the required percentage of eligible employees, or
- if they do not offer coverage that meets Minimum Value requirements.
Pay – “Failure to Offer” Penalties: Refers to an employer’s decision not to offer a MEC qualified plans, making them subject to penalties for “failure to offer.” The “failure to offer” penalty is assessed on the basis of the number of employees in the employer’s workforce otherwise eligible to receive coverage.
Pay – “Unaffordable or Minimum Value” Penalties: Refers to the outcomes of an employer’s decision to offer insurance that is either “unaffordable” or that doesn’t meet minimum value requirements. This penalty is assessed against every employee who goes to a State Exchange and receives a subsidy.
Administrative Period: Refers to the days of employment within which an employer is required to offer an eligible employee the mandated benefits. For new full time employees the administrative period is 90 days. For ongoing employees in a standard measurement or look back period, the administrative period is 30 days.
Initial Measurement Period (IMP): References a period of time starting with the date of hire and ending at a defined date based on the length of the IMP. An IMP is applied only to “variable hour” employees where their classification as either a full or part-time employee is determined on the basis of actual hours worked during the IMP. Benefits, where required, are offered in accordance with the applicable classification at the end of the IMP. Initial measurement periods (sometimes referred to as look back periods) can be 3-12 months, with the specific length of the IMP set by the employer.
Standard Measurement Period (SMP): References a recurring method and time period used to determine whether an ongoing employee is full or part-time. The SMP is fixed, usually based on a calendar year and must be the same for all employees in the same category. Unlike an initial measurement period, the SMP is a reoccurring event that starts at a specified date each year, independent of hire date. IMPs and SMPs may overlap.
The Stability Period: The period of time from the point of benefit offer where the employee must be provided benefits/coverage regardless of how many hours actually worked. Stability periods can be no less than six months and must match the IMP or SMP if it is six months or longer. For example, if an employer elects a standard measurement period of 12 months, the stability period must also be 12 months.
Exchanges: The mechanism through which insurers will be able to offer small employers (less than 100 employees) and individuals the ability to purchase health insurance. If a state doesn’t provide an exchange, the federal government is required to do so. Washington State has an exchange.
Subsidies: The credits available to individuals who qualify for assistance in order to purchase insurance coverage through a state or federally operated Exchange. The subsidy is paid directly to insurance carriers as a way to lower the premium costs for eligible individuals. Employees earning anywhere from 100-400% of the “poverty” level can be eligible for subsidies depending on number of dependents.
In part II of our “ACA Smart” series, we will be covering the specifics of the ACA penalties – when and how they are assessed.
If you would like a personal conversation with a member of the PSN partnership team to better understand the ACA and its impact on your flexible workforce strategies, contact our info desk at 425-637-3312 or by emailing email@example.com. Make sure your subject line references the ACA or “ACA Smart.”