The end of 2016 will be here sooner than you think — so this is a good time to revisit the Affordable Care Act (ACA), also known as “Obamacare.”
Does your growing business now fall under the requirements of the law? Business owners who aren’t sure if their businesses have become large enough to be subject to the ACA will want to revisit these guidelines, which are summarized below:
The End of Transition Relief
One of the ACA themes of 2016 was “transition relief,” as the IRS outlines. This was a feature in the federal statute that allowed small businesses more time to prepare for the law’s reporting requirements. The major issue for small businesses was trying to figure out whether they were subject to the employer shared responsibility requirements of ACA.
That transition relief period, however, is now over.
If your business has recently grown — but previously didn’t employ enough people for you to worry about complying with the heath care law — you may now be subject to the ACA. This is the time for you to calculate the number of your full-time equivalent (FTE) employees and figure out if you’re an “Applicable Large Employer” (ALE) subject to ACA reporting requirements.
Here are the details, in brief:
- The threshold for required ACA reporting is 50 FTE employees. In 2016, if you employed 50 or more FTEs, you’re considered an ALE, and thus subject to the shared responsibility requirement of making sure your employees have health insurance.
- You may ask what constitutes an FTE. An FTE is someone who works more than 30 hours per week. FTE status takes into account all the employees in your organization and all the hours worked. For example, if you have two employees each working 15 hours per week, the ACA considers them as one FTE, even though neither works 30 hours. So if you employ 100 employees and each works at least 15 hours per week, you would be considered to have 50 FTEs and have acquired the status of ALE
- Businesses employing 50 or more FTEs must offer affordable health insurance to at least 95 percent of those FTEs and their dependents. According to the ACA, affordable health insurance is defined as a plan that doesn’t cost more than 9.5 percent of an employee’s annual household income.
In addition, health plans offered by businesses must provide minimal essential coverage, defined as at least 60 percent of an employee’s health care expenses. Even if an employee is eligible for a premium tax credit, you’re still required to offer them coverage that meets minimum actuarial value or affordability requirements.
It’s important to stress that ALEs must cover employees’ dependents as well. According to the ACA, a dependent is an employee’s child — including adopted children — under the age of 27. The ACA doesn’t consider spouses, stepchildren or foster children as dependents.
The Aggregation Loophole is Closed
The IRS also pays attention to “aggregated ALEs.” Your organization may consist of a number of smaller companies employing fewer than 50 people each. If those entities are owned by the same people, or are managed by the same organization, the IRS considers your aggregated company to be an ALE.
The key documents to gather are IRS Forms 1094-C and 1095-C. If your business has grown such that you’re now an ALE, you are required to distribute form 1095-C to your employees and send the collected data to the IRS. All employees eligible for coverage should get a 1095-C, regardless of whether they actually participate in your business’s health plan. Form 1095-C must include the following key pieces of information:
- The coverage you offer to the employee.
- The lowest-cost premium available to the employee.
- The months of the year when the coverage was available.
Form 1094-C is essentially a cover sheet for the 1095-C forms. It provides information about your business, including your address, phone number, employer identification number, how many employees you have, the name of a contact person and how many 1095-C forms are being sent.
You must file Forms 1094-C and 1095-C by February 28, 2017 if filing on paper (or March 31 if filing electronically). Businesses that fail to file the correct forms in a timely fashion will be required to pay the IRS an employer shared payment fine. These fines range between $2000 and $3000 per FTE per year. The rules and intricacies of the Affordable Care Act are complicated.
Has your business grown to the point that you may be required to abide by ACA rules? How will you handle the transition? You’re not the only employer with these questions, and you don’t need to figure this all out on your own. Many businesses engage compliance officers and/or purchase specialized software to ensure the required forms are submitted correctly and all penalties are avoided. It’s in your best interest to get up to speed before the end of 2016 — or to enlist help before then. That’s the best way to avoid a 2017 New Year’s ACA hangover.
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.
David E. Williams is president of Health Business Group, a strategy consulting firm serving clients in technology-enabled health care services, pharmaceuticals, biotech, medical devices and software. He is frequently quoted in the media on the business of health care and is the author of the Health Business Blog. David sits on the board of both private health care companies and nonprofits.