The Affordable Health Care Act, part II
New regulations that take effect in January will have a major impact on small businesses. Here’s how to navigate.
For businesses trying to navigate the new health care environment, the road to compliance may be more hazardous than they realize.
To help Louisiana business leaders achieve compliance and understand the regulations coming into effect on Jan. 1, 2015, the Louisiana Association of Business and Industry recently hosted a forum outlining the most critical points of compliance, detailing the fines and consequences for non-compliance, and providing tools to protect businesses from unwarranted audits in 2016 under the Patient Protection and Affordable Care Act.
The beginning of open enrollment for the federal health care exchange runs through Feb. 15, 2015, meaning there is no time to lose for businesses that don’t know where they stand.
LABI President Stephen Waguespack says a lot of his organization’s members are in a state of paralysis over the federal health care mandate.
“They feel this economic boom coming, they see the expansion coming, and they are ready to put that capital to work,” Waguespack says. “This is a tripwire for them, and they just don’t know what to do.”
Michael Bertaut, a health care economist for Blue Cross and Blue Shield of Louisiana, offers business leaders detailed steps to compliance as well as words of wisdom—and caution. Bertaut says there are five questions all employers must answer “accurately, monthly, forever” to comply with the heath care mandates.
As Bertaut explains, failure to do so can be costly.
1. How many full-time employees do I have?
“Gone are the days when you got to decide who was full-time and who wasn’t,” Bertaut says. With the passage of the Affordable Care Act, the federal government threshold for compliance was set at 30 hours per week, 130 hours per month, or 1,560 hours a year for variable-hour employees using 12-month measurement periods.
Employers must track employee performance to report it on a new form called a 1095-C form, which Bertaut says will cause a lot of anxiety for employers. “It is no longer your call” in determining who is full-time and who is not, Bertaut says, “unless you are willing to pay fines.”
Identifying which employees should be deemed full-time is not a cut-and-dry process. The IRS uses the common-law definition as the designation for a full-time employee, which is any employee who performs service for a company. This standard complicates the large role of independent contractors in Louisiana’s workforce.
“If you use a lot of 1099 [contract] labor, what you want to do is examine that relationship carefully to make sure that these people are really not employees,” Bertaut says.
2. Am I an applicable large employer (ALE) or not?
The regulation requires a minimum of six months of measurement before a business can ascertain whether it is an applicable large employer. Since the first reporting will be for Jan. 1, 2015, employers should ensure that the computation dates back to January 2014 at the latest. However, determining if you are a large or small employer takes more than just counting up all of your full-time employees. “It is not just about full-time labor,” Bertaut says. “It is about full-time equivalency of labor.”
The formula to use for determining how many full-time equivalent employees a company has, in order to ultimately determine its ALE status, is as follows:
• Count all known benefit-eligible full-time employees.
• Evaluate how many part-time hours are worked each month. Paid hours for each non-full-time person performing labor for the company who would be classified as a common-law employee by IRS regulation should be included in the total part-time hours worked each month.
• Divide the part-time hours total each month by 120.
• Add that to the number of known benefit-eligible employees in step 1.
• Repeat the formula every month. Average the results over at least six consecutive months to determine whether the entity is an ALE. If the number is greater than 49.99 (rounded to two decimal places), the entity is an applicable large employer. If the result is 49.99 or less, the entity is a small employer, or non-ALE.
“The more data you have, the more flexibility you have about figuring out whether you are large or small,” Bertaut says. “It is really a good idea to go as far back as January of 2014 and run these ALE counts forever.”
3. If I am an ALE, what are my obligations?
If you are a business operating in the 50 to 99.99 range, you may qualify for transitional relief until 2016, Bertaut says.
He calls this a “dangerous range” to be in because to take advantage of the transitional relief, a business must meet certain criteria or suffer paying a hefty fine.
Businesses may qualify for transitional relief if they didn’t get under 100 employees by firing people, if they offered the same insurance coverage as they did on Feb. 9, 2014, and if they pay at least 95% of the premium on Feb. 9, 2014. Relief is not automatic, Bertaut stresses.
A business must meet all three criteria to qualify for transitional relief, or be held responsible for compliance as of Jan. 1, 2015, instead of 2016.
Businesses with 100 or more employees must comply by Jan. 1, 2015, and offer affordable insurance coverage to 70% of full-time employees in 2015 and 95% in 2016 to avoid high federal fines.
A compliant plan requires that you make an offer of coverage to your employees and that the offer is “affordable.”
The fines for non-compliance are big and can accumulate quickly, Bertaut says.
Waguespack sees this as a major concern: A business owner may not know he or she is subject to these fines until it is too late.
“Those fines can be thousands of dollars a day and can go pretty high, so if you are out of compliance for a long time, the threats and fines are very real,” he says. “It is the type of thing that can close the doors of a small business.”
4. I’m not an ALE. What now?
“For once, in the business world, being small is going to work to your advantage,” Bertaut says. Small businesses under the 50 full-time equivalent of employees don’t have any obligations to provide coverage under the Affordable Care Act.
Does that mean those businesses can stop counting? No.
With the new audit environment in 2016 and beyond, the best defense for employers will be tracking their ALE computations; small employers may need to use these records to prove they are non-ALE.
5. How else can and should businesses prepare for the new audit environment in 2016?
Bertaut says this new audit environment keeps him up at night thinking about businesses and what they are up against.
The U.S. Department of the Treasury and the Department of Labor will have two new data sources that they didn’t have before the passage of the Affordable Care Act.
First, they will have a database of about 7.5 million Americans who are currently drawing advanced tax credits because they are getting health insurance through an exchange.
They will also have new information on W-2 and 1095-C forms that show whether companies are offering coverage and to whom they are offering it.
“I just think the letters are going to fly,” Bertaut says.
Any employee who receives a W-2 from a company and then goes onto the health care exchange to buy insurance could raise a flag at the federal government, even if that employee only received the W-2 for part-time or temporary work.
“In 2016 I’m expecting all of you to get a letter asking why this guy that got a W-2 got advanced tax credits from healthcare.gov,” Bertaut says.
“The ways the whole provision is set up, it is making employers guilty before proven innocent,” Waguespack says.
How can you avoid costly fines from the federal government related to health care offerings? Here are four tips from the Louisiana Association of Business and Industry and Michael Bertaut, a health care economist for Blue Cross and Blue Shield of Louisiana:
• Prove that your firm is not an applicable large employer, or ALE, and therefore not subject to certain fines. Thus, a small employer must keep records and have information readily available documenting its non-ALE status.
• Demonstrate that employees in the inquiry were not full-time when they receive tax credits from healthcare.gov.
• Require all employees to sign either an acceptance or waiver of coverage to prove that, as an employer, you made each and every employee in question a bona fide offer of coverage that was affordable. “Each waiver is worth about $4,000,” Bertaut says. He encourages employers to keep track of their waivers, have open enrollment once a year, and ensure they collect a new set of waivers from all employees every 12 months. “Without a waiver, it leaves you exposed.” he says.
• Get help. “There has been no effective communication to employers to prepare them for this,” LABI President Stephen Waguespack says of the audit potential and possibility of fines coming in 2016. LABI is rolling out the LABI Benefit Center to provide Louisiana employers of all sizes with access to insurance, human resource and ACA compliance tools to help them manage the changing business landscape. “We cannot wait for government to come in and provide these solutions,” Waguespack says. “We have to be these solutions. We are going to put our finger in the dam.”