ACA Employer Mandate Compliance Overview

aca

The Employer Mandate portion of the Affordable Care Act (ACA) applies only to applicable large employers (ALEs). ALEs are those companies who employ at least 50 full-time (FT) employees. This includes full-time equivalent employees, which means a combination of part-time employees that count as one or more full-time employees. The mandate dictates that ALEs must offer affordable minimum essential coverage (MEC) which provides minimum value (MV) to FT employees and their dependents or risk being penalized if the government subsidizes one or more of their FT employee’s healthcare.

Tango helps ALEs stay in compliance of the ACA’s Employer Mandate via monthly reporting on employee measurement statuses and benefit plan affordability. The reports are reviewed carefully by ACA experts before being shared with clients to alert of any possible compliance issues. Tango then submits annual IRS 1094-C and 1095-C Filings on behalf of our ALE clients.

Minimum Essential Coverage

To comply with the ACA, the coverage offered by ALEs must meet criteria to qualify as minimum essential coverage. The criteria include that the coverage must:

  • Provide minimum value (MV). Minimum value is achieved if the plan covers at least 60% of expected costs and provides substantial coverage of inpatient hospitalization services and physician services.
  • Be affordable. A plan is considered affordable if the non-smoking, employee-only cost to the employee is <9.83% of household income. This is adjusted for inflation each year. For example, for plan year beginning in 2021, it is 9.83%.
    • ACA Safe Harbors – The ACA offers three safe harbor calculations to help employers determine whether the coverage meets the affordability requirement. Tango provides calculations against all available safe harbors and will alert you if they see any potential issues. The safe harbors are:
      • The Form W2 wages safe harbor. With this safe harbor employers may generally consider the coverage affordable if the employee required contribution for the year (or partial year if the employee is not employed for the full year) does not exceed 9.83% of the amount of wages reported in Box 1 of that employee’s Form W-2.
      • The federal poverty line safe harbor. With this safe harbor employers may generally consider the coverage affordable if the employee required contribution for the month does not exceed 9.83% of the federal poverty line for a single individual for the applicable calendar year, divided by 12.
      • The rate of pay safe harbor. With this safe harbor employers may generally consider the coverage affordable if the employee required contribution for the month does not exceed 9.83% of 130 hours multiplied by the employee’s hourly rate of pay or 9.83% of the employee’s monthly salary.
    • Nuances and special rules also apply to each method of affordability.
      • Provide certain required coverage benefits, essential health benefits. These benefits include doctor services, inpatient and outpatient hospital care, prescription drug coverage, pregnancy and childbirth care, mental health services, and more. Some plans, like those that are “grandfathered” in or were in existence before the ACA went into effect, may be exempt from this requirement. Employers should discuss these coverages with their brokers or health plan provider.

Employment Statuses and Measuring Employees to Track Status

Employment statuses under the ACA are:

  • Full time (FT) – a full time employee is one who is measured by either the look-back measurement method or the monthly measurement method as working more than 30 hours per week or more than 130 hours per month. Employees are also considered to be full time if at the start of their employment they are “reasonably expected” to be full time. Examples of factors that could identify an employee as reasonably expected to be full time at the start of employment are:
    • whether the employee is replacing another employee who was full time.
    • the extent to which employees in the same or comparable positions are full time.
    • whether the job was advertised, or otherwise communicated to the new hire as requiring 30+ hours of service per week.
  • Part time (PT) – a part time employee is one who is measured by either the look-back measurement method or the monthly measurement method as working less than 30 hours per week or less than 130 hours per month. Employees are also considered to be part time if at the start of their employment they are “reasonably expected” to be part time.
  • Variable hour (VH) – a variable hour employee is an employee who has irregular weekly hours with no expectation of consistency. Labeling such an employee as either full time or part time would be difficult or impossible since there is no “reasonable expectation” either way.
  • Seasonala seasonal employee, like a variable hour employee, is one who neither fits the definition of full time nor part time. These employees are defined as those who generally begin work at the same time of year and their employment is no longer than 6 months. Examples include summer lifeguards and retail employees during the busy holiday months.

Employees hired into FT positions must be offered benefits by the end of a waiting period (a maximum 90 days.) Employees in all other statuses can wait for initial measurement completion.

Measurement, administrative, and stability periods

Tango uses a 12-month lookback measurement method to more accurately measure employee eligibility. Below are the definitions of the different periods. 

  • Initial measurement period – All new employees are measured in this 12-month measurement period following their start of employment. This allows for a 1-month administrative period, followed by a 12-month stability period.
  • Standard measurement period – All employees who have completed an initial measurement will remain in this measurement period each year. This allows for a 2-month administrative period, followed by a 12-month stability period (usually aligning with the employer’s benefit plan year).
  • Administrative period – Once a measurement period is complete, this period offers employers an opportunity to collect hours worked data and make offers of coverage.
  • Stability period – an employee’s status (as determined by the preceding measurement) applies for the full duration of the stability period, regardless of what their employer-defined status may be.

Employees who average 130 hours or more per month or 30 hours or more per week during a measurement period are considered full time under the ACA. The employer is then obligated to offer benefits. There are many nuances and special rules to this, including: which hours must be counted, which types of employment breaks do/don’t count against an employee in measurement, what happens when an employee changes jobs, etc. Measurement period reports are provided by Tango for accurate full time/part time determinations. Mid-measurement period reports are provided throughout the 12 months to provide insight into the measurements before they are complete. Tango will alert clients to any potential upcoming compliance risks.

Employees that terminate and are re-hired within 13 weeks (26 weeks for educational institutions) are placed back into their original measurement & stability periods. If a termed employee is not credited any hours of work during this time, they are treated as true new hires at rehire & placed in a new initial measurement period.

Employer Mandate: Potential Penalties

There are three main potential penalties to be aware of. The first in this list can apply anytime the conditions are met. The other two will apply if an employee receives healthcare from one of the healthcare exchanges/marketplaces AND qualifies for and receives a subsidy for one or more months in the year. The second two penalties are considered Employer Shared Responsibility Payments (ESRPs).

  • Complete failure to file or failure to file a correct statement: from $50/return (maximum $556,500) to $270/return (maximum $3,339,000) – depending on how late the form(s) are filed (if ever). This penalty applies in situations of non-intentional disregard.
    • Intentional disregard: $550/return, no maximum limit
  • Section 4980H(a) penalty (ESRP) (Also called the “Sledgehammer Penalty”): Assessed for failure to offer MEC to 95% of FT employees. The penalty is an annual $2k per FT employee (adjusted for inflation each year) it is assessed against almost all the FT employees in the company, even those FT employees that were offered coverage (excludes certain FT employees, like those in a waiting period.) Although this penalty is assessed across the full population of FT employees, it can be triggered by a single employee who receives coverage from a healthcare exchange/marketplace.
    • For tax year 2021, the adjusted amount is $2,700/FT employee ($225/month).
  • Section 4980H(b) penalty (ESRP): Assessed for failure to offer coverage to a FT employee or if the coverage that was offered was not affordable or did not provide MV. The penalty is an annual $3000/ affected employee adjusted for inflation each year. This penalty is only assessed per FT employee who was impacted by the failure and who received a subsidy on a healthcare exchange/marketplace.
    • For tax year 2021, the adjusted amount is $4,060/FT employee ($338.33/month).

Tango assists with responding to Employer Shared Responsibility Payment (ESRP) notices and in many cases has been able to reduce or eliminate the penalty amount.

Employer Mandate – Reporting Compliance

  • Section 6056 of the IRS code is the Employer Mandate: reporting FT employees offers of coverage.
    • 1094-C Form
      • Reporting at the EIN level whether MEC requirements were met each month
    • 1095-C Form
      • Reporting at the employee level (and is also furnished to applicable employees), outlines their offered coverage
      • If self-insured, the employer must complete part 3. If fully insured, the employer does not complete part 3
    • Section 6055 of the IRS code is the Insurer Mandate: reporting enrolled coverage.
      • Self-Insured Companies
        • 1095-C Part 3
      • Insurance Companies
        • 1095-B (shows enrollment status monthly)

1095-C Format

There are multiple parts of the 1095-C form. See sample form below.

  • Part 1: Employee/Employer Info
  • Part 2: Lines 14-16
    • 14: Offer of coverage code
    • 15: Minimum plan cost
    • 16: Safe harbor code
  • Part 3: Covered Individuals
 

Tango Can Help.

Tango’s ACA Compliance & Reporting solution enables clients to achieve a higher standard of accuracy with robust and easy to use software and completely outsourced ACA reporting services. Learn more or request a demo. 

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