Employers that do not provide health benefits to their employees may be subject to a significant penalty. In order to avoid this significant penalty, the employer would need to offer health benefits to at least 95 percent of full-time employees and their children. Full-time for ACA purposes means anyone who on average works at least 30 hours per week. For 2017, the penalty is equal to $188.33 times the number of full-time employees (minus 30) for every month in which coverage was not offered. The annualized penalty is $2,260. For this penalty to be triggered, at least one full-time employee must receive subsidized coverage on the insurance marketplace.

An employer who provides health benefits to at least 95 percent of its employees and their children may be subject to another penalty. To avoid this penalty, the health benefits coverage must be affordable and meet minimum value requirements. For 2017, the monthly penalty is equal to $282.50 times the number of full-time employees who purchase health insurance from the insurance marketplace and receive subsidized coverage. The annualized penalty is $3,390.

For coverage to be considered affordable, the employee cost for single coverage under the lowest-cost health benefit option offered by the employer in 2017 must not exceed 9.69 percent of the employee’s household income. Because most employers do not know an employee’s household income, the IRS established three safe harbors to determine affordability: the federal poverty level safe harbor, the rate of pay safe harbor and the W-2 safe harbor.

For coverage to be considered to meet minimum value, the plan must pay at least 60 percent of the medical costs. The value is determined actuarially or by using an HHS calculator.

Independent contractors/leased employees

An employer who uses independent contractors and/or leased employees may find itself not meeting the employer-shared responsibility requirements described above. If 5 percent or more of an employer’s full-time workforce is composed of independent contractors or leased employees, the employer should review its determination that those workers are not common-law employees of the employer. The IRS (as well as state authorities) are auditing employers concerning misclassification of workers and finding thousands of such workers to be common-law employees. If the IRS determines that these workers were misclassified, the employer may face substantial ACA penalties if those workers had not been offered health benefits coverage by the employer.

The IRS has established a safe harbor for those leased workers who are determined to be common-law employees of the employer when:

• The leasing (staffing) agency offers health care to those leased employees.

• The agreement between the employer and leasing agency stipulates that the employer will pay a surcharge or additional amount for those leased workers who accept the health care benefits offered by the leasing agency.

Assuming both conditions are met, the offer of coverage by the leasing agency will be considered an offer of coverage by the employer.

A number of leasing agencies have created an ACA surcharge for all leased employees, whether or not the leased employees accept the offer. If an employer has a leasing agency that does this, the offer of coverage will not conform to the safe harbor. Accordingly, the leasing agency’s offer of coverage would not be considered an offer of coverage by the employer.

Reporting of coverage

All providers of health benefits coverage must report such coverage to the IRS. In addition, all applicable large employers must also report to the IRS whether they offer coverage.

Applicable large employers must provide a Form 1095-C to each full-time employee, regardless of whether the coverage is insured or self-insured, and other individuals (such as part-time employees or partners) to whom it provides self-insured health benefits coverage. This Form 1095-C must be provided by January 31 of the following year. (In the first two years since this requirement took effect, the IRS has extended the time to provide the form.) Then the employer must file a Form 1094-C with the IRS, along with the Forms 1095-C, by February 28 if filing by paper (less than 250 forms) or by March 31 if filing electronically.

Other providers of health coverage, such as insurance companies, union plans and other third-party providers of health coverage, must provide each of its insured a Form 1095-B by January 31 of the following year. The provider must file a Form 1094-B with the IRS, along with the Forms 1095-B, by February 28 if filing by paper (less than 250 forms) or by March 31 if filing electronically.

The employees of an applicable large employer that provides insured coverage, rather than self-insured coverage, will receive two forms: a Form 1095-C from the employer and a Form 1095-B from the insurance company.

A Form 1095-C requires a number of codes to describe the status of the employee and the offer of coverage for each month of the calendar year. We have observed that some software packages have pre-programmed a default code for the employer to use, which some employers fail to review. Unless an employer experiences no personnel changes throughout the year, it will not have the same code for each of its employees.

Penalties for not reporting accurate and complete information may result in a penalty of $500 520 per form, up to a maximum of $6.4 million.

W-2 reporting

Employers who previously issued 250 or more Forms W-2 per year still need to report on each employee’s W-2 the cost of employer-sponsored health coverage. The amount included is the total cost of the coverage — not just what the employee or employer paid.

PCORI fees

Employers with self-insured health care coverage must pay an annual fee to fund the Patient-Centered Outcomes Research Institute, which the ACA established. The fees are applicable to policies and plan years ending after October 1, 2012, and before October 1, 2019. For policy or calendar-year plans, the fees are applicable to the 2012 through 2018 plan years. Regardless of the policy or plan year, the tax is reported on Form 720 and due the following July 31.

Summary of benefits coverage

The administrator of the health benefits plan must provide a summary of benefits coverage (SBC) to each employee eligible for coverage during initial enrollment, open enrollment, special enrollment or upon request. The SBC must be presented in a culturally and linguistically appropriate manner. If 10 percent or more of the residents in the employer’s county of business are literate in one of the following non-English languages — Spanish, Chinese, Tagalog or Navajo — then the SBC must be available in that language. HHS has published a model SBC that employers can modify.

Exchange notice

An employer subject to the Federal Labors Standards Act must provide all new and current employees with a written notice about health care options that are available through the insurance marketplace.

The employer requirements outlined here are far from all-encompassing. Most provisions involve hundreds of pages of detail and other governmental notices. However, the legislative impasse presents an opportune time for employers to review their obligations under the ACA to ensure compliance.

This content is not intended to answer specific questions or suggest suitability of action in a particular case. For additional information about the issues discussed, contact an appropriate professional advisor.