Employee Benefits: A Few Do’s and Don’ts of Health Care Coverage Under ACA
Dealing with employee benefits is no simple matter anymore. For example, it is no longer an easy decision as to whether an employer will provide health care for employees or simply choose to pay a penalty.
If the employer provides coverage, the question gets more complicated: what will that health care plan look like? The coverage provisions of the Affordable Care Act are now fully in effect in 2016, and the reporting provisions are effective for the first time this year. We thought this was a good time to write a few ideas on how the Affordable Care Act has changed the way we provide employee health benefits.
Do I Have to Provide Employee Benefits to My Employees?
The short answer is “no”. A large employer can choose to pay a penalty known as the employer shared responsibility payment instead of providing coverage. The longer answer is that how the ACA affects your business depends on whether you are a small or large employer.
If you have fewer than 50 full-time employees, you are a small employer eligible to buy coverage for your employees under the Small Business Health Options Program. Full-time employees are those defined as working, or paid for, 130 hours in a month. The coverage you provide must meet the essential health benefits definition.
If you have fewer than 25 full-time employees with average annual compensation less than $50,000 and you pay at least 50% of the coverage premiums, a small business health care tax credit can help you buy coverage for your employees.
If you have 50 or more full-time employees, or if your company is a member of a controlled group with 50 or more full-time employees in the prior calendar year, the Act’s large employer rules apply to you. As a large employer, you are subject to what has become known as the “employer mandate” to provide coverage, otherwise known as the Act’s “play or pay provisions.”
If you choose not to offer coverage to at least 95% of your full-time employees and their dependents, then you must pay a penalty if even one employee receives a premium tax credit to help him buy health coverage through the healthcare marketplace. The penalty is $2,000 per full-time employee, excluding the first 30 employees from the assessment.
If you have 50 or more full-time employees, and you offer a health plan to at least 95% of your full-time employees and their dependents, but at least one full-time employee receives a premium tax credit through the healthcare marketplace, you will pay the lesser of $3,000 for each employee receiving the premium credit or $2,000 for each full-time employee, excluding the first 30 employees from the assessment.
If you have 200 or more employees, you must automatically enroll employees into your company’s health plan coverage. Of course, your staff may opt out of the coverage.
But My Company is a Non-Profit Organization, So Do I Have to Comply with the Act?
The Act’s definition of large employer encompasses all types of employers, including tax-exempt organizations and government employers.
Does the Act Say What Health Coverage I Have to Provide?
President Obama signed The Patient and Protection Affordable Care Act (Affordable Care Act, or ACA) into law on March 23, 2010, and it was upheld by the Supreme Court on June 28, 2012. We’ve spent the last couple of years waiting for various portions of the Act to come into effect. As of 2016, here is what the Affordable Care Act says your employer plan must provide:
- for large plans, a comprehensive health benefit plan that covers at least 60% of the value of covered benefits, limits annual cost-sharing to current HSA limits, and provides a benefits package that is not more extensive than the typical employer plan;
- small plans must offer at least the essential health benefits package in one of four benefit tiers: bronze — covers 60% of actuarial value of covered benefits, silver — covers 70% of actuarial value of covered benefits, gold — covers 80% of actuarial value of covered benefits, and platinum — covers 90% of actuarial value of covered benefits;
- covers eligible dependents to age 26;
- prohibits lifetime limits and pre-existing conditions exclusions.
So, What Are Essential Health Benefits?
Employer plans must provide the following essential benefits under a group health plan:
- Ambulatory patient services
- Emergency services
- Maternity (including newborn care)
- Mental health and substance abuse treatment
- Prescription drugs
- Rehabilitative/habilitative services and devices
- Laboratory tests
- Preventive/Wellness services
- Chronic disease management (such as diabetes)
- Pediatric services, including dental and vision
If you have a company intranet it’s a good idea keep your employees up to date with what’s covered under your group health plan.
How Does the System Track Whether I Comply Under the Act?
The answer to this question is the same as asking how the government knows how much money you pay your employees. The Act tasks the IRS with collecting the information and imposes reporting responsibilities on large employers.
Employers must provide an information return called a 1095-C to each employee who worked as a full-time employee for at least one month in 2015. This year the filing deadline was March 31, 2016.
The form works like a W-2 except that it reports how many hours each employee worked as a full-time employee, whether the employer offered health coverage, whether the employee enrolled in health coverage, and whether or not the health plan met the minimum coverage requirements under the ACA. Employees who were not full-time employees but enrolled in a self-funded health plan must also receive the 1095-C.
Employers must send copies of the 1095-C forms to the IRS. The deadline for transmitting to IRS is May 31 for paper and June 30 for electronic filings. If you have 250 or more employees, you must file your 1095-C Forms electronically.
Employees then file their 1095-C forms when they file their taxes each year. The IRS will use the forms to track and enforce ACA individual mandate penalties for those employees who opted not to have health coverage and employer mandate penalties for those who did not provide ACA mandated coverage.
Penalties for failure to file timely and accurate information returns are steep: $500 per return. A word to the wise: file the returns timely and as accurately as possible.
What Is the So-called Cadillac Plan Tax and When Is It Effective?
Earlier we said that employers must not offer plans more extensive than typical employer plans. If you provide your employee group health plan features above certain cost thresholds, you may incur a 40% excise tax on the cost of the benefits exceeding the cost limits. This is known as the Cadillac Plan tax. In December 2015, Congress delayed its effective date two years from 2018 until the year 2020.
For 2018, the cost thresholds are $10,200 for individuals and $27,500 for family coverage. These thresholds will update before the law goes into effect in 2020. According to the International Foundation of Employee Benefit Plans’ survey, 60% of employers would bump up against the Cadillac tax in 2018 unless they make changes. An additional 10% would hit the limit in 2019, 12% in 2020 and 11% in 2021. Employers may reach the limit because they are in a high-cost area or because they have an older population which tends to higher benefit costs.
To learn more about health coverage under the ACA, visit the IRS’ website and study the Affordable Care Act Provisions for Employers page. You can also visit the IRS’ ACA Information Center for Large Employers which contains updates on trending information for large employers.
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