The employer health insurance mandate is a complicated topic. We've received a lot of questions about it, so this week we are going to take a closer look.
These rules will become effective for the first time in 2015 and generally apply to employers with at least 100 full-time employees or a combination of full-time and part-time employees that is equivalent to at least 100 full-time employees.
But in 2016, the rules become effective for employers with at least 50 full-time employees, or a combination of full-time and part-time employees that is equivalent to at least 50 full-time employees.
In our explanation below, we are going to discuss the rules for 2016 that applies to employers with at least 50 employees.
Before the Affordable Care Act, employers had complete discretion whether to offer health plan coverage to their employees. But with the passage of this legislation, the rules have drastically changed.
The Affordable Care Act states that applicable large employers may be subject to a penalty if they do not offer their full-time employees (and their dependents) the opportunity to enroll in a health plan that provides affordable insurance that meets a certain minimum value. These employers can satisfy the mandate by offering the health insurance through an eligible employer-sponsored plan.
An eligible employer-sponsored plan is a fully insured or self-insured group health plan (or group insurance coverage) offered by an employer to the employee that is:
A governmental plan
Any other plan or coverage offered in the small or large group market within a state
Or a grandfathered plan offered in a group market
For this purpose, an applicable large employer generally is an employer with an average of at least 50 full-time employees, including the full-time equivalent value of part-time employees on business days during the preceding calendar year.
When determining if an employer is an applicable large employer, all related businesses treated as a single employer (such as controlled groups or affiliated service groups) are treated as one employer. Therefore, all employees of the controlled or affiliated group are taken into account in determining whether the group as a whole is an applicable large employer. If the group is determined to be an applicable large employer, each separate entity of the group is considered an applicable large employer member.
The calculation for determining whether an employer has at least 50 full-time employees (and is therefore an applicable large employer) is based on the number of individuals employed during a month.
However, an employer is an applicable large employer based on having on average at least 50 full-time employees on business days in a calendar year. Therefore, the number of full-time employees for each month is calculated and the sum of all months is divided by 12 to determine the average number of full-time employees for the year. If the results is not a whole number, it is rounded down to the next lowest whole number.
Generally, a full-time employee for any calendar month is an employee whose hours of service average at least 30 hours per week. To take into account that the average month consists of more than four weeks, employers can treat 130 hours of service in a calendar month as the monthly equivalent of 30 hours of service per week, provided the employer applies this equivalency rule on a reasonable and consistent basis.
The total hours worked during a month by all employees who are not full-time employees are used to determine a full-time equivalent (FTE) value that is added to the number of actual full-time employees to determine if the employer had at least 50 full-time employees during a month.
The FTE value is calculated by dividing the total hours of service for employees who are not full-time employees (i.e., did not average at least 30 hours of service per week or have at least 130 hours of service during the calendar month) by 120 hours. No more than 120 hours of service is used for an employee for any month.
The total calculated FTE value is then added to the number of full-time employees to determine if the employer employed an average of at least 50 full-time employees on business days during the preceding calendar year. In determining the FTE value of part-time employees for each calendar month, fractions are taken into account.
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