The Affordable Care Act requires applicable large employers (those with 50-plus full-time employees) to provide minimum essential coverage to the workforce by 2016. Employers who fail to meet these obligations — widely known as the employer shared responsibility provisions — will incur certain monetary penalties. Employers of 100 or more are already subject to the penalty starting in 2015, but it is new for most of the 50–99 employers that will be subject to the penalty in 2016.
It’s important to understand what resources and relief are available to you if you end up having to face these payments. Knowing what steps you can take to handle an ACA fine may help you better weigh your options.
As a refresher, minimum essential coverage (MEC) is defined as coverage that does not exceed 9.5 percent of an employee’s income, thus meeting the IRS’s affordability standards. The coverage must also pay for at least 60 percent of an employee’s covered health expenses, also known as minimum value. In 2016, employers will need to offer coverage to no less than 95 percent of employees.
The fine for not meeting the required coverage depends on the situation. One fine is levied for either offering coverage to less than 95 percent of employees or not offering it at all; another is given for offering coverage that fails to meet the Affordable Care Act’s requirements (i.e., not affordable or not meeting the minimum standards). These penalties are assessed for every month in which you don’t offer the required coverage.
Be Prepared and Know Your Options
Companies providing health coverage must file Form 1095-B and 1094-B as part of MEC reporting to verify that requirements have been met. If you have a fully insured plan, your insurer will file the forms as the law requires. However, self-funded (ASO) groups are responsible for filing their own report. You will know if your business is subject to any payments by way of an IRS notification after applicable individual tax returns have been filed beginning in 2016.
The IRS notice will provide you the opportunity to address the potential liability before it is assessed. You may also be eligible for transition relief, depending on a few factors: the number of full-time employees you have throughout the year, the type of plan you offer (calendar versus fiscal year) and when you qualified as an applicable large employer under the law.
Are you offering the proper coverage as mandated by the ACA? Once you know the answer to this question, your next step — should it apply — is to calculate the penalties coming your way. Being prepared and getting this work done ahead of time means you won’t be surprised by what you need to pay.
This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.
Donald Parker has more than 20 years of experience in the insurance and financial services industry with several Fortune 500 companies. He holds a life, accident and health insurance license in Virginia. He has been FINRA Series 7, 24, 63 and 65 registered and specializes in the areas of long-term care, senior needs, retirement and employee benefit planning.