“Oh, Health Care Reform, how we love your ever-changing ways,” said no one ever.
The laws regarding the Affordable Care Act (ACA) have been evolving since its inception. Laws, policies, and deadlines continue to change as wrinkles are ironed out and organizations—federal, private, and corporate alike—struggle to meet deadlines. It’s certainly not created an easy avenue for brokers and Business Managers trying to keep current and compliant. But, we’re reminded that nothing is ever created without hiccups along the way. Perfection takes time.
And, time is exactly what has been recently adjusted. Penalty deadlines have once again been moved to allow everyone to get up to speed. Accompanying the adjusted dates are tweaked formulas for the interim. Now, don’t panic. We’re going to break it down for you starting with an overview of what the penalties are.
Quick Refresher
Before we begin, let us remind you of how a Full Time Employee (FT Employee) and Full Time Equivalent Employee (FTE) are defined according to the ACA. It’s important to remember that you only need to offer health insurance to your school's FT Employees. The penalties, however, are applicable to your school's measured and calculated FTEs. Your school must comply with the Affordable Care Act if you have 50 FTEs or more—but, you only need to offer medical coverage to your FT Employees.
According to the ACA, a FT Employee is anyone who works 30 hours a week or more. A FTE is not the number of part-time employees your school employs, but is the calculated total of identified hours worked per year. For example, if you have two part-time employees working 20 hours a week (four hours a day, five days a week), that equals one FTE. However, because most schools have more complex part-time and full-time employee situations, here is an example that might be closer to how your school is staffed.
If your school employs 40 full-time employees and 20 part-time staff members working on average 20 hours a week, you would have 53 FTEs. Why? The equation looks like this; 40 FT; add to this {20 x 2/3} or 13. So (40 + 13) = 53 full-time equivalents.
If you’re still confused, here's a link to help you understand the formula for calculating your school’s FTEs. Or, for those readers looking for a quick online calculator, Health Law Guide For Business offers a pretty simple version.
OK, now let’s move along to the adjusted penalty deadlines and adjusted penalties themselves.
The “A” Penalty (the “no-coverage” penalty)
If you fail to offer health insurance to at least 95%* of your Full-Time Employees (FT Employee) and dependent children, this penalty will be triggered if/when one employee goes to the individual marketplace (exchange) and qualifies for a subsidy. The penalty is determined as $2,000 multiplied by the number of FT Employees, minus 30 FT employees.
For example, using the staffing situation mentioned above, if your school has 40 FT employees plus 20 employees working 20 hours totaling 53 FTE, the penalty would be (40-30)X $2,000, equaling $20,000.
*The 95% allows you an innocent mistake on the classification of an employee.
The “B” Penalty (the “unaffordable” penalty)
This penalty is triggered if you offer health insurance to at least 95% of your FT Employees but it is either not “affordable” or does not provide “minimum value.” Remember, affordable means the lowest price of the individual employee insurance premium cannot be more than 9.5% of the family’s income; minimum value requires that the insurance plan provides at least 60% of the cost of total benefits in the plan.
Again, if an employee goes to the individual marketplace (exchange) and receives a subsidy, you are then assessed the “B” penalty of $3,000 times the number of FT Employees who qualify for a subsidy, not to exceed the “A” penalty.
Delays Under the Final Regulations
For a large employer (an employer with 100 or more FTEs), the Employer Mandate won’t go into effect until 1/1/2015. This is a one-year delay from the original implementation date.
And, there is a change in the formula for 2015. The “A” Penalty will not be triggered if you offer health insurance to at least 70% of your FT Employees (compared to 95% of FT Employees in the original regulations). If you fail to offer health insurance to at least 70% of your FT Employees, the $2,000 “A” penalty will affect you, but the calculation has also been adjusted to $2,000 multiplied by the sum of all FT Employees minus 80 employees now.
In 2016, the “A” Penalty will be implemented as initially intended.
The “B” penalty has not been delayed. This means, if you offer health insurance to only 70% of your FT Employees and one of the 30% that were not offered health insurance goes to the exchange and gets a subsidy, you will still have the $3,000 penalty.
Also in 2016, midsized employers (those with between 50 and 99 FTEs) must “Play or Pay,” as the employer mandate will be applicable.
Excise Tax Penalty
Although not part of the shared responsibility mandate, there is a penalty in the Internal Revenue Code §4980D. This is an excise tax of $100 per day per effective employee for failure to comply with certain requirements and restrictions in the Affordable Care Act, as well as other mandates.
This tax is incurred if your school fails to comply with the following partial list or requirements and restrictions in the Affordable Care Act.
- No preexisting condition exclusion or other discrimination based on health status can be stipulated
- May not exceed cost-sharing limits
- No annual or lifetime limits on essential health benefits may be imposed
- Must offer dependent coverage to all children up to age 26
- Must provide a Summary of Benefits and Coverage on your health insurance
- Must be compliant with the Mental Health Parity and Addiction Act
Additional ISM resources:
ISM Monthly Update for Business Managers Vol. 12 No. 3 Forty Full-Time Employees + Twenty Part-Time Employees = Fifty-Three Full-Time Employees
ISM Monthly Update for Risk Managers Vol. 3 No. 8 Understanding The Affordable Care Act
ISM Monthly Update for Business Managers Vol. 12 No. 2 Preparing for 2014 Affordable Care Act Mandates
Private School News Vol. 12 No. 7 How The Health Care Reform Is Affecting Educators—And Students
