Benefits Corner

Category: Client Update
Date: Jun 11, 2018 05:36 PM

ACA Back to Basics: The Employer Mandate

This article is the first installment in LCW’s ACA Back to Basics series. The series will allow employers to brush up on the Patient Protection and Affordable Care Act’s (also known as “the ACA”) Employer Shared Responsibility Provisions.

The Employer Mandate – What is it?

The ACA’s Employer Shared Responsibility Provisions, commonly known as the “Employer Mandate,” require certain employers to offer qualifying medical coverage to substantially all of their ACA full-time employees and their dependents or, alternatively, to make an employer shared responsibility payment to the IRS. The Employer Mandate applies only to Applicable Large Employers (“ALEs”), i.e. employers that had an average of at least 50 full-time employees – including full-time-equivalents – during the preceding calendar year.

Applicable Large Employer (“ALE”)

An employer is an ALE for the current calendar year if it has at least 50 full-time employees, including full-time equivalent employees, on average, during the prior year.

ALE Calculation: Add the total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divide that total number by 12.

For purposes of this calculation: An employee is a full-time employee if he/she has on average at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month. An employer determines the number of full-time equivalent employees for a month in two steps:

(1) Combine the number of hours of service of all non-full-time employees for the month but do not include more than 120 hours of service per employee, and

(2) Divide the total by 120.

The Employer Mandate Penalties

An employer that meets the requirements of an ALE must offer minimum essential coverage to substantially all of its ACA full-time employees and their dependents, and such coverage must provide minimum value and be affordable, otherwise, the IRS may assess one of two employer shared responsibility payments (aka “Penalty A” and “Penalty B”). These penalties are triggered if an ACA full-time employee purchases coverage through Covered California and obtains a premium tax credit.

Penalty A: The IRS may assess Penalty A where an ALE fails to offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents). The IRS will calculate Penalty A as follows: $2,320 annually ($193.33 per month) multiplied by the total number of full-time employees less 30. For example, Penalty A for an ALE with 40 employees could result in up to $23,200 of liability in 2018 (40 less 30 is 10, multiplied by $2,320).

Penalty B: The IRS may assess Penalty B where an ALE offers minimum essential coverage to at least 95 percent of its full-time employees and their dependents, but the coverage offered to a full-time employee is either not “affordable” or does not provide “minimum value.” Penalty B is $3,480 annually ($290 per month) multiplied by the number of full-time employees who actually purchase coverage through Covered California and receive a premium tax credit.
Both Penalties are indexed. The numbers above are for 2018.

Key Compliance Points

  • The IRS will look at the lowest cost plan offered each month.
  • Employers must report this data through ACA Reporting. (e.g. Forms 1094C/1095C).
  • To avoid Penalty A, an employer must offer minimum essential coverage to at least 95 percent of its ACA full-time employees and their dependents. 
  • To avoid Penalty B, an employer must offer coverage that is affordable and provides minimum value.

According to CalPERS, all health plans it offers meet the minimum essential coverage requirement and provide minimum value.

All employers that qualify as an ALE should determine whether they offer “affordable” coverage to their ACA “full-time employees,” as those terms are defined by the ACA.

Later installments in our ACA Back to Basics series will provide additional details on how to identify ACA full-time employees and determining whether an employer is offering affordable coverage.

Contact Us

General Inquiries

info@lcwlegal.com

Contact a Specific Office

Our Locations

Media Inquiries

Please contact Cynthia Weldon, Director of Marketing & Training, 800.981.2000.

close

back