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ACA's 'pay or play' rules coming soon
Employers could face two separate financial penalties.
After a one-year delay, the Affordable Care Act’s “pay or play” rules are about to take effect.
Beginning in January, employers will have to start self-reporting to the Internal Revenue Service regarding their employee insurance coverage plans.
There are two financial penalties employers could face.
The first has to do with whether an employer meets the minimum coverage requirements.
In 2015, employers with at least 100 employees must offer coverage to 70 percent of their full-time employees. In 2016 and after, employers with 50 or more employees will have to offer coverage to 95 percent of their full-time employees.
“If they fail to cover a sufficient number of employees, then the employer must pay a penalty,” said Timothy Tornga, an attorney at Mika Meyers.
An employer that does not meet the minimum coverage requirement has to pay $2,000 per employee in penalties.
Tornga noted in 2015 there is an 80-employee offset, and in 2016 the offset is 30 employees.
“If you have an employer who has 150 full-time employees and they offer coverage to fewer than 70 percent of the workforce, then they would pay the penalty of $2,000 per employee per year minus 80 employees,” he explained.
An employer meeting the coverage requirement could still face a financial penalty if it does not offer affordable minimum value coverage.
“The coverage the insurance companies are offering is generally going to be minimum value,” Tornga said. “The next step is how much premium support does the employer offer versus the amount of the premium the employee must pay — that is the affordability issue.”
If the employer does not meet the affordability requirement, an employee can go to the health exchange and purchase subsidized coverage.
Employers are required to pay a $3,000 penalty per employee for each employee who goes to the exchange.
“The $3,000 only applies to employees who actually go to the exchange and get subsidized coverage,” Tornga emphasized.
Tornga said the first penalty is mostly avoidable if a company is using a reputable insurance company for its coverage. The second step can be a bit more difficult.
“The employer has to determine the cost sharing between the employer and the employee, and does not push too much of the cost on the employee,” he said.
Tornga said the IRS has made the 1094 and 1095 forms available and is encouraging companies to file for 2014.
“I don’t see a reason to actually file the forms (for 2014), but I think employers would be well served to get a hold of the forms today and go through a dry run,” he said.
Advantages of conducting a dry run include ensuring sufficient record-keeping practices, understanding potential penalties, and an opportunity to make adjustments to plan content, eligibility and employer subsidy.