In response to questions from concerned business owners, we’ve compiled answers to some of the frequently asked legal questions regarding complying with the Affordable Care Act, or “Obamacare”.
The Affordable Care Act: FAQ For Business Owners
Many businesses are still unaware that they must assess this year whether they are required under the Patient Protection and Affordable Care Act (“ACA”) — otherwise commonly referred to as “Obamacare” — to provide affordable healthcare to their Full Time employees when the health care plan mandate goes into effect on January 1, 2014.
Because of the complex nature of the ACA’s provisions and their nationwide impact, we have prepared this FAQ Sheet to explain in basic terms how the ACA works and to address the most common misunderstandings about the law itself by the business community. Remember: simple mistakes can often be costly to fix.
1. Do the ACA’s Health Care Plan Requirements apply to every business? No. The ACA only applies to businesses having “Large Employer Status”, which is defined under the ACA as having 50 or more Full Time or Full Time Equivalent (“FTE”) employees.
A Full Time employee under the ACA is someone who works an average of 30 hours per week (or 130 hours per month) as measured over a period of six (6) consecutive months in the 2013 calendar year. Hours include both time worked and time paid but not worked (such as holidays, paid time off, and so forth). But this is not the end of the assessment process because FTE employees also must be taken into account.
To protect against businesses trying to get around the 50 Full Time employee threshold by simply reducing the hours of a few employees below 30 hours per week, the ACA requires that an employer add together the total number of Full Time employees and FTEs for purposes of evaluating “Large Employer Status”. The number of FTEs is determined by combining the number of hours of service in a given month for all employees averaging less than 30 hours of service per week and dividing that number by 120. That calculation will yield the number of FTEs that must be added to the total number of Full Time employees to determine whether an employer meets the “Larger Employer Status” threshold.
Example: Business X has 42 Full Time employees and 20 employees who each work on average 80 hours per month. Using the calculation set forth above, those 20 employees would translate into 13 FTEs (20 x 80/120). The total of Full Time employees and FTEs at Business X would therefore be 55 and trigger “Large Employer Status.” Business X must therefore provide an ACA-compliant health care plan for its Full Time employees in 2014.
2. If a business qualifies as a “Large Employer” under the ACA, does it need to provide healthcare plans for all company employees? No.
Businesses that are required to have an ACA-compliant plan only need to provide health care benefits to Full Time employees (i.e., those working 30 hours or more per week).
3. What does a business need to include in its health care plan to become “ACA-compliant”? ACA-compliant Plans must: (A) be “Affordable”; (B) Provide “Essential Benefits”; and (C) Cover 60% of the Plan Cost (otherwise known as “Minimum Value”).
The Affordability Test.
In order to meet ACA’s definition of an “Affordable” health care plan, the lowest cost option for a Full Time employee’s individual coverage must be less than 9.5% of the employee’s modified adjusted gross household income. Businesses can evaluate whether they satisfy the 9.5% threshold of an individual employee’s AGI by looking to Box 1 of an employee’s Form W-2 Wages.
Example: Employee X has W-2 Wages of $30,000. The health care plan requires the employee to contribute $200 per month for individual coverage (or $2,400 per year). The coverage would therefore meet ACA’s definition of Affordable. If the plan were to require the employee to contribute $250 per month (or $3,000 per year) it would exceed the 9.5% threshold and therefore the plan would not satisfy the affordability standard.
The “Essential Benefits” Requirements.
An ACA-compliant Plan must also contain “Essential Benefits” unless the plan is grandfathered under the ACA (and most existing plans do not qualify for grandfathered status for reasons not addressed here – consult your healthcare consultant or provider for details).
Such Essential Benefits must include at a minimum:
- Ambulatory patient services, such as doctor’s visits and outpatient services;
- Emergency services;
- Maternity and newborn care;
- Mental health and substance use disorder services, including behavioral health treatment;
- Prescription drugs;
- Rehabilitative and habilitative services and devices;
- Laboratory services;
- Preventive and wellness services and chronic disease management; and
- Pediatric services, including oral and vision care.
In addition, an Essential Benefits small group Plan is subject to annual deductible limits ($2,000 for self coverage and $4,000 for family) and all plans are subject to annual out-of-pocket maximums for Essential Benefits. For 2014, the out-of-pocket maximums are $6,350 for individual coverage and $12,700 for family coverage.
The “Minimum Value” Test
“Minimum Value” under the ACA means that the employer’s share of its sponsored plan is at least 60% of the total cost of the plan.
Both the CMS.gov and IRS.gov websites have a Minimum Value Calculator that can be downloaded as an Excel Spreadsheet and used by the employer to determine whether its sponsored Plan meets the Minimum Value requirements. This calculation can easily be handled by health care benefits consultants, who will be able to recommend approaches to health care plans to insure minimum value is achieved.
4. Do businesses have any obligation to notify employees of their rights under the ACA regardless of whether or not they are providing an ACA-compliant Plan in 2014? Yes.
On or before October 1, 2013, all businesses that would otherwise be subject to the Fair Labor Standards Act (which includes any business in the United States with annual dollar volume of sales or receipts in the amount of $500,000 or more) must provide ACA notification advising employees of their rights and whether the employer will be providing an ACA-compliant plan.
This notice is known as a “Marketplace Exchange Notice,” which relates to the fact that individuals can obtain health care subsidies or purchase health care through State Marketplace Exchanges; such exchanges are expected to go into effect later this year if such insurance is not offered through an employer. Sample notice links from the Department of Labor are attached here (employers who offer a health plan) and here (employers who do not offer a health plan).
5. Does the ACA make any changes to COBRA that businesses must comply with? Yes.
The ACA also requires businesses to notify any employees eligible to receive COBRA benefits that they are entitled to elect coverage under the Marketplace Exchange rather than COBRA.
A link to the DOL website page regarding new sample COBRA notification forms is available here.
6. What exposure do businesses have if they are required to provide an ACA-compliant health care plan and fail to do so? The penalties for non-compliance under the ACA range from $2,000 to $3,000 per Full Time employee for each year of non-compliance, with the amount of the fine dependent on the nature of the employer’s failure to comply with the law.
If a business fails to offer Full Time employees a healthcare plan, the ACA penalty is $2,000 per Full Time employee (after the first 30 Full Time employees) for any employee that would otherwise be eligible to receive coverage under an ACA-compliant plan from their employer.
If a business offers a plan to all Full Time employees, but the plan is not ACA-compliant, the business may be fined $3,000 for each Full Time employee that seeks health care coverage through a healthcare exchange rather than through the employer sponsored plan.
It is also important to note that because the Internal Revenue Service will be policing ACA compliance, an employer who fails to comply with ACA may expose itself to other federal investigations into employee matters, including a full IRS or Department of Labor audit.
In conclusion, every business MUST carefully consider as part of its planning whether it is subject to the ACA and take steps this year to come into compliance if necessary. OlenderFeldman LLP is available to assist you in this regard and to make recommendations on health care consultants as well to develop and structure an ACA-compliant plan. Please contact Howard Matalon, OF’s Employment Partner, for an evaluation of your ACA compliance requirements by email or by using our contact us form.