The Affordable Care Act (ACA) is a source of a lot of confusion among business owners and rightfully so. The actual written law and supporting regulations consist of thousands of pages of political and legal jargon. It is enough to make any reader overwhelmed, but also vitally important for all business owners to understand. In an effort to make the ACA more approachable, we have created a list of terms that are important to understand. Much of this information is pulled directly from the IRS website.
Applicable Large Employee (ALE): If an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is an ALE for the current calendar year. For more details see this page. You will see this term a lot, especially with the impending reporting requirements for ALEs. More information about the reporting requirements can be found here.
Full-time employee: A full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month.
Full-time equivalent employee: An employer determines its number of full-time-equivalent employees for a month by combining the number of hours of service of all non-full-time employees for the month (not to exceed 120 hours per employee) and divide the total by 120. The IRS website has a great example here. An employer’s number of full-time equivalent employees is only relevant to determining whether an employer is an ALE and does determine who is eligible for coverage.
Seasonal workers: A seasonal worker is generally defined as an employee who performs labor or services on a seasonal basis, such as a retail employee hired during the holidays. This distinction is important because an employer is not considered to have more than 50 full-time employees (including full-time equivalent employees) if both of the following apply:
- The employer’s workforce exceeds 50 full-time employees (including full-time equivalent employees) for 120 days or fewer during the calendar year, and
- The employees in excess of 50 employed during such 120-day period are seasonal workers.
Employer Shared Responsibility Requirement: This is often referred to as the employer mandate or the pay or play provision. It requires that ALEs either offer minimum essential coverage (see below) that is “affordable” (If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee.) and that provides “minimum value” (A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. The Department of Health and Human Services (HHS) and the IRS have produced a minimum value calculator.) to their full-time employees and their dependents, or potentially make a penalty payment to the IRS. More information can be found here.
Individual Shared Responsibility Requirement: This is also often called the individual mandate. It requires that each individual maintain qualifying health care coverage (known as minimum essential coverage, see below) for each month, qualify for an exemption, or make a penalty payment when filing his or her federal income tax return. More information can be found here.
Minimum essential coverage (MEC): This is the term given to health plans that meet the qualifications of the ACA to meet the individual Shared Responsibility Requirement (also called the individual mandate). This requires that all individuals (who do not meet any of the exemptions) have health care coverage that meets certain minimum requirements. ALEs should be concerned about MEC because it also applies to the Employer Shared Responsibility Requirement. If you are a non-ALEs and offer a health plan that meets MEC, your health plan provider will furnish your employees with a 1095B form so they can prove they have met the Individual Shred Responsibility Requirement for the year and avoid tax penalties. More information about the reporting requirements can be found here.
Do you still have questions about the ACA? Contact a member of our Account Management team today for assistance.
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