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May 5, 2014 Commentary

An ACA primer for 2015

The final regulations for the “shared responsibility” provisions (also referred to as “pay or play”) from the Affordable Care Act were released in January. This requirement goes into effect for large employers beginning in January 2015, delayed from the original requirement of January 2014.

The shared responsibility requirement is where large employers need to offer health insurance to their full-time employees. If coverage is not offered, or the coverage doesn't meet certain criteria, and any full-time employees go to the Health Insurance Marketplace, purchase health insurance coverage and qualify for a tax credit or subsidy, the employer may be required to pay a shared responsibility penalty. Here are some highlights from the final regulations.

First, the requirement applies only to large employers, defined as having 50 or more full-time employees, including full-time equivalents. Full-time is defined under the ACA as working 30 or more hours per week. Full-time equivalent is a combination of the hours of all part-time employees.

Next, large employers will need to offer health insurance coverage that meets the two criteria of “minimum value” and “affordability” as defined in the regulations. Minimum value is defined as providing health insurance that covers an average of 60% of health care services. It is based on the deductible, coinsurance, copayments, etc., to determine the average percentage covered by the plan. Affordability is based on how much each employee is required to pay (employee contributions) in relation to their wages. The health insurance plan for employee-only coverage is considered affordable if it does not exceed 9.5% of the employee's wages. The final regulations provide three different ways for employers to determine if the coverage is affordable.

The penalties under the shared responsibility requirement can apply in one of two ways:

• If a large employer does not offer health insurance coverage or if the coverage is offered to less than 95% of full-time employees, and one or more full-time employees qualifies for a tax credit or subsidy in the health insurance marketplace, the large employer could pay a penalty equal to $2,000 for each full-time employee less the first 30 employees; or

• If the employer meets the above requirement, but the coverage offered does not meet the requirements for minimum value and/or affordability, the employer could pay a penalty equal to lesser of $3,000 for each full-time employee who qualifies for tax credit or premium subsidy in the health insurance marketplace or the $2,000 for each full-time employee, less 30.

The final regulations did include some additional transition relief for large employers, as follows:

• Large employers with 50 to 99 full-time employees, including FTEs, will now have an additional year before they become subject to the penalty. The employer shared responsibility provision will not apply to employers with 50 to 99 full-time employees until 2016.

• Large employers with 100-plus full-time employees, including FTEs, may avoid the larger penalty ($2,000 x all full-time employees) by offering health insurance coverage to 70% of full-time employees for 2015, then increasing to 95% of full-time employees in 2016.

• Large employers will not be required to offer dependent coverage until 2016; however, the employer needs to take steps in 2015 towards offering such coverage.

What does this mean to employers? It is important to have a process in place to track the hours of employees in order to determine which employees are working 30 or more hours per week. The final regulations have extensive guidance on a method to track employees' hours over a period of time to determine the average number of hours. We recommend that employers become familiar with this information.

Also, employers will need to evaluate their current health insurance coverage options to determine whether one or more of their plans meet the “minimum value” requirement; also whether their coverage is “affordable” to employees based on wages.

Ellen McPherson is the compliance manager at Employee Benefits Solutions / The Holden Agency. For more details, visit

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