Three important changes to the Affordable Care Act for 2016

May 6, 2016|Terri Lillesand

While the Affordable Care Act was passed in March 2010, six years later there are new things you must be aware of. Here are three key changes you need to know for 2016. (Please take special note of the last item!)

Large employers defined

The determination of large employer is based on a calendar year, regardless of the employer’s health plan year end. For calendar year 2016, a large employer is one that employed at least 50 full-time and full-time equivalents, with full time being 30 hours a week or more.

To determine this, you must look at each calendar month of 2015 and determine the number of full-time employees. Then take the remaining employees (the part-time employees) and divide their total number of hours for the month by 120 hours to determine the full-time equivalents. Do this for each month and average the 12 months, rounding down. If you have 50 or more, you are a large employer for 2016 and have a Form 1095-C reporting requirement. You may also be subject to an employer mandate penalty if you fail to offer insurance or if you fail to offer affordable insurance.

Contrast this with 2015, in that you could use any six consecutive months of 2014 to determine if you were a large employer. In addition, while employers with 50-99 employees were still considered large and had a Form 1095-C reporting requirement, they were exempt from a penalty if they met a few basic requirements.

If there is any doubt if you are a large employer for 2016, it’s the perfect time to make that determination now versus waiting until the end of the year.

Amounts are inflation indexed

Each year, key amounts are indexed for inflation. Here are the 2016 indexed amounts:

  • Employer mandate penalty for the failure to offer insurance: $2,160 per full-time employee (the penalty is assessed on a calendar-year basis).
  • Employer mandate penalty for offering insurance that is unaffordable: $3,240 per full-time employee (the penalty is assessed on a calendar-year basis).
    • Affordable insurance is defined to be when the employee portion of single coverage is less than 9.66% of the federal poverty level, of the employee’s hourly rate of pay or of the employee’s federal taxable wages. this percentage is for health plans that start in 2016. The percentage for plans that start in 2015 is 9.56%.  
    • Federal poverty level is $11,880, which was announced in January 2016. The federal poverty level that was announced in January 2015 was $11,770. An employer can use any federal poverty level in effect within six months of its plan start date. Some employers may have the ability to choose between two different federal poverty levels, based on their plan start date.

Avoiding the employer mandate penalty for failure to offer insurance penalty will become much more difficult in 2016

For 2016, to avoid the failure to offer insurance penalty of $2,160 per employee, an employer must offer insurance to 95% of its full-time employees. Therefore, the room for error is only 5% of the full-time employees (or 5 employees, whichever is higher). Should an employer fail to hit 95% (by even 1%), the failure to offer insurance penalty will kick in, even though the employer did offer and pay for insurance for 94% of its full-time employees. Contrast this with 2015 in that employers only had to hit 70% of its full-time employees to avoid the penalty.

The determination of which employees are full-time is a very complicated process. The IRS created two methods for determining full-time employees: the monthly measurement method and the lookback measurement method. The IRS regulations contain the specifics of each of these methods. The methods are fairly complicated to apply. For some employers, it is relatively easy to determine full-time employees; for others,  it is not. Not doing this correctly could spell disaster.

Over the next few months, we will focus on the monthly measurement method and the lookback measurement method. Stay tuned for more information as this topic is crucial for 2016 and future years.

For more information or assistance determining if you are a large employer, please contact Terri Lillesand or another member of Schenck’s Health Care Reform team at 800-236-2246.

Terri Lillesand, CPA, tax shareholder, is a member of Schenck’s Health Care Reform Act Advisory team. She provides tax compliance and planning for corporate, individual, partnership, non-profit and fiduciary taxpayers.