July 31, 2013

The Affordable Care Act and “shared responsibility”

As is widely known by now, the Affordable Care Act’s employer shared responsibility penalty has been delayed until 2015. This notwithstanding, there is much to be done to prepare. In that spirit, let’s look at what will be required in 2015.

First, it’s necessary to understand shared responsibility risk and how many full-time employees are offered minimum essential coverage at an affordable rate. To be affordable, the plan cannot cost an employee more than 9.5 percent of their income. To avoid a penalty risk, employers must offer adequate coverage at a rate that meets this standard. It’s also important to define the methodology for determining affordability. Three safe harbors are available to make this calculation, as follows:

1. Box 1 of W-2
2. Average wage method
3. A federal poverty level method

Bear in mind: It’s the offer that matters, not the take-up rate.

Given the emphasis on offering the benefits, companies can make sure they are compliant by giving employees an effective opportunity to enroll in the plan with the availability to do so at least once a year.

Once the affordability is figured out and the enrollment offer standards are met, employers must determine size and assess their workforce by properly classifying all employees and independent contractors. Once that has been done, employers must establish which employees are full-time or part-time and which are variable or seasonal.

In the meantime, employers are encouraged to continue to offer and even enhance access to coverage. For planning purposes, employers should know that all systems are “GO,” at least at the moment, for other requirements of the law.

Please be sure to read my next post that discusses aspects of the ACA that apply to companies regardless of size.

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