What is the Affordable Care Act?
The Affordable Care Act, also known as PPACA, ACA, or Obamacare, was enacted in March 2010. It seems unbelievable that the ACA has been in existence for 10 years! The ACA was developed to make affordable health insurance available to more people, and it has given access to health insurance to many that otherwise had difficulty obtaining it. This includes young people that can now be covered on their parent’s coverage until the age of 26. Small business owners, independent contractors, people with low incomes, and people with underlying “pre-existing” health conditions are able to get health coverage on the Health Insurance Marketplace where Americans can purchase federally regulated and subsidized health insurance.
How does the Affordable Care Act Affect Employers?
For employers, there are many ACA responsibilities depending on the size and structure of the organization. An employer with 50 or more full time equivalents (FTEs) are considered an applicable large employer (ALE) and must offer coverage that is affordable and provides minimum value to 95% of FTEs and their dependents. If an ALE chooses not to offer this coverage, they will potentially need to require an employer-shared responsibility payment to the IRS. The penalty assessment is a formula, and the more full-time employees you have, the higher the penalty will be. For example, the formula for the penalty is the total number of full-time employees – 30 * $214.16. This would be the penalty amount.
These same employers that are subject to the employer-shared responsibility provisions, also have reporting responsibilities to their employees and to the IRS annually. This requires employers to send reports (1094/1095s) to employees, and report these forms to the IRS by the deadline each reporting year.
What Recently Changed About the Affordable Care Act?
As far as the individual mandate that started in 2014, which requires individuals to have health insurance, this no longer applies at the federal level. Congress passed the Tax Cuts and Jobs Act, which eliminated the individual mandate penalty, which took effect January 1, 2019. However, the 5 states of Massachusetts, New Jersey, Vermont, California, Rhode Island, and the District of Columbia have taken the appropriate steps, and now have the individual mandate at the state level.
Another change for 2020 is for the 1095-C. It added 8 new reporting codes for employers to indicate the method they used to determine affordability if they offer a health reimbursement account (HRA) plan or an Individual coverage health reimbursement account (ICHRA). The form will also now include the employee’s primary residence zip code to determine the cost of an accessible exchange-based plan.
Potential Affordable Care Act Advancements
With the ACA likely to remain under the Biden administration in 2021, there are a few ACA advancements we can already anticipate. The Biden administration indicated that they would reinstate the federal individual mandate penalty, which would largely be supported and likely eliminate the state mandates outlined above. This mandate would require everyone in the U.S. to obtain health coverage that meets the ACA quality and affordability standards, or they would face individual penalties.
The Biden administration also wants to eliminate the ACA’s 400% household income threshold for the premium tax credit (PTC) eligibility. Currently, to be eligible for the PTC, your household income must be at least 100%, but no more than 400%, of the federal poverty line for your family size. The elimination of this 400% threshold will allow for more affordable healthcare to a much larger population of Americans. However, this is a change that could create potential challenges for employers. What happens currently, is the PTC triggers the IRS if any one of your employees receives this tax credit, and in turn, the IRS issues Letter 226J. If this happens, the employer will need to prove that they complied with the ACA’s employer mandate, or they would be subject to pay a penalty.
With these changes and potentially more changes coming, employers are encouraged to continue to make ACA compliance a priority. Employers often involve their broker or their Payroll/HCM provider to help them with administration, determining affordability, and reporting if they are or will become an ALE. Penalties can be hefty, and the complexities involved with staying on top of the rules as they change will be something to keep monitoring in the coming months.
Payroll Network can partner with your organization if you need help or guidance with ACA. Contact us at firstname.lastname@example.org for more information.
By Paula Grim