AFFORDABLE CARE ACT (ACA) CALCULATIONS
AFFORDABLE CARE ACT (ACA) CALCULATIONS?
Am I an Applicable Large Employer (ALE)? What’s a look back period? What’s my measurement period? What’s my stability period? What’s an administrative period? Am I part of a controlled group? Which employees must be included in calculations? Do I have to report on sections 6055 and 6056 employer reporting?
There are so many different calculations governing the Affordable Care Act. If you get one of them wrong, you are in violation of the act and subject to fines and penalties. In this article, we are going to provide clear explanations to help you comply.
Applicable Large Employer (ALE)
The Affordable Act and its enforcers, the Internal Revenue Service (IRS), Department of Labor (DOL) and Health and Human Services Department, require all organizations who are an “ALE” to offer medical insurance to their employees that meets minimum essential value requirements at affordable rates. They further require ALEs to submit reports 1095-C/1094-C reporting on sections 6055 and 6065.
An organization is considered an applicable large employer if they average 50 or more full-time or full-time equivalent (FTE) employees during the prior year. The employer looks back over an entire 12 month period of time, adding all full-time employees who averaged 30 hours or more work per week, along with all work hours performed by part-time, temporary and seasonal employees. Work hours include time paid (including sick, jury, disability, severance, leaves of absence, vacation and holidays).
1) Determine the number of full-time employees for each month (anyone averaging 30+ hours per week or 130 hours per month).
2) Total the full-time equivalent (FTE) service hours for all variable hour employees (part-time, temporary and seasonal employees) and divide this by 120.
3) Add the FT employee to the FTE for each month and divide by 12 to find the average.
If you have 50 or more, you are an ALE. (See below example.) Note: if your business has a seasonal hiring pattern (i.e. summer or holiday hires), you may be able to exclude those employees if the period of hire is less than 120 days in a calendar year. See http://www.irs.gov/Affordable-Care-Act/Employers/Determining-if-an-Employer-is-an-Applicable-Large-Employer, seasonal workers.
If you are part of a controlled group, you must include total FT and FTE for all applicable controlled groups together to determine ALE status for all group members. There are three applicable control groups as defined by the IRS Code § 414 (b) and 414 (c).
A Parent-Subsidy Group is when one or more businesses are connected through stock with a common parent corporation and (a) 80% of the stock of each corporation (excluding the common parent corporation) is owned by one or more corporations in the group and (b) the Parent Corporation owns 80% of at least one other corporation.
A Brother-Sister Group is a group of two or more corporations, where five or less common owners (common owners included individuals, a trust, or an estate) own a controlling interest (direct or indirect) of each group and have effective control.
A Combined Group is a group consisting of three or more organizations where (a) each organization is a member of either a parent-subsidiary or brother – sister group and (b) at least one corporation is the common parent of a parent-subsidiary and is also a member of a brother-sister group.
If you are attempting to classify employees as independent contractors in attempts to fall below the 50 ALE number, be careful. The IRS and DOL are cracking down on any misclassifications. Read the new DOL guidance memo on this topic at http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.htm.
Measurement, Stability, and Admin Periods
Measurement periods are the defined period of time where an employer calculates average work hours for variable hour employees to determine if they are eligible to participate in their medical insurance plan or not. Any variable employee who averages 30 hours or more during the measurement period is eligible. Measurement periods can be between three and 12 months in length. You can also define different measurement periods for new hires and for regular employees. Make sure to define your selected measurement periods, stability periods and administrative periods in writing, and consistently follow and administer benefit eligibility accordingly.
A stability period is the time period that an eligible employee can remain on medical coverage regardless of their current average work hours. The stability period must be equivalent to the same time period as the measurement period, but not less than 6 months.
Employers are allowed an administrative period of up to 90 days to perform initial measurement period calculation of eligibility for coverage and enrollment into plans. However, the measurement period and stability period combined cannot be more than 13 months for new employees. As soon as one Measurement Period ends, the next one begins with the Administrative Period overlapping the end of the prior Stability Period and the beginning of the next Measurement Period.
Calculating the Play or Pay Penalty
For businesses with fewer than 50 FTE, there is no play or pay penalty. Penalties are based on two areas of compliance: minimum essential coverage (plan pays on average at least 60% of the total allowed benefits and participants don’t pay more than 40%) and affordable coverage (not more than 9.5% of employee’s monthly wage for self only coverage). Businesses with 50 or more employees that do not offer minimum essential coverage will be assessed a $2,000 per employee (minus the 30 employee allowance allowed for this category only) per year tax penalty if even one employee enrolls in a health insurance exchange plan and qualifies for a premium subsidy or federal tax credit. This penalty goes to $3,000 per employee if the coverage offered is not affordable.
Sections 6055 and 6056 employer reporting
If you are an ALE with 50 or more FT or FTE employees, you are required to complete forms 1095-C/1094-C to report who is offered minimum essential coverage at affordable rates. This allows the IRS to determine if you or employees are to be fined. All self-funded plans must report as well, either on forms 1095-B (if less than 50 employees) or 1095-C.
Make sure you use the right calculations when determining which parts of the Affordable Care Act apply to you and in setting up eligibility. There are many facts to consider in adhering to these laws and ensuring compliance.
by Ken Spencer,