.

FAQ - ALEs and Employer Mandate

October 8, 2020
threequestions

This FAQ compiles key information about how the Affordable Care Act’s employer mandate affects Applicable Large Employers (ALEs).

General Overview

Determining ALE Status

Employer shared responsibility payments

Compliance and Reporting

General Overview

What is the employer mandate?

The employer shared responsibility provisions (ESRP) of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) are generally referred to as “the employer mandate.”

The employer mandate requires applicable large employers (ALEs), including government entities and nonprofit organizations, to offer their full-time employees health insurance that is affordable and provides minimum value, or be subject to penalties in the form of payments under the employer shared responsibility provisions.

Learn how an ICHRA satisfies the employer mandate

Primary source(s):

How is affordability defined and calculated?

Affordability is calculated using an employee’s salary (safe-harbor) and the lowest cost silver plan for that employee’s age and geographic rating area. In order to be considered affordable, the lowest cost silver plan must not be more than 9.83% of the employee’s salary.

Minimum affordable allowance = lowest cost silver for non tobacco user - (employee salary*.0983)/12

For employers using an ICHRA, the lowest cost silver plans are calculated for the individual only, do not consider dependents, and use the non tobacco user rate even though this simplification may not reflect the actual employee’s situation.

To be considered affordable, an employer must offer an ICHRA allowance higher than or equal to the minimum affordable allowance. If the offered ICHRA allowance is less than the minimum affordable allowance, the ICHRA is deemed unaffordable and the employer may be subject to pay employer shared responsibility payments.

See this blog post for more information.

Primary source(s):

Does the employer mandate require coverage be offered to dependents?

The employer mandate does require that an employer offer qualified, affordable health coverage to its employees and their dependents. For the purposes of the employer mandate, a dependent is an employee’s child (including a child who has been legally adopted or placed for adoption) who has not reached the age of 26.

Spouses are not considered dependents and neither are stepchildren, foster children, or non-US citizen children not living in the US or a contiguous country.

Employers offering an ICHRA must offer an affordable allowance to at least 95% of their full-time employees. Affordable allowances are determined using lowest-cost silver plans for the individual and not for the family. See below for information about penalties if this is not satisfied.

Primary source(s):

Determining ALE Status

How do employers know they are an Applicable Large Employer (ALE) and thus subject to the employer mandate?

Only applicable large employers (ALEs) are subject to the employer mandate.

In general, if an employer has a monthly average of at least 50 full-time equivalent employees (FTEs) during a calendar year, the employer is considered an ALE for the next calendar year.

Primary source(s):

How does an employer calculate its workforce size to determine if it is an ALE?

To determine its workforce size for a given year, an employer needs to calculate its full-time equivalent (FTE) workforce. To do so:

  1. An employer adds its total number of full-time employees for each month of the prior calendar year and divides that total by 12 to get a monthly average for the calendar year. If this number is 50 or more, they are an ALE.
  2. If the employer has part-time employees, the employer should also calculate the full-time equivalent employees for each calendar month of the prior calendar year and divide that total number by 12 to get an average for the year. If the number of full-time equivalent employees plus the number of full-time employees is 50 or more, they are an ALE.
  3. If the employer has seasonal workers, these workers must also be factored into the workforce size calculation by translating them into FTEs. For specifics on how to calculate seasonal workers, please refer to Q27 in this Q&A document.

For purposes of the employer shared responsibility provisions, a full-time employee is, for a calendar month, an employee employed on average at least 30 hours of service per week, or 130 hours of service per month.

Hours worked by part-time employees are converted into full-time equivalent employees by adding all hours worked by part-time employees during a month and dividing the total by 120 to get the number of full-time equivalent workers in that month.

Notes:

  • Only workers in the US are counted.
  • An employee has medical care through the military, including Tricare or Veterans’ coverage under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 is not counted toward the 50-employee threshold for a month in which they have the care.
  • Volunteer workers (like firefighters or EMTs for local communities) are not counted.

Primary source(s):

How does common ownership impact ALE status?

In instances where multiple businesses have a certain level of shared ownership or are otherwise related under certain rules of section 414 of the Internal Revenue Code, these businesses must be aggregated into a controlled group before determining whether the group collectively is considered an ALE. This aggregation occurs even if the businesses are separate legal entities.

If the controlled group is collectively determined to be an ALE, each subcomponent (separate business) of that controlled group is considered an ALE, regardless of the total number of employees at that entity, and is subject to the ESRP (Employer Shared Responsibility Provisions).

Example

Tanisha owns two businesses, each employing 30 full-time employees on average each month last year. Together, her two businesses are considered an ALE for this year and each will be treated as an ALE.

Primary source(s):

How does timing impact ALE status calculation?

ALE determination is based on the calendar year. In most cases, employers do not suddenly “hit an ALE threshold” of 50 full-time employees and immediately become subject to the ESPR. Generally, calculations are based on the prior calendar year.

If any employer was only in existence for part of the prior calendar year, the calculations are prorated. For example, Marcus Manufacturing starts its business on May 1, and employs 52 people every month from May to December. The calculations for the forthcoming calendar year will be based on the eight months of data available from Marcus Manufacturing’s inaugural year and they will be considered an ALE.

An employer that was not in existence on any business day in the prior calendar year is considered to be an ALE in the current calendar year if the employer is reasonably expected to employ, and actually does employ, an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the current calendar year.

Primary source(s):

Employer shared responsibility payments (ESPR)

How does the FTE number factor into potential penalty calculations?

It does not. The payments focus on actual full-time employees, not full-time equivalents (FTEs), even though FTEs are relevant in calculating ALE status.

When would an employer be subject to potential employer shared responsibility penalties?

An ALE may be subject to one of two employer shared responsibility payments, but not both.

The first type of penalty applies to an ALE that does not offer minimum essential coverage (MEC) to at least 95 percent of its full-time employees (and their dependents). This ALE will be liable for the first type of employer shared responsibility payment if at least one full-time employee receives the premium tax credit for purchasing coverage through the Marketplace.

The second type of penalty applies to an ALE that does offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents) but this coverage is not considered affordable. This ALE will be liable for the second type of employer shared responsibility payment if at least one full-time employee receives the premium tax credit for purchasing coverage through the Marketplace.

For more information on the fines themselves, please see the following question.

Which fines are applied for failing to meet the employer mandate?

If an employer fails to meet the employer mandate by not offering coverage to at least 95% of its full-time employees for a full year and at least one full-time employee receives a premium tax credit:The employer owes a payment equal to the total number of full-time employees that they employed for the calendar year (minus up to 30) multiplied by $2,570 (this amount increases to $2,700 in 2021).

Annual payment = (number of full-time employees - 30) *$2,570

If an employer fails to meet the employer mandate by not offering coverage to at least 95% of its full-time employees for some months, but not all year:The employer owes a payment for each month that it does not meet the employer mandate. The payment for each month is equal to the total number of employees that they employed for that month (minus up to 30) multiplied by 1/12th of $2,570 (this amount increases to $2,700 in 2021).

Month-to-month payment = (number of full-time employees - 30) * ($2,570*.083)

If an employer offers coverage to at least 95% of its full-time employees (and dependents) but one or more full-time employees receives a premium tax credit (PTC), the employer owes a payment for each month that an employee has a tax credit. The payment for each month is equal to the number of full-time employees who receive a PTC for that month multiplied by 1/12th of $3,860 (this amount increases to $4,060 in 2021).

Month-to-month payment = (total number of full-time employees with a PTC) * ($3,860*.083)

Primary source:

Compliance and Reporting

Does the PeopleKeep software require the employer to meet the employer mandate?

No. PeopleKeep provides a consultative approach to helping employers design their ICHRA benefit in order to be compliant and, if desired, to meet the needs of the employer mandate. However, the software does not prevent an employer from creating a benefit that could be considered non-compliant.

Do ALEs need to comply with COBRA?

Yes. The ICHRA is a group health plan, so if the employer is subject to COBRA—employs 20 or more employees—they must give eligible employees a chance to elect COBRA coverage when they are terminated from an ICHRA benefit. Because ALEs, by definition, employ more than 20 people for more than half of a business year, they are subject to COBRA.

Primary sources:

What kind of reporting is required for ALEs who provide an ICHRA?

ALEs who provide an ICHRA must complete Form 1095-C to indicate the method they used to determine affordability for their ICHRA plan. Employers must provide Form 1095-C to employees by the last day of January and file the form by the last day of February for paper filing or the last day of March for electronic filing.

Note: For 2021, the IRS extended the date employers need to provide form 1095-C to employees from January 31st to March 2. The date for filing forms was not automatically extended, but filers can obtain a 30-day extension by submitting Form 8809 (Application for Extension of Time to File Information Returns) by the filing due date.

Additional reporting requirements include:

  • Employer-Provided Health Insurance Offer and Coverage,
  • Form 1094-C,
  • And transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns to the IRS.

Finally, ALEs must provide a statement to their full-time employees that includes the same information provided to the IRS.

See this blog post for more information.

Primary sources:

Is an ALE status relevant to ICHRA minimum class size requirements?

No. Minimum class size requirements apply to any employer offering a traditional group health plan to at least one class of employees while offering an ICHRA to at least one class of employees.

However, minimum class size requirements only apply to some of the 11 designated employee classes (these are referred to as “applicable classes”). For instance, an employee class based on state location (VA v. NC) is not considered an “applicable class” and is not subject to minimum class size requirements.

Primary source:

Learn how an HRA works for employers in our latest webinar
Watch the recording today, and learn how an HRA can help your organization.
WATCH THE WEBINAR
meeting_wide-1 CTA_purp_R