7 Frequently Asked Questions About Requirements For Applicable Large Employers

As employee benefits advisors, we field a myriad of Affordable Care Act (ACA) compliance questions that arise around applicable large employers (ALEs). The process of determining if an employer is an ALE and the reporting requirements can be confusing. We answered seven of these frequently asked questions below.

 

How do I determine if I am an applicable large employer (ALE)?

 

What does being an ALE mean to me?

 

How do I know if my plan meets the Affordability requirement?

 

How do I know if my plan provides “Minimum Value Coverage?”

 

How is a full-time employee defined under the ACA?

 

Do I need to set up Measurement and Look Back periods?

 

What is the 95 percent rule regarding an offer of coverage, and how do I calculate it?

 

Let’s dive in!

 

 

How do I determine if I am an applicable large employer (ALE)?

You are an ALE if you averaged at least 50 full-time employees, including full-time equivalent employees, during the prior year. A full-time employee for any calendar month is one who has, on average, at least 30 hours of service per week. Follow these steps to determine if you are an ALE:

• • Determine how many full-time employees you had each month of the prior year. This provision defines a full-time employee for any calendar month as one who has, on average, at least 30 hours of service per week during the month.
  • Determine how many full-time equivalent employees you had each month of the prior year. To do this, combine the number of hours of service of all non-full-time employees for the month – but no more than 120 hours per employee – and divide that total by 120.
  • For each calendar month, add your full-time and full-time equivalent employees for a monthly total. Add the monthly totals. Divide the sum of the monthly totals by 12. If the result is 50 or more employees, you are an applicable large employer.

 

 

What does being an ALE mean to me?

ALEs are subject to information reporting and the employer shared responsibility provisions of the health care law. To meet the shared responsibility provisions, coverage must meet Minimum Value Coverage and Affordability for employees.

• • ALEs must report to the IRS information about the health care coverage, if any, they offered to full-time employees.  The IRS will use this information to administer the employer shared responsibility provisions and the premium tax credit.
  • ALEs also must furnish to employees a statement that includes the same information provided to the IRS. Employees may use this information to determine whether, for each month of the calendar year, they may claim the premium tax credit on their individual income tax returns.
  • Under the Affordable Care Act’s employer shared responsibility provisions, ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS. The employer shared responsibility provisions are sometimes referred to as “the employer mandate” or “the pay or play provisions.”
  •  The same employers that are subject to the employer shared responsibility provisions (that is, ALEs) also have information reporting responsibilities regarding minimum essential coverage offered to employees. These responsibilities require employers to send reports to employees and to the IRS.

 

 

How do I know if my plan meets the Affordability requirement?

Employer-provided coverage is considered “affordable” if it meets one of the three IRS safe harbors for determining that the employee’s contribution for self-only coverage doesn’t exceed 9.5 percent of the employee’s household income.

• • Employee’s required premium co-share for the lowest-cost, self-only coverage that provides minimum value is not greater than 9.5 percent of an employee’s W-2 taxable (Box 1) income. Unfortunately—and, many argue, unfairly—this calculation excludes any employer contribution made to an employee’s health savings account (HSA), as well as employer contributions to 401(k) plans or other nontaxable Section 125 (cafeteria plan) benefits. Also, the cost of dependent coverage is not calculated in the determination of whether the employer is offering affordable coverage.
  • Employee’s required premium co-share for the lowest-cost, self-only coverage that provides minimum value is not greater than 9.5 percent of rate of pay as of the first day of the coverage period (generally the first day of the plan year).
  • Employee’s required premium co-share for the lowest-cost, self-only coverage that provides minimum value is not greater than 9.5 percent of the federal poverty level (FPL) for a single individual.

 

 

How do I know if my plan provides “Minimum Value Coverage?”

A health plan meets the minimum value standard if both of these apply:

• • It’s designed to pay at least 60% of the total cost of medical services for a standard population
  • Its benefits include substantial coverage of physician and inpatient hospital service.

 

 

How is a full-time employee defined under the ACA?

A full-time employee is defined under the Affordable Care Act as an employee who works 30 hours per week, on average.

 

 

Do I need to set up Measurement and Look Back periods?

If you are not an ALE, then you do not need to set up Measurement and Look Back Periods. However, if you are an ALE then you have a choice between the Monthly Measurement Method or the Look-Back Measurement Method for determining which employees are eligible for coverage in what time periods.  You can only use one of the two methods for all employees.

• • Under the Monthly Measurement Method, employees are generally considered full-time if they average 30 hours per week during the month.  Employees must be offered coverage the first of the month following the month they are determined to be eligible. This method can cause practical difficulties not only for employers, but for employees as well, especially in the case where employees have varying hours.
  • Under the look-back measurement method, an employer may determine the status of an employee as a full-time employee during what is referred to as the stability period, based upon the hours of service of the employee in the preceding period. This is referred to as the measurement period. The Measurement Period can run between three and twelve consecutive months, and the Stability Period must run at least as long as the Measurement Period. There are many complexities in considering how to establish these periods.

 

 

What is the 95 percent rule regarding an offer of coverage, and how do I calculate it?

Under the 95 percent rule an employer will be treated as offering qualifying coverage to all of its full-time employees (and their dependents) for a calendar month, if the employer offers coverage to all but five percent (or, if greater, five full-time employees) of its full-time employees. The rule is designed to create a margin of error in case employers make clerical mistakes, and fail to offer coverage to all qualifying employees.

 

It can be complicated. Have more questions? Contact a Healy Group Employee Benefits Advisor. We can help you.

 

 

About the Author:

Tony Nyers is an owner and a Risk Management Advisor at Healy Group. He brings 20+ years of experience in health benefit design, as well as retirement plan expertise. He is co-author of a nationally published white paper on state-of-the-art health plan design, and has spoken at national conferences on several benefit-related topics. Tony is highly skilled in the self-funded arena having served on the Benefits and Conferences Committees for SIIA. He currently serves as Chair for the Michiana Chapter of the American Heart Association, and is committed to saving plan dollars through improving employee health.