Top five ACA questions and answers for employers to consider

Recently issued final rules provide important guidance for large employers who are subject to the shared responsibility (“pay or play”) requirements under Health Care Reform. These employers may be subject to a penalty if they do not offer affordable health insurance that provides a minimum level of coverage to full-time employees (and their dependents), and any full-time employee receives a premium tax credit for purchasing individual coverage on the Health Insurance Marketplace (Exchange).


Below are five common questions and answers regarding the “pay or play” requirements:


1. Which employers are subject to “pay or play”?

Employers with 100 or more full-time employees (including full-time equivalents or FTEs) are subject to the “pay or play” requirements starting in 2015. The rules will not apply until 2016 for employers with 50 to 99 full-time employees (including FTEs) who certify that they meet certain eligibility criteria related to workforce size and maintenance of workforce, hours of service, and previously offered health coverage.


2.Are employers with fewer than 50 full-time employees (including full-time
equivalents) subject to “pay or play”?

No. Employers with fewer than 50 full-time employees (including FTEs) are not penalized for not providing health coverage to employees.


3.How does an employer know whether the coverage offered is affordable?

If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of his or her annual household income, the coverage is not considered affordable for that employee. Because employers generally will not know their employees’ household incomes, employers can take advantage of one or more affordability safe harbors included in the final rules. If an employer meets the requirements of any of these safe harbors, the offer of coverage will be deemed affordable for purposes of “pay or play.”


4.How does an employer know whether the coverage offered provides minimum value?

A plan provides minimum value if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. Information regarding other methods available to determine minimum value is contained in proposed regulations.


5.How does an employer identify its full-time employees for purposes of “pay or play”?

An employee is considered full-time for a calendar month if he or she averages at least 30 hours of service per week (or 130 hours of service in a calendar month). The final rules provide two methods employers may use to determine whether an employee has sufficient hours of service to be a full-time employee:


  • One method is the monthly measurement method under which an employer determines each employee’s status by counting the employee’s hours of service for each month.
  • The second method is the look-back measurement method, under which an employer may determine the status of an employee during a future “stability period” based upon the hours of service of the employee in a prior “measurement period.” (This method may be used only for purposes of determining and computing liability, and not for determining whether the employer is subject to the “pay or play” requirements.)


The final rules describe approaches that can be used for various circumstances, such as for employees who work variable hour schedules, seasonal employees, and employees of educational organizations.


Additional questions and answers regarding the “pay or play” rules (and the transition
relief provided under the rules) are available from the Internal Revenue Service.