Employer Shared Responsibility and Penalties A and B under the ACA

The Employer Play or Pay mandate, known as "Employer Shared Responsibility" under the Affordable Care Act (ACA), will only apply to employers with at least 100 fulltime equivalent employees (FTEs) in 2015, as the Administration has provided an additional year for employers with less than 100 fulltime equivalent employees to comply:

Delay for Employers of 50-99:
Employers with less than 100 but with 50 or more full-time equivalent employees may have until January 1, 2016, to comply with the employer requirements. To be eligible for the one year delay, an employer will have to certify that during the period beginning on February 9, 2014, and ending on December 31, 2014, the employer: 1) does not reduce the size of its workforce or the overall hours of service or a class of its employees in order to satisfy the workforce size condition; 2) did not reduce benefits since February 9, 2014; 3) did not change their renewal date after February 9, 2014 and 4) did not reduce employer contributions for employee coverage by more than 5%.
Although there is no mandate to provide coverage, there may be financial assessments on the employer for not offering certain coverage. 

For the purposes of this provision, full-time is defined as an average of 30 or more hours per week in a particular month or 130 hours month (52 x 30 divided by 12 = 130). 

The ACA uses the IRS definition of employee as a common law employee. 

A leased employee, sole proprietor, husband/wife business, regardless of how the business is set up, a partner in a partnership or a shareholder with greater than 2% share in an S corporation are not considered employees. However, an individual who provides services as both an employee and a non-employee (such as an individual serving as both an employee and director) will be considered in the employee count. 

A federally defined 1099 individual is not an employee. 

An employer who is part of a group of employers treated as a single employer under §414 (b), (c), (m), or (o) of the IRC (including employees of a controlled group of corporations, employees of partnerships, proprietorships, etc., which are under common control, and employees of an affiliated service group) are treated as a single employer. 

PENALTY A: For months beginning after December 31, 2014 an employer, who fails to offer Minimum Essential Coverage to full-time employees will pay an assessment of $168 per month or $2,000 per year for each full-time employee (minus the first 80 employees) who accepts a premium credit subsidy through the marketplace (exchange). After 2015, the employer will only be able to deduct 30. Example: 120 full-time employees - 80 = 40 full time x $2,000 = $80,000 assessment. There is relief to employers for 2015, in certain circumstances, who do not offer coverage to dependents to 26. There is also relief to employers with non-calendar plan years, in certain circumstances. 

PENALTY B: Employers who do offer coverage but that is not of minimum value (60%) or that is unaffordable (meaning the employee contribution exceeds 9.56% of W-2 income for the lowest tier single premium will pay $3,000 for each full-time employee who qualifies for and accepts a premium credit subsidy. 
        Income is $50k. Single annual premium is $600 x 12 = $7,200
        9.5% of $50k = $4,780 (maximum employee contribution to avoid Penalty B)

Full-time equivalents for variable hour employees, seasonal employees and part-time employees (i.e., those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120. For example, a firm has 85 full-time employees (30+ hours). In addition, the firm has 20 part-time employees who all work 24 hours per week (104 hours per month). These part-time employees’ hours would be treated as equivalent to 17 full-time employees, based on the following calculation: 

       20 employees x 104 hours = 2080 / 120 = 17.33

Counting the equivalents determines if the employer group is subject to Play or Pay. However, when calculating Penalty A the -80 is taken only from the fulltime count, in this example: 85. 

        85 fulltime -80 (for 2015 only, in 2016 it is -30) = 5 x $2,000 under Penalty A and a maximum penalty of  
        $10,000 for 12 months. 

Leased employees are employees of the leasing company and would not count in the 50+ determination. 


For more information see here: http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Identification 

Reminder! PCORI Fee Due July 31, 2015

The Affordable Care Act (ACA) requires health insurance issuers and sponsors of self-insured health plans to pay "Patient-Centered Outcomes Research Institute" (PCORI) fees. The fees are reported and paid annually using IRS Form 720. For fully-insured plans, the insurers are responsible for the fee (most build in the fee into their current pricing model). For self-insured plans, the plan sponsor is responsible for the fee. 

PCORI fees are due July 31, 2015 for plan years ending in 2014. IRS instructions for filing form 720, which were revised in January 2015, include information on reporting and paying the fees.

Overview of the PCORI Fee
The PCORI fee applies to plan years ending on or after Oct. 1, 2012, and end for plans ending on or after Oct. 1, 2019. For calendar year plans, the fees will be effective for the 2012 through 2018 plan years. Issuers and plan sponsors will be required to pay the fees annually by July 31 of each year. 

Reporting the PCORI Fee on Form 720
The PCORI fee applies separately to “specified health insurance policies” and “applicable self-insured health plans,” and is based on the average number of lives covered under the plan or policy.

Using Part II, Number 133 of Form 720, issuers and plan sponsors will be required to report the average number of lives covered under the plan separately for specified health insurance policies and applicable self-insured health plans. That number is then multiplied by the applicable rate for that tax year, as follows:

• $1 for plan years ending before Oct. 1, 2013 (2012 for calendar year plans)
• $2 for plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014
• $2.08 for plan years ending on or after Oct. 1, 2014, and before Oct. 1, 2015 (see Notice 2014-56)
• For plan years ending on or after Oct. 1, 2015, the rate will increase for inflation

The fees for specified health insurance policies and applicable self-insured health plans are then combined to equal the total tax owed.  To review the IRS fee schedule relative to plan year, please click here.

SPECIAL RULES FOR HRAs and FSAs
If an employer sponsors a fully-insured medical plan and a self-funded plan such as a Health Reimbursement Account (HRA), a Medical Expense Reimbursement Account (MERP), or, in rare instances, a Health Flexible Spending Account (FSA), the employer may be required to pay separate PCORI fees for the self-insured aspect of the fully-insured plan.  Note, however, that to calculate the PCORI fee for HRA accounts, only covered employees are counted, not dependents and spouses.

To read more about the PCORI fee, please click here.