Employer Shared Responsibility

Overview

The Employer Shared Responsibility (also called the Employer Mandate and the “Pay or Play Penalty”) is a provision of the Affordable Care Act (ACA) that requires some employers to offer their full-time employees (FTEs) and their dependents affordable and minimum value health coverage or be subject to possible financial penalties. Delayed for 2014, this provision will go into effect on January 1, 2015 for large employers and January 1, 2016 for medium employers.


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*ACA defines a full-time employee as one who works 30+ hours per week or 130+ hours per month.

For the 2015 calendar year, medium and large employers are required to complete IRS Forms 1094-C and 1095-C to verify compliance with the Employer Shared Responsibility. These completed forms will be due in early 2016; they are currently still in the drafting stages with the IRS. No completed forms are due for the 2014 calendar year.

 

Determining Employer Size                                                     

To find one’s number of full-time equivalent employees, and thus one’s employer size, a number of factors need to be taken into consideration, such as:

  • Full-time employees
  • Part-time employees
  • Seasonal employees
  • Educators and faculty

Depending on the employer, this process of determining the number of full-time equivalent employees can become quite involved and complex. For this reason, employers are encouraged to confer with their legal counsels to ensure they have completed the process correctly.


Frequently Asked Questions                                                                 

Q. What is “affordable” health coverage?

A. Affordable means an employee’s premium for individual coverage does not exceed 9.5% of that employee’s income. Three safe harbor methods exist for ascertaining an employee’s income:

  • W-2 wages
  • Rate of pay
  • Federal poverty line

Whichever determination method is chosen, an employee’s premium cannot exceed 9.5% of that amount.

Q. What is “minimum value” health coverage?

A. Coverage is considered minimum value if it pays at least 60% of the expected cost of benefits. CMS provides a minimum value calculator for determining this (see Other Valuable Resources). 

Q. Who is considered a dependent under this provision?

A.  For the purposes of the Employer Shared Responsibility, an employee’s dependents only include his/her children up to age 26, excluding stepchildren or foster children. This means that spouses are not considered dependents under this provision.

Q. What are the penalties for not offering this coverage?

A. If an employer does not offer affordable and/or minimum value health coverage and at least one of their employees receives a premium tax credit in the health insurance marketplace, that employer could own a financial penalty. The exact penalty varies based on what kind of coverage the employer offers.

 

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Q. What about non-calendar year plans?

A.  If an employer maintains a non-calendar year plan (i.e., a fiscal year plan), transition relief may be available for those months preceding the start of the 2015 non-calendar plan year. First, the employer must have

  • Maintained the non-calendar plan year on December 27, 2012, and
  • Not made a change to the plan year after that date.

 

That being true, transition relief then applies on an employee by employee basis, and this relief is applied only if the following four conditions are met:

  • The employee was not eligible for a calendar year plan maintained by the plan sponsor,
  • The employee fits into one of two qualification buckets,
  • The employer offers the employee affordable and minimum value coverage by the first day of the non-calendar year plan in 2015, and
  • The employer satisfies the “substantially all” test for the month that begins the 2015 non-calendar year plan.

In order for an employee to qualify for transition relief, he/she must fit into one of two qualification buckets. Either a) the employee was eligible for coverage on February 9, 2014 under the plan, or b) the employer offered coverage to at least 33% of all employees in the plan year preceding 2014 (or the enrollment period preceding February 9, 2014) or at least 50% of full-time employees in that same time period.

Lastly, if all those requirements are met, the employer must satisfy the “substantially all” test, which means that, in the first plan month of the 2015 non-calendar plan year, the employer must offer affordable and minimum value coverage to at least 70% of all its full-time employees.

If all these requirements are met, the employer and employee are eligible for transition relief for the months preceding the start of the 2015 non-calendar plan year.

 

Other Valuable Resources                                                                                                         

IRS Q&A on Employer Shared Responsibility

Minimum Value Calculator

IRS Instructions for Forms 1094-C and 1095-C (drafts)