I know the chances that this article’s readers are probably not reading this as a bedtime story or “just for fun”. But as dry as understanding the ACA mandate can be, it is important to embrace it with both hands… that way your hands will be tied and you won’t have to worry about hurting anyone! I have seen many things improve as a result of the mandate, but have also seen individuals and businesses be impacted from negligence to compliance regulations. I am going to take you down the delightful trail of “Everything You Need to Know About the ACA Mandate”! Buckle up, all extremities in the cart, and we’re off!
Large Businesses and Midsize Businesses (who may be larger than they think)
On our first stop, we will explore the changes pertaining to employers. There have been continuing changes since the mandate was first introduced, so let’s make sure you are up to speed.
What does ACA compliance mean for your business?
It has been required for businesses with 100 or more full-time employees to offer health care benefits to their employees. Now, if your business has 50 or more full-time equivalents (FTE) based off the prior year’s numbers, then your business is now considered an ALE – Applicable Large Employer (and you have to offer health coverage!). Before you get too excited, let me explain. An employee that works more than 30 hours a week is considered a full-time employee. The mandate has created a formula to merge your part-time staff and combine them to make full-time equivalents. For example: Say you have a total of 80 employees on the payroll. You have 30 full-time employees who work 30+ hours a week. The rest are part-time and (for easy math) all work 15 hours a week. Those part-time employees are paired together to create full-time equivalents, and would add another 25 full-time employees to your tally. So your business would be considered an ALE, with 55 FTE. This change in the definition has confused many employers and caused them to pay noncompliance fines—which we will get into in another section.
If you are a business owner who has been deemed a large employer, chances are you have organized yourself to handle the compliance paperwork and have probably issued your 1095 tax forms to your employees. If you are a small business, and are thinking of growth, keep this formula in mind with regard to your business size. If you have not already, start tracking your employees on payroll each month and their average hours. It will be a much smoother transition during your growth period to start the reporting organization now.
Uh oh, there is a sharp twist and a steep drop ahead, hold on tight!
Is your offering Affordable?
So you have decided on an insurance plan, and benefits package to offer your employees…and it seems to be the best value to you. How do you know if it is considered affordable to your employees? Surprise, there is another formula for that! Bear in mind, you are offering the benefits to your full- time employees only. The chosen plan will pass the affordability test if the employee’s required contribution for self-only coverage does not exceed 9.66 percent of the employee’s household income for the year. Let me provide another handy example. In Florida, the minimum wage is $8.05/hour. If your lowest paid employee makes $8.05/hour and works 40 hours a week, the employee’s “Safe Harbor” salary amount (the threshold amount requiring affordable coverage) is $16,744. Multiply that by 9.66% to find that the maximum amount this employee can pay towards their health insurance is $1,617 a year, or $135 a month. When looking at your employee premiums for the health benefit, make sure that their contribution is that or less. Have I lost you yet?
I almost see the end of the ride….
How does this impact my bottom-line?
I hear the voices in your head overwhelmed with new rules, and wondering what you think you will have to re-arrange in your budget to accommodate these new standards. If we can just take a moment of peace, and really look at the broad picture, I think it may all fall into place.
Non-compliance can cost you. Honestly, it can cost you more for defiance of compliance than to embrace the value of offering a benefits package to your employees. You thought you were reading an article, not solving math problems…but, I have another formula for you! You are a large employer with 75 full-time employees. You have decided you are above the law, and fail to offer health insurance to your employees. One of your employees goes to the marketplace to get a subsidy, and fills out that their employer does not offer health benefits. You are going to get slapped with a $96,300 fine for failure to offer coverage! We have arrived at this total by taking your 75 employees minus 30 (the government’s grace) multiplied by $2,140. Ouch! Moral of the story, in the “pay or play” ballgame… play nice, and by the rules…it’s better than the consequences.
One last twist and round-a-bout..
When choosing what plan to offer for your benefits package, there are guidelines as to what is deemed Minimum Value or Minimum Essential Coverage. Most plans that the carriers now offer are considered a qualified plan. A quick way to ensure your plan is qualified is to see if a metal tier of Bronze, Silver, Gold or Platinum labels the plan. The tiers stand for the level of cost sharing or actuarial value that increases from Bronze to Platinum. A Bronze level plan is a very basic plan with minimal benefits, whereas a Platinum plan is a benefit rich plan with very low deductibles and copays. There are plans that can be offered that cover just preventative care on the most basic level of benefits-called a “MEC” plan. They are a non-traditional form of health insurance, and you aren’t completely safe from the penalties. It’s a dicey solution to the reform, as you comply with Part A of the mandate, but are at risk of the Part B compliance fine. Let me circle you back around to the last example. You have 75 full-time employees and offer a MEC plan to those employees. One of them receives a subsidy from the marketplace because the MEC plan that you offered him doesn’t meet the Minimum Value Requirements. Because he is now disgruntled, he runs and tells his best friend, who tells her best friend, etc…and before you know it, 15 employees have gone to the marketplace to receive a subsidy. For each of the 15 employees receiving that subsidy, you are now fined $3,240 – totaling $48,600. Not to mention, the costs associated for offing the plan combined with the fine, are probably more expensive than just offering a qualified health plan from the start. While we are talking about the worth of a health plan, have you considered how the offering helps in retaining valuable employees and what that means for your company?
As we are entering back into the loading zone, may I remind you to remain seated, buckled in until a complete stop, and check under your seat for any stray belongings.
Now that you know the twists and turns, (and all the formulas) in regards to the mandate, I hope you feel confident in your business, and the upcoming choices you will be making on your health benefit offerings. I will leave you with a bullet point list of 5 reasons why offering benefits to your employees enhances your company:
- Better employee morale– Showing you care about your employees, helps them to be more invested and loyal.
- Healthier employees– More likelihood that with benefits, employees are taking advantage of their check-ups, and preventative steps.
- Better job performance– Because employees are happy and healthy, they are not taking off sick days, and care about their team and productivity.
- Minimize your turnover rate– Employees feel valued, and are dedicated to stay at a place where they are happy.
- Increase your company appeal– Because your employees are happy, healthy & loyal, word will travel that your company is the place to be!
Food for thought!
I know I had a delightful ride, and hope you shared the same!
Stay tuned for my next post on “What The Mandate Means For Individuals”.