The ACA: Know your number
Commentary: When it comes to benefits management, the most important number for any small to mid-sized business to know is how many full-time employees plus full-time equivalent employees it averaged in calendar year 2014. This solitary, unassuming number is the primary determining factor regarding:
1. If the employer is subject to Affordable Care Act employer shared responsibility for tax year 2015;
2. If the employer must file IRS Form 1095-C and 1094-C for tax year 2015 (also known as ACA reporting);
3. For employers in most markets sponsoring fully insured medical plans, if their 2015 renewal is subject to the ACA fair health insurance premium rules (also known as age-banded rates. See notes below for additional details.)
Given the dramatic impact of this single number, it is recommended that employers task their accountant with this calculation, review the resulting impact with their ERISA attorney and benefits adviser, make proper adjustments, and map out an evergreen three-year plan.
However, given all of the regulatory and market pressures on small to mid-sized businesses, what I’m discovering in my travels is that this calculation is often not making it to an accountant’s desk. Employers are often calculating this figure internally or simply estimating it.
Calculating this number incorrectly can create dreadful, expensive consequences. To illustrate the impact, let’s consider two employers that approached us for ACA consultation this year and how their corrected count dramatically changed their entire ACA and benefits strategy:
Employer No. 1
This employer sponsors a small-group fully insured plan, subject to the age-banded rates of the ACA’s fair health insurance premium rules. Because they estimated their calendar year 2014 full-time employee + full-time equivalent count at 45, they:
1. Planned on renewing in the small-group market again this year (Dec. 1 2015);
2. Believed they were exempt from ACA shared responsibility; and
3. Believed they were not required to prepare, distribute, and file IRS Forms 1095-C & 1094-C.
However, once they precisely calculated their number of employees for calendar year 2014, they realized that they actually averaged more than 50 full-time employees + full-time equivalents. Knowing their true ACA number completely changed their situation:
1. Upon their Dec. 1, 2015 renewal, they are moving to the large-group fully insured market and its traditional 4-tier rates;
2. They are now prepared to file IRS Forms 1095-C & 1094-C for tax year 2015;
3. Regarding employer shared responsibility, because of the impact of the age-banded rates on employer contributions, they did not qualify for the 2015 50-99 employee transitional relief. Moreover, because they recently changed their plan year to Dec. 1, they did not qualify for the 2015 non-calendar year transitional relief. Thus, for this employer, their shared responsibility penalty risk began accruing Jan. 1, 2015!
Employer No. 2
This employer sponsors a self-funded medical plan with an Oct. 1 plan year. Self-funded plans are generally exempt from the fair health insurance premium rules. Because they estimated their calendar year 2014 full-time employee plus full-time equivalent count at 95 and met the other requirements for the 2015 50-99 transitional relief, they planned on making the following changes effective Oct. 1, 2016:
1. Lowering their hours requirement from 40 hours to 30 hours;
2. Adjusting their employee contributions for ACA affordability; and
3. Beginning their first standard stability period.
However, once they precisely calculated their number of employees for calendar year 2014, they realized that they actually averaged more than 99 full-time employees plus full-time equivalents. This new knowledge caused them to make the above adjustments on Oct. 1 of this year versus waiting until next year. This new strategy prevented a shared responsibility penalty from beginning to accrue on Oct. 1, 2015.
Suggested next steps for employers:
1. Ensure that your calculation of full-time employees plus full-time equivalents for calendar year 2014 was correct.
2. Have your accountant attest to the accuracy of this calculation.
3. Determine if the final calculation differs from the original estimation.
Consult with your ERISA attorney and benefits adviser on next steps.
If you have similar stories to share or additional tips to provide, please let us know via the comment section below or via Twitter @zpace_benefits.
Zack Pace is a senior vice president, benefits consulting at CBIZ, Inc. He can be reached at ZPace@cbiz.com. Follow him on LinkedIn and Twitter at @zpace_benefits.
Notes & further reading:
1. See Treasury’s Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act for an overview of the full-time employee plus full-time equivalent calculation and the Final Regulations for the specifics. Or simply contact your accountant.
2. For details on 1094-C and 1095-C reporting, see Treasury’s Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers (Section 6056).
3. Confusingly, the thresholds for shared responsibility and the fair health insurance premium rules differ slightly. More confusing still, certain markets have delayed the implementation of the fair health insurance premium rules for certain sized employers. Generally, as it stands:
- Eventually, all employers with less than 101 full-time employee + full-time equivalents that sponsor fully insured plans will be subject to the fair health insurance premium rules. Most markets delayed the implementation for employers with 51 – 100 full-time employees + full-time equivalents until 2016. Some have extended it beyond 2016. Check with your benefits advisor or insurer about the rules in your state.
- Meanwhile, shared responsibility begins at 50, not 51 full-time employees + full-time equivalents. And, the 50 – 99 transitional relief, as you might guess, stops at 99, not 100.
4. For the 50-99 transitional relief requirements, see #34 within Treasury’s Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act.