Navigating The Affordable Care Act
The Affordable Care Act (the complete title is The Patient Protection and Affordable Care Act) was signed into law in March 2010. Together with the Health Care and Education Reconciliation Act, it represents the most significant regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965.
The ACA was enacted with the goals of:
• Increasing the quality and affordability of health insurance
• Lowering the uninsured rate by expanding public and private insurance coverage
• Reducing the costs of healthcare for individuals and the government
It introduced a number of mechanisms—including mandates, subsidies, and insurance exchanges—meant to increase coverage and affordability. It mandates that many businesses provide health insurance that meets certain levels to their employees. The law requires insurance companies to cover all applicants within new minimum standards and offer the same rates regardless of pre-existing conditions or sex.
Additional reforms aim to reduce costs and improve healthcare outcomes by shifting the system towards quality over quantity through increased competition, regulation, and incentives to streamline the delivery of healthcare. As of May 2014, approximately 20 million Americans had gained health insurance coverage under the ACA, and the percentage of uninsured Americans dropped from 18 percent in 2013 to 13.4 percent in May 2014.
From the outset, the law and its implementation have continued to face challenges in Congress and federal courts, and from some state governments, conservative advocacy groups, labor unions, and small business organizations. This means that the exact level of compliance and reporting required from businesses is a bit of a moving target. Below we review the current status of compliance: new reporting requirements, which businesses must comply with providing affordable healthcare, and the penalties for non-compliance.
If you have fewer than 50 full-time or FTE employees – approximately 96 percent of all businesses – your company isn’t required to provide healthcare benefits and will not be subject to penalties. In companies with 50 or more full-time or FTE employees, you may choose to offer benefits that conform to provisions in the Affordable Care Act, such as affordability and minimum value coverage, or face penalties if a full-time employee receives subsidized coverage through an exchange.
Employer Mandate – Pay or play
Starting in 2015, larger companies that fail to offer affordable, quality healthcare will pay an “Employer Shared Responsibility Assessment”, a $2000 penalty for every full-time worker who is not offered health coverage. A different penalty pertains if workers are offered coverage, but it does not meet Affordability or Minimum Value requirements.
Employers need to decide whether the penalty makes more overall sense for their business than offering compliant coverage. Many, perhaps most, will recognize that offering coverage makes sense for the tax benefits and increased employee retention. The benefit of higher employee satisfaction will usually outweigh the benefit of not paying for coverage.
Organizations Required To Comply
The mandate to offer insurance to employees is already in effect for employers with over 100 full-time employees, and rules are in effect to prevent employers from changing their employee mix just to come in below this level. Currently, organizations with 50-100 employees will have to comply starting in 2016. However, everyone needs to comply with the reporting requirements of 2015 information.
Calculating FTE Employees
If your organization is close to either the 50 or 100 employee levels, you’ll want to carefully calculate your full-time employee (FTE) equivalents. Start by dividing each part-time employee’s monthly hours by 120. Add all part-time employees’ numbers together. Combine that number with the number of full-time employees working 30+ hours per week.
You have 47 full-time employees and seven employees who each work 93 hours per month.
Part-time = 7 x (93 hours/120) = 5.425 Full-time= 47
Total FT/FTE employees= 52.425 rounded down to 52
Reporting requirements have been delayed, changed, and debated for over a year. Implementation of compliance may be difficult. Reporting compliance with forms 6055/6056 is first due in early 2016 for 2015 information. Additional penalties are leveraged for failure to comply with these requirements. While information is not due until early 2016, employers need to be tracking this information in 2015 to be able to comply in 2016. The reporting requirements are very detailed – you must be able to report coverage premiums by employee, by month – and track employer and employee portions separately.
Proposed Legislative Changes
ACA is still a work in progress. There are a number of proposals pending in the legislature, including:
• Changing the definition of an FTE from a 30 hour work week to 40.
• Expanding small business health insurance tax credits
• Creating a new, more affordable “copper” health plan
• Fund more health insurance co-ops
Short term legislative changes are thought to be unlikely, but executive action is also possible, especially in the area of further delaying dates for compliance.