ACA Compliance and the 50-Employee Threshold: What Employers Need to Know
As employers prepare for Open Enrollment, much of the attention naturally goes to premiums, plan options and what employees want. But there's another consideration that can be easy to overlook: ACA compliance for employers.
And it all starts with knowing your employee count. That number can change the equation.
Start With Your Employee Count
Under the Affordable Care Act (ACA), employers that average at least 50 full-time employees, including full-time-equivalent employees, generally are considered Applicable Large Employers (ALEs) and are subject to the ACA's employer shared responsibility provisions. Employers below that threshold generally are not.
But determining your ACA status isn't necessarily as simple as looking at today's headcount.
ALE status for a particular calendar year generally depends on the average size of an employer's workforce during the preceding calendar year. Full-time employees and full-time equivalents both count toward the threshold. And certain businesses with common or related ownership may need to consider employees across the group.
For employers approaching the 50-employee threshold, understanding where you stand should be part of the Open Enrollment conversation.
For ALEs, Two Questions Matter
Once an employer is an ALE, it helps to think about the employer shared responsibility provisions through two basic questions.
1. Did you offer coverage?
In general, an ALE needs to consider whether it offered Minimum Essential Coverage (MEC) to at least 95% of its full-time employees and their dependents.
Potential liability under the ACA's employer shared responsibility provisions can arise if that standard isn't met and at least one full-time employee receives a premium tax credit through the Health Insurance Marketplace.
2. What did you offer?
Offering coverage is only part of the equation. Employers also need to consider whether the coverage offered is affordable and provides Minimum Value.
And that's where two terms that sound similar can cause confusion: Minimum Essential Coverage and Minimum Value are not the same thing.
Minimum Essential Coverage (MEC) refers to qualifying health coverage recognized under the ACA. Employer-sponsored plans can qualify as MEC even if they do not meet the ACA's
Minimum Value standard.
Minimum Value addresses the level of benefits a plan provides. In general, an employer-sponsored plan meets the Minimum Value standard if it covers at least 60% of the total allowed cost of benefits expected under the plan and provides substantial coverage of inpatient hospital and physician services.
Affordability is a separate consideration, generally based on the employee's required contribution for the lowest-cost self-only coverage option that provides Minimum Value, measured against the applicable ACA affordability standard.
Understanding these distinctions matters when employers compare health plan options and evaluate their ACA responsibilities.
An Important Check Before Open Enrollment
Open Enrollment isn't just about renewing a plan or comparing premiums. It's also a good time to review your workforce size, benefits strategy and any requirements that may apply to your business.
For growing businesses, particularly those approaching the 50-employee threshold, that means confirming their ACA status. For employers already classified as ALEs, it means making sure their health plan options are evaluated with affordability, Minimum Essential Coverage and Minimum Value requirements in mind.
Before You Renew, Explore Your Options
Knowing your ACA status is one important part of making informed benefits decisions. But Open Enrollment is also an opportunity to take a fresh look at your healthcare plans, employee benefits and overall workforce costs.
At TeamREX, we help employers explore traditional and alternative health plan options while considering how benefits, administration and costs fit together. The goal is to help businesses find solutions that work for their employees and their bottom line.
Before you renew, see what other options may be available for your business.
Sources & References
Internal Revenue Service. Employer Shared Responsibility Provisions Under the Affordable Care Act. Guidance regarding Applicable Large Employer status, Minimum Essential Coverage, the 95% coverage standard and potential employer shared responsibility payments under IRC §4980H.
Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer. Guidance regarding the calculation of full-time employees and full-time-equivalent employees, prior-calendar-year workforce averages and aggregation rules for related employers.
Internal Revenue Service. Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act. Guidance regarding the two potential employer shared responsibility payments and circumstances in which a Marketplace premium tax credit may result in potential employer liability.
Internal Revenue Service. Minimum Value and Affordability. Guidance regarding Minimum Value requirements, affordability standards and employer-sponsored coverage.
Disclaimer: ACA requirements include additional definitions, calculation methods, reporting requirements, rules and exceptions beyond the scope of this overview. Employers should consult appropriate tax, legal or benefits advisors regarding their specific circumstances.
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