Employers who are subject to the Affordable Care Act (ACA) in 2015 because they employ more than 100 full-time equivalent employees can recall the issues they faced in 2014, as they were preparing for ACA compliance: what insurance should be offered, how much should employees pay and what should the criteria be for eligibility?
As open enrollment is approaching for coverage in 2016, employers should determine if their health programs are working as effectively as possible. Here are three issues to consider.
Should I ‘play or pay’
Based on their experience in 2015, employers should reconsider whether compliance with the ACA makes sense—the “play or pay” decision. They should first determine how much their costs will increase for 2016, when 95% of the full-time employee workforce must be covered, as opposed to the 2015 coverage requirement of 70%. The insurance broker should provide an insurance quotation for 2016 based on the terms in effect and individuals covered in 2015. Then, the impact of the following adjustments should be considered:
If coverage is offered to more employees (as a result of the expanded coverage requirement discussed below), estimate the number of new participants and their levels of coverage to obtain an estimate of 2016 costs, assuming that the program and the employee contribution stay the same. The after-tax cost should then be calculated.
Employers should then consider the following:
- If the program was to become non-compliant with the ACA provisions, how many employees might be able to purchase insurance from an exchange and receive a subsidy or a tax credit? This analysis will be based on the pay provided to each employee who is eligible for the program and where it falls compared to the IRS guidelines for the subsidy/credit. That number should then be multiplied by $3,000, which represents the maximum excise tax per employee who actually receives a subsidy or tax credit resulting from a purchase of exchange insurance.
- The employer should calculate the impact to its after-tax cost of changes to the program by Increasing the premium charged to the employees for single coverage (making the program potentially not “affordable”) and/or changing the terms of the policy to reduce cost (making the program potentially one that does not providing adequate coverage for ACA purposes). The savings to the employer should be adjusted for federal and state income tax purposes.
If the answer to A, above is greater than the savings to B, above, it might not make sense to change the terms of the program to make it non-compliant with the ACA; recall that the answer in A is an estimate of the cost (because the employer cannot determine whether or not the individual does not have additional income in the household).
Who is eligible for insurance?
As discussed above, an employer must offer insurance to 95% of its eligible workforce in 2016, as opposed to 70% of its eligible workforce in 2015. Putting aside any human resource issues or issues regarding staffing, here are some thoughts about reducing the group of employees eligible for coverage.
- Use the 5% to exclude selected employees; there does not have to be a specified employer policy. This is the primary change that can be made for 2015 employees.
- Extend the period that new employees are forced to wait until they are eligible for coverage—90 days is the limit for the ACA, but many employers are not forcing new employees to wait that long for coverage
- Hire new employees for a workweek that is expected to average fewer than 30 hours a week—such employees will not be eligible for ACA coverage.
- Use seasonal employees or employees hired through temporary employment agencies as much as possible.
Are you prepared for the new federal tax forms?
Employers who had more than 50 full-time equivalent employees in 2014 must provide employees with IRS Form 1095-C no later than Feb. 1, 2016. Employees will need these forms to file their federal income tax return. The forms must be provided to all full-time employees who worked at all during 2015.
There are various vendors of preparation services for this form, including payroll services, accounting firms and in-house payroll systems. Employers should make certain that the entity assisting in the preparation can also file the forms with the IRS.
Skoda Minotti helps employers deal with the impact of the ACA. Among the services that we provide are consulting regarding the “pay or play’’ decision and preparation of IRS Form 1095-C. We would be pleased to discuss issues related to the ACA. For more information on this topic, please contact Ted Ginsburg at firstname.lastname@example.org or 440-449-6800.
To view our recent webinar, Preparing for the Affordable Care Act, click here.