Also known as the “Shared Responsibility” or “Play or Pay” provision of the Affordable Care Act (ACA), the Employer Mandate is one of the most expensive, complex, and feared aspects of Health Care Reform. With year-end officially upon us, now is the perfect time for an ACA refresher!
Under the Employer Mandate, employers with 50+ full-time equivalent employees must offer a certain level of health insurance coverage at an affordable rate to all full-time employees or face penalties. These penalties are triggered when a full-time employee of a covered employer receives a federal subsidy for purchasing individual coverage from the Health Insurance Marketplace.
Does the Employer Mandate apply to me?
Well, that depends on your number of full-time equivalent (FTE) employees. FTEs are employees who regularly work 30+ hours per week. However, when calculating your eligibility you must also include part-time employees as a fraction of full-time employees.
To determine if the Employer Mandate applies to you, calculate your number of FTEs each month in the previous calendar year. Then, average these 12 amounts to determine your average number of FTEs for the year. Using this number, you can determine if you must comply with the Employer Mandate for the next calendar year.
For example, if an employer averaged 54 FTEs in 2019, they will be subject to the Employer Mandate in 2020.
Top Tip: There is no need to perform this calculation if you know you will be over the 50 FTE threshold. Only organizations that are somewhat borderline need to perform this calculation.
What do I have to do to comply?
1. Offer a health plan that meets the “Minimum Value” requirement
What constitutes “Minimum Value”? Generally, this means the plan has an actuarial value of 60% or higher (a.k.a. Bronze Level). However, we don’t recommend attempting to determine whether your plan meets these requirements yourself. Instead, you should always check with your health plan broker or carrier. They’ll be able to confirm whether or not your plan meets the minimum value requirements.
2. Ensure your coverage is “affordable”
For 2020, this means that the employee does not have to contribute more than 9.78% of their total household income on the premium for single health insurance coverage. As this information is generally unknown by the employer, there are three safe harbors in place you can use to determine affordability:
- W-2 Safe Harbor – the employee does not have to contribute more than 9.78% of their W-2 wages on the premium.
- Rate of Pay Safe Harbor – the employee does not have to contribute more than 9.78% of their monthly wages on the premium. To calculate this for hourly employees, multiply the employee’s hourly rate by 130 hours. For salaried employees, you can simply use the employee’s regular monthly salary.
- Federal Poverty Level Safe Harbor – the employee does not have to contribute more than 9.78% of the federal poverty level for the year on the premium. For 2020, this means that the employee does not have to contribute more than $103.99/month for the lowest cost employee-only plan.
Note: No employer contribution is required toward dependent health coverage. Rather, all of these affordability calculations are based on the employee-only cost of the health plan.
3. Offer the plan to all full-time employees and their dependent children
Eligible employers must offer the health insurance plan to all full-time employees regularly working 30+ hours per week. Employers must also offer the health plan to the employee’s dependent children. However, organizations do not have to extend coverage to spouses or domestic partners under the Employer Mandate.
Do I have to offer coverage to part-time, seasonal, or variable hour employees?
The Employer Mandate requires eligible employers to offer affordable, minimum value health insurance coverage to all full-time employees regularly working 30+ hours per week. Therefore, you do not need to offer this coverage to part-time employees working less than 30 hours per week.
Variable Hour Employees
Under the IRS guidelines, there are two different types of variable hour employees. These are ongoing variable hour employees and new variable hour employees.
- Ongoing Variable Hour Employees have worked for the company for more than one complete standard measurement period. After this measurement period, employers must allow employees who averaged 30+ hours per week to enroll in the health plan following an “administrative period” of up to 90 days. The employee will remain eligible for health insurance for the entire stability period. (Regardless of actual hours worked during that time!) The reverse is true if the employee works less than an average of 30 hours per week during the measurement period. The employer does not have to offer the health plan coverage for the subsequent stability period.
- New Variable Hour Employees – Just as with ongoing variable hour employees, the employer may set an initial measurement period of 3-12 months for new variable hour employees. The employer may also opt to use an administrative period. For new variable hour employees, the stability period: (1) must be the same length as the stability period for ongoing employees; and (2) may be up to one month longer than the initial measurement period. It is important to note that the company’s initial measurement period and an administrative period together may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date. (Totaling, at most, 13 months and a fraction of a month.)
Following this one-time initial measurement period, the company must transition the employee to the standard measurement period for ongoing employees.
The Employer Mandate generally does not consider seasonal employees who work six months or less as full-time employees. However, the organization may opt to apply the initial measurement period (described above) to seasonal employees.
Top Tip: Using a longer initial measurement period will be more likely to exclude seasonal employees from the health plan. For example, a ski instructor who works 50 hours per week from November through March but has an initial measurement period of 12-months will probably not average 30+ hours a week for the entire measurement period. Therefore, the company would not have to offer them health insurance under the Employer Mandate.
What about penalties?
There are two penalties for Employer Mandate non-compliance. Though either could be assessed, you will never have to pay both in the same year.
The “A” penalty is assessed if the employer is subject to the Employer Mandate, but fails to offer health insurance to at least 95% of its full-time employees. The “A” penalty is $2,320 annually for each full-time employee, excluding the first 30 employees. It is calculated monthly but paid annually.
The “B” penalty applies if the employer’s health plan fails to meet the minimum value or affordability requirements. This penalty is the lesser of $3,480 per employee receiving a subsidy or the “A” calculation above. It is also calculated monthly and paid annually.
What do you think?
Do you feel like you have a solid grasp on the Employer Mandate? We hope these tips and guidelines are helpful in understanding this ACA provision. (Keep an eye out for a follow-up post on Employer Mandate reporting requirements!) In the meantime, if you’re interested in learning more about the Affordable Care Act, check out our ACA Refresher in our On Demand Training Hub! Want more ways to stay up-to-date and compliant? Be sure to follow us on Facebook, Twitter, and LinkedIn to make sure you never miss a beat!
Disclaimer: The above article was originally published on January 21, 2019 and has been updated as of November 10, 2020. The article is intended for informational purposes only. It should not be relied upon in reaching a conclusion regarding choosing a health plan or Employer Mandate responsibility. Applicability of the principles above may differ substantially in individual situations. Please consult with your legal counsel or HR advisor prior to making any adjustments to your plans or reporting. SDP is not responsible for any inadvertent errors that may occur in the application of the Employer Mandate or Affordable Care Act.