Navigating New ACA Guidance

The Internal Revenue Service (IRS) recently issued proposed rules on employers’ shared responsibility under the Affordable Care Act and offered guidance about issues such as coverage for employees’ children, as well as the option for controlled groups to have different approaches to their health benefits. In January, the Employee Benefits Security Administration (EBSA) released additional frequently asked questions (FAQs) regarding implementation of various provisions of the ACA (see “EBSA Issues FAQs About Affordable Care Act”).

Under the shared responsibility requirements in ACA, employers with at least 50 full-time employee (FTE) equivalents in the previous calendar year may face penalties if at least one FTE receives tax-subsidized benefits through a public health exchange. These employers must offer minimum essential coverage to “substantially all” FTEs or face a penalty of $2,000 multiplied by the number of FTEs (not counting the first 30 FTEs). Employers offering minimum essential coverage may still face penalties if the coverage does not have a value of at least 60% or is unaffordable. That penalty is $3,000 for each employee receiving tax-subsidized benefits through a public health exchange (unless the aforementioned penalty is smaller).

Although the proposed rules clarify many specifics of these shared responsibility requirements for 2014, some things are still left up in the air. “We still don’t know what 60% minimum value means,” said Judy Bauserman, partner at Mercer, during a company webinar. “We’re expecting guidance soon, but it’s still an open question.”

Under the shared responsibility requirements, employers with controlled groups must establish what it means for health care and shared responsibility. “These rules are really complicated,” Bauserman said. A controlled group by the IRS’s definition is two or more corporations, partnerships and sole proprietorships; or shared ownership/shared ownership plus joint activities. These controlled group rules are already used “quite heavily” for retirement plan purposes, Bauserman added.

In simple terms, Bauserman said employers with controlled groups must add together all the entities within the company in determining whether it has at least 50 FTEs. However, these entities must be viewed separately when calculating the penalties. Next, the employer must establish who has to be offered coverage in order to avoid penalties.

The recent guidance says FTEs and their dependent children younger than age 26 must be offered coverage, but their spouses or domestic partners do not have to be covered. The guidance also established when the coverage must be offered, as well as which hours must be counted and how they are calculated.

Bauserman cautioned that employers cannot forget to count the “nonworking” hours employers are paid for such as vacation or jury duty. In addition, hours with non-U.S. sources of income are not counted.

Regarding wellness programs, the recently released guidance increases the maximum size of wellness rewards and penalties (see "Regulators Issue Guidance About Wellness Programs"). “Health contingent” wellness programs will increase from 20% to 30% of the cost of coverage, and up to 50% for tobacco programs.

With all the health care changes brewing, communication should really “heat up,” said Jackie Cuthbert, principal at Mercer. “This is a year where we think early annual enrollment planning is important,” she emphasized.

Employees need to be aware of terminology under ACA and what the changes mean to them. The government suggests a one-page document in the fall to help employees determine their eligibility for exchange subsidies, but Cuthbert encourages employers to offer a broader response to their employees.

The bottom line is employees expect change and employers are already seizing the opportunity, she said, as evidenced by the lowest increase in employer-sponsored medical plan costs in 15 years at 4.1% in 2012.

More information about shared responsibility under ACA is available under “Second Opinions Part I and Part II”.