Although the Patient Protection and Affordable Care Act (PPACA) was passed in March of 2010, it is, in some ways the gift that keeps on giving, as the rollout of certain provisions of the law are ongoing. Many of its provisions are already in effect, certain new provisions took effect in 2015 and 2016, and additional provisions will continue to take effect through 2020.
The Employer Mandate/Employer Penalty, which was originally set to begin in 2014, was postponed and became effective for 2015 and 2016. Companies with 100 or more full-time equivalent employees (FTEs) needed to insure at least 70 percent of their full-time workers by 2015 and 95 percent by 2016. Small businesses with 50-99 FTEs will need to start insuring 95 percent of full-time employees by 2016. Companies with 49 FTE’s or less have no requirement to comply.
The coverage must meet affordability and minimum-value guidelines for employees. To meet these guidelines, the employee’s share of the premiums (for employee-only coverage) cannot cost more than 9.5 percent of the employee’s household income. In addition, the plan’s share of total average cost of covered services should be at least 60 percent to provide minimum value.
Companies that do not offer coverage will face a penalty of $2,000 per full-time employee (less the first 30 full-time employees). This penalty is referred to as the “Employer Shared Responsibility Payment.” There are similar penalties for employers that provide coverage, but do not meet the affordability or minimum value guidelines. It is important to note that since this “payment” is considered a penalty, it is NOT tax deductible.
In addition, employers are required to report to each employee and to the IRS regarding the coverage provided. Employers that do not comply with these reporting requirements are subject to an additional penalty of $250 for each non-filed form or incorrectly filed form. The Form 1095 series reports the coverage to employees; this is intended to verify that they and their dependents have at least minimum essential coverage. Employees also are subject to an individual penalty (shared responsibility payment). They will use Form 1095 to determine whether they owe this penalty on their tax return.
This is just a brief overview of the rules, which are very complex. There are specific guidelines on defining employees and how to calculate full-time and full-time equivalent employees. Also, the rules for calculating the penalty are complicated. They depend on whether coverage is offered and, if offered, whether it is affordable, provides minimum value, and any employees received marketplace cost assistance.
Employee benefits continue to become more complicated and it is extremely difficult for companies to stay compliant without the help of a Human Resources professional on staff or the assistance of an outside benefits consulting firm. These rules need to be taken very seriously or the consequences could be very costly.
For questions about this topic or to discuss your company's needs, please contact us at Email or 215.441.4600.
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