Affordable Care Act Glossary

Affordable Care Act:
The Patient Protection and Affordable Care Act (PPACA) – also known as the Affordable Care Act or ACA, and generally referred to as Obamacare – is the landmark health reform legislation passed by the 111th Congress and signed into law by President Barack Obama in March 2010.

The legislation includes a long list of health-related provisions that began taking effect in 2010. Key provisions are intended to extend coverage to millions of uninsured Americans, to implement measures that will lower health care costs and improve system efficiency, and to eliminate industry practices that include rescission and denial of coverage due to pre-existing conditions.

Glossary

1095-C (B)1094-C (B)

A

ACA Mandate

Actuarial Value

Administrative Period

Affordable Coverage

Affordable Insurance Exchanges

Applicable Large Employer (ALE)

C

Cadillac Tax

E

Employee Handbook Updates

Employer Shared Responsibility

Essential Health Benefits

Exemptions

Excise Tax

Excess Benefit

Excess Benefit Exceptions

Federal Poverty Level Guidelines

F

Filing Timeline

Full-time employee

Full-time equivalent Employee

G

Good Faith Effort Penalty Relief

H

Health Insurance Marketplace

Health Reimbursement Arrangement

High Risk Employers for Reporting Errors

I

Immigrants

Internal Revenue Code § 6055

Internal Revenue Code § 6056

IRS Forms

L

Lookback Measurement Method

M

Measurement Period

Minimum Essentials Coverage

Minimum Value

Monthly Method

N

Non-compliance penalty

O

Out of Pocket Maximums

Out of Pocket Maximum Subsidies

P

Pay or Play

Pay or Play Penalties

Part Time Employee

S

Safe Harbor

Safe Harbor–The rate of pay

Safe Harbor–The Form W-2 Wages

Safe Harbor-The federal poverty line

Self-Employ Coverge

Self-only Coverage

Small Employer

Stability Period

T

Trade Preferences Extension

Transition Relief

ACA Mandate:
Employers are subject to a tax for:

Employers with between 50 to 99 full-time and full-time equivalent employees received a one year reprieve and are not subject to the employer mandate until January 1, 2016.


Actuarial Value or Minimum Value:
A health plan meets this standard if it’s designed to pay at least 60% of the total cost of medical services for a standard population, and if its benefits include substantial coverage of inpatient hospital and physician services. Individuals offered job-based coverage that provides minimum value and is considered affordable aren’t eligible for a premium tax credit.

Affordable Coverage: 4 (See Safe Harbor)

Affordable Insurance Exchanges AKA Health Insurance Marketplace: In the United States, health insurance marketplaces, also called health exchanges, are organizations set up to facilitate the purchase of health insurance in each state in accordance with Patient Protection and Affordable Care Act (ACA, known colloquially as “Obamacare”).

Applicable Large Employer: Any employer determined to have a certain number of employees that worked the required number of hours for at least one month during a measurement period. In 2014, the total number is 100+, in 2015 the total number is 50+.

  • Full-time employee: Any employee that works for the same employer more than 30 hours a week for one full month during a measurement period.
  • Part Time Employee: Any employee that words for the same employer that does not cross the 30 hours a week threshold within a measurement period.
  • Full-time equivalent Employee: Any employee that works less than 30 hours a week for the same employer for at least one month during a measurement period. The total hours will be combined with other part time employees working for the same employer for at least one month during a measurement period. All part time employee hours will be combined for the entire month, then divided by 120 (minimum hours that equals on full-time employee for one month) equals the total number of Full Time Equivalent Employees. This total is added to that of full-time employees equals the total number of full-time employees.

Employee Handbook Updates (Recommended)1
Because the ACA provides that employees working 30 or more hours per week qualify for coverage, employers should revise their employee handbooks where applicable to ensure compliance with this mandate. In particular, for at least health benefits purposes, employers should ensure their employee handbooks properly define full-time employees as those working 30 hours or more per week, as opposed to the historic 40-hour requirement for all purposes. If an employer previously chose to exclude “part-time” employees (those who work less than 30 hours a week) from its health plan, they should ensure that this exclusion is stated clearly in the handbook, with the proper distinction of full-time versus part-time employees.

The ACA only governs health insurance, however, so an employer is free to establish different eligibility standards for other benefits (paid time off, bonuses, etc.).

Employer Shared Responsibility or Pay or Play:  If an employer does not provide a plan that is affordable with at least minimum value coverage, the employee can shop for insurance through a public exchange and may qualify for federal tax credits. Employers that are midsize (the equivalent of 50 to 99 full-time workers based on a 30-hour work week) and large (100+) will face penalties starting at $2,000 per employee (after adjustments), if they fail to provide “affordable” coverage and have employees that receive federal tax credits to purchase exchange-based coverage.

Pay-or-Play penalties consist of two parts: 3

  • (a) Penalty, (generally) is equal to the number of full-time employees the employer employed for the year (minus up to 30) multiplied by $2,000;
  • (b) Penalty, $3,000 per year times the number of full-time employees who obtain a premium tax credit on the exchanges but not more than the “(a)” penalty amount.
  • The (a) Penalty could apply if an applicable large employer fails to offer coverage at all to a sufficient number of its full-time employees and dependents.
  • The (b) Penalty could apply if the employer does offer coverage, but that coverage is either unaffordable or does not provide “minimum value as defined by regulation.
  • Also, these penalties are only triggered if a full-time employee otherwise purchases coverage on a public insurance exchange and obtains a premium tax credit or subsidy for that coverage.

Essential Health Benefits are the types of care you need to prevent and treat sickness and do not include elective and “non-essential treatments”

Exempt from obtaining minimum essentials coverage:

  • Members of a federally recognized Native American tribe that are eligible for services through a tribal care provider
  • Member of a federally recognized health care ministry: Must have been in existence and sharing medical expenses since December 31, 1999, and share a common set of ethical or religious beliefs AND share medical expenses in accordance with those beliefs.
  • Recognized religious sect with religious objections to insurance including Social Security and Medicare
  • Incarcerated individuals
  • Homeless, or facing other serious financial hardships
  • US Citizens living and working abroad‡ (must not be present in the US for at least 330 days of a 12 month period)
    • Employers with 50 or more FTE in the US, their US workers-working abroad will be counted.
  • Independent Contractors‡‡: employers are exempt from providing minimum essentials coverage to independent contractors and are not counted towards an employers’ total FTE.

Excise Tax AKA Cadillac Tax: Under Section 9001 of the ACA, health insurance issuers and sponsors of self-funded group health plans will be assessed an excise tax on any benefits provided to employees that exceed a pre-determined threshold.  This is the same tax that the general media has labeled as the “Cadillac” tax. The excise tax is imposed beginning in 2018 and the taxable amount will be 40% of the benefit that exceeds the threshold amount. The plan sponsor is responsible for paying the excise tax for self-funded coverage.

  • Excess benefit: An excess benefit is the cost of coverage for health benefits that is more than the annual limit of $10,200 for self-only coverage and $27,500 for self and spouse or family coverage.  The annual limit is subject to adjustment for health costs, age and gender and cost-of-living adjustments.
  • Exceptions: The annual limits described above are increased by $1,650 in the case of self-only coverage and $3,450 in the case of self and spouse or family coverage for retirees not entitled to Medicare benefits and individuals engaged in high-risk professions.

Federal Poverty Level Guidelines: 2
Whether a not an individual or family is eligible for a premium Subsidy, a Tax Credit or Medicaid depends on whether their annual household income falls within or under a certain percentage of the Federal Poverty Level. The Federal Poverty Level (FPL) is defined as a uniform measure of income that is adjusted for inflation and released every year by the Department of Health And Human Services (HHS). Below is a convenient chart to determine where you sit on the FPL.

  • 100% and 400% of the FPL may be eligible for a federal premium subsidy.
  • Under 250% of the FPL, may be eligible for a tax credit to reimburse you for your insurance-related out-of-pocket expenses from the prior year.
  • 100% of the FPL or under and resides in a state that did not expand the Medicaid eligibility requirements, may be eligible for Medicaid.
  • 133% of the FPL or under, (amounts to 138% of the FPL due to the way that the income levels are calculated), and resides in a state that did expand the Medicaid eligibility requirements, may be eligible for Medicaid.

Family Size

100%

133%

138%

250%

400%

1

$11,670

$15,521

$16,105

$29,175

$46,680

2

$15,730

$20,921

$21,707

$39,325

$62,920

3

$19,790

$26,321

$27,310

$49,475

$79,160

4

$23,850

$31,721

$32,913

$59,625

$95,400

5

$27,910

$37,120

$38,516

$69,775

$111,640

6

$31,970

$42,520

$44,119

$79,925

$127,880

Filing Timeline: By February 28 if mailed, March 31 if electronic.

Good Faith Effort Penalty Relief: An employer who shows reasonable effort to comply with the new reporting rules, who have 1) filed incorrect data and makes an effort to correct the error by April 1 or August 1 or 2) needs additional time to develop proper filing procedures to be in compliance of the same year, may have their penalties sustained under the law based on showing “good faith” in complying. Employers found to avoid filing or deliberately furnishing incorrect data will not have their Non Compliance Penalty suspended.

Health Reimbursement Arrangement (HRA): An employer that maintains an insured group plan and a self-funded Health Reimbursement Arrangement (HRA) must separately report the HRA coverage if the HRA is used to supplement cost of minimum essential coverage.

High Risk Companies for Full Time Equivalent Reporting Errors:

  • Employers of seasonal workers
  • Employers with high turn over
  • Shift work
  • High number of part time employees
  • New businesses (this year)
  • Common owner of multiple companies

Immigrants: Under the ACA, Naturalized Citizens are entitled to the same affordable coverage as US citizens

  • Lawfully Present Immigrants†: Limited Federal Coverage, subject to individual state laws for a “qualified health plan” or QHP. Eligible for premium tax credits and lower copayments, some restrictions on Medicaid and wait periods. Employers are subject to counting these individuals to the full time and full-time equivalent employees.
  • Undocumented Immigrants: No federal coverage.

Increased Penalty Amounts: Trade Preferences Extension Act: Signed in June 2015 by President Obama, in essence doubles the previously defined penalty for non-compliance for each of the fines and raises the cap of those fines.

Non-Compliance Penalty: Penalties for non-compliance with either requirement are steep. Until recently, the penalty for failure to file an information return generally was $100 for each return for which the failure occurs—i.e., per covered individual. And the total penalty imposed for all failures during a calendar year was capped at $1,500,000. But the recently enacted Trade Preferences Extension Act of 2015 increased these penalties to $250 per day and an annual cap of $3,000,000.)The Trade Act amends the ACA reporting requirement penalties as follows:

Penalty Old Amount New Amount
Failure to file/furnish generally $100/return $250/return
Annual cap on penalties $1,500,000 $3,000,000
Failure to file for employers with less than $5 million gross receipts; annual cap on penalties $100/return;
$500,000 annual cap
$250/return;
$1 million annual cap
Violations corrected within 30 days of required filing date; annual cap on penalties when violations corrected within 30 days $30/return;
$250,000 annual cap
$50/return;
$500,000 annual cap
Violations corrected within 30 days of required filing date for employers with less than $5 million gross receipts; cap on penalties when violations corrected within 30 days $30/return;
$75,000 annual cap
$50/return; $175,000 annual cap
Violations corrected by August 1 of year in which required filing date occurs; cap on penalties when violations corrected by August 1 $60/return; $500,000 annual cap $100/return; $1.5 million annual cap
Violations corrected by August 1 of year in which required filing date occurs for employers with less than $5 million gross receipts; cap on penalties when violations corrected by August 1 $60/return; $200,000 annual cap $100/return; $500,000 annual cap
Penalty per filing in case of intentional disregard (no cap applies) $250/return; or if greater, 10% of total amount of items required to be reported correctly $500/return; or if greater, 10% of total amount of items required to be reported correctly

Internal Revenue Code § 6055: requires carriers and sponsors of self-funded group health plans to provide statements to individuals to whom they provide minimum essential coverage and to transmit copies to the IRS. (“Minimum essential coverage” is coverage that fulfills an individual’s obligation to have health coverage under the ACA’s individual mandate. In the context of employment, minimum essential coverage is generally provided under a group health plan that is either fully-insured or self-funded.)

Internal Revenue Code § 6056: requires “applicable large employers” (i.e., employers with 50 or more full-time and full-time equivalent employees on business days during the previous calendar year) to furnish statements to (and transmit copies to the IRS along with certain transmittal information) each individual who was a full-time employee for at least one month, to disclose whether each such full-time employee and his or her spouse and/or dependents were offered health coverage, and, if so, to report the lowest cost of individual coverage available to the employee. In addition, the employer must report similar information with respect to part-time employees who are offered and who accept coverage.

IRS Forms

1095-C*: Form furnished to the individual with reporting the minimal essential coverage offered about their individual coverage plan. At the core of Form 1095-C are three questions (lines 14, 15 and 16) that solicit information about three disparate ACA provisions. Line 14 asks about offers of coverage relating to the ACA individual mandate (Code § 5000A); line 15 asks about the amount of the employee contribution for purposes of assessing an individual’s eligibility for premium tax credits (Code § 36B); and line 16 relates to the applicable large employer’s compliance with the employer shared responsibility rules (Code § 4980H). Moreover, compliance in each case is determined by month. The responses to the questions in lines 14 and 16 are in the form of indicator codes. There are nine separate codes for each, for a total of 18 different codes corresponding to 18 different compliance profiles, options, and situations. Perhaps these forms could be simplified if the information about the individual mandate and/or eligibility for premium tax credits was stripped out, but that would likely require yet another form.

1094-C*: Employers full report furnished to the IRS explaining the coverage plans provided to each individual receiving a 1095-C and the minimal amount of coverage offered.
* Small employers (i.e., those with fewer than 50 full-time and full-time equivalent employees on business days during the previous calendar year) that sponsor self-funded plans report the offer of minimum essential coverage on Form 1095-B and transmit on Form 1094-B. They do not provide or file Form 1095-B or C.

Look-back measurement method: The look-back measurement method is an optional safe harbor method for determining full-time status that is intended to give employers flexible and workable options and greater predictability for determining full-time employee status. The look-back measurement method involves:

  • measurement period for counting hours of service
  • stability period when coverage may need to be provided, depending on an employee’s average hours of service during the measurement period
  • An administrative period that allows time for enrollment and disenrollment.

Example for plan year 2015:

Example for plan year 2016:

Minimum Essentials Coverage AKA Minimum Value:A health plan meets this standard if it’s designed to pay at least 60% of the total cost of medical services for a standard population, and if its benefits include substantial coverage of inpatient hospital and physician services. Individuals offered job-based coverage that provides minimum value and is considered affordable aren’t eligible for a premium tax credit.

Monthly Measurement period:  an employer determines each employee’s status as a full-time employee by counting the employee’s hours of service for each month

Out of Pocket Maximums: 3
An out-of-pocket maximum is the total amount you’ll have to pay during a policy period, typically a year, before your health insurance starts to pay 100% for covered essential health benefits. The ACA limits out-of-pocket maximums, the max amount of costs for covered services you’ll pay out-of-pocket in a policy period on your health plan. In 2015, your out-of-pocket maximum can be no more than $6,600 for an individual plan and $13,200 for a family plan before marketplace subsidies.
What can be counted towards the out of pocket maximum: Deductibles, coinsurance, copayments, any other expenditure required of an individual which is a qualified medical expense for essential health benefit (if a service isn’t an essential benefit it may not count toward your maximum.) Some high deductible health plans like catastrophic coverage your maximum will be the same as your deductible.

Out-of-pocket Maximums Subsidies
Under the ACA if you make less than 250% of the Federal Poverty Level (FPL) you may qualify for Cost Sharing Reduction Subsidies. These subsidies reduce the out-of-pocket costs you are responsible for and reduce your out-of-pocket maximum as well.

For 2015 subsidies, if your income is:

  • 100-200 percent of FPL,
    • out-of-pocket limit won’t be more than $2,250 for an individual.
    • out-of-pocket limit won’t be more than $4,500 for a family.
  • 200-250 percent of FPL,
    • out-of-pocket limit won’t be more than $5,200 for an individual.
    • out-of-pocket limit won’t be more than $10,400 for a family.
  • More than 250% percent of FPL,
    • out-of-pocket limit won’t be more than $6,600 for an individual.
    • out-of-pocket limit won’t be more than $13,200 for a family.

Safe Harbor:5
There are three affordability safe harbor provisions offered by the IRS.

  • Safe Harbor – The rate of pay: Employee’s required premium co-share for the lowest-cost, self-only coverage that provides minimum value is no more than 9.5% of their monthly wages of rate of pay as of the first day of the coverage period, generally the first day of the  of the plan year, multiplied by 130 hours.
    • For a salaried employee – eligible to participate in the health plan as of the beginning of the plan year, the employee’s required contribution for the lowest-cost, self-only coverage that provides minimum value cannot exceed 9.5% of the employee’s monthly salary amount. (For this purpose, an employer can use any reasonable method for converting payroll periods to a monthly salary.)
    • An employer can use this safe harbor only if the employer did not reduce an employee’s pay during the year, including by transferring the employee to another employer within the same controlled group.
  • Safe Harbor – The Form W-2 Wages: Employee’s required premium co-share for the lowest-cost, self-only coverage that provides minimum value is not greater than 9.56 percent of an employee’s W-2 taxable (Box 1) income. The cost of dependent coverage is not calculated in the determination of whether the employer is offering affordable coverage.
    • An employee’s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of their W-2 wages for that calendar year.
    • This test determines affordability based on whether an employee’s premium contribution for the lowest-cost, self-only coverage that provides minimum value exceeds 9.5% of the employee’s wages as reported on Form W-2 Box 1 for the calendar year.
  • Safe Harbor- The federal poverty line: Employee’s required premium co-share for the lowest-cost, self-only coverage that provides minimum value is not greater than 9.56 percent of the federal poverty level for a single individual.
    • An employee’s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of the FPL for a single individual.
    • For coverage to be affordable, the employee’s required contribution for the lowest-cost, self-only coverage that provides minimum value cannot exceed 9.5% of the FPL for the applicable calendar year, divided by 12. Individuals below the FPL will generally qualify for Medicaid.

Self-Employ Coverage: Refers to an employer who deducts medical coverage premiums from an employee’s payroll and deposits it into a slush fund to pay out employee health-related expenses. Usually administered not by the employer, but binds an insurance carrier to manage funds and coverage options.

Self-only Coverage: Refers to the individual employee’s health coverage and not that of the dependents.

Small Employers: Employers with fewer than 50 full-time and full-time equivalent employees, are not required to offer coverage and are not subject to these penalties.

Transition Relief: There are eight forms of transition relief for 2015 that apply to various aspects of the employer shared responsibility provisions

  1. ALEs with Fewer than 100 Full-time Employees (Including Full-time Equivalent Employees): ALE with fewer than 100 full-time employees in 2014 will not be subject to the employer shared responsibility provisions in 2015 (and, in addition, for an employer with a non-calendar year plan year, for the months in 2016 that are part of the 2015 plan year), provided certain conditions are met regarding the employer’s maintenance of workforce and pre-existing health coverage.
  2. Shorter Period Permitted for Determining ALE Status for 2015: Rather than being required to measure its ALE status based on the number of full-time employees for all twelve months of 2014, employers may instead base their ALE status on any consecutive six-month period – as chosen by the employer – during 2014.
  3. Certain Non-Calendar Year Plans: Transition relief is available for certain employers sponsoring non-calendar year plans for the months in 2015 prior to the beginning of the 2015 plan year with respect to certain employees, if the employer and plan meet various conditions.
  4. Offers of Minimum Essential Coverage for Pay Periods in January 2015: Generally, if an employer fails to offer minimum essential coverage to a full-time employee for any day of a calendar month, that employee is treated as not having been offered minimum essential coverage during the entire month.  Under this relief, however, if an ALE member offers minimum essential coverage to a full-time employee no later than the first day of the first payroll period that begins in January 2015, the employee will be treated as having been offered minimum essential coverage for January 2015 for purposes of the employer shared responsibility provisions.
  5. Offers of Minimum Essential Coverage to Dependents: In general, an employer is considered to have made an offer of minimum essential coverage to a full-time employee only if it also makes an offer of minimum essential coverage to the full-time employee’s dependents.  However, for the 2014 and 2015 plan years, relief is available for this requirement as long as the employer meets certain conditions, including taking steps to offer minimum essential coverage to dependents and not dropping current dependent coverage.
  6. Offers of Minimum Essential Coverage to at Least 70 Percent of Full-Time Employees (and Their Dependents): One of the two employer shared responsibility payments relates to whether an employer offered minimum essential coverage to at least 95 percent of its full-time employees (and their dependents).  For 2015 (and, in addition, for employers with a non-calendar year plan year, for the months in 2016 that are part of the 2015 plan year), 70 percent is substituted for 95 percent. However, even if an employer offers minimum essential coverage to at least 70 percent of its full-time employees (and their dependents) for 2015, it may still be subject to the other type of employer shared responsibility payment that applies if a full-time employee receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace.
  7. Shorter Measurement Periods Permitted for Identifying Full-Time Employees: Under the look-back measurement method for determining full-time employee status, in general, the length of the measurement period and stability period will be the same. However, for stability periods beginning in 2015, an employer may adopt a transition measurement period that is shorter than 12 consecutive months, but that is no less than six consecutive months, under certain conditions.  This transition measurement period can begin no later than July 1, 2014 and end no earlier than 90 days before the first day of the 2015 plan year.
  8. Calculation of Employer Shared Responsibility Payment for ALEs With at Least 100 Full-time Employees (Including Full-Time Equivalent Employees): In general, if an ALE member is subject to the employer shared responsibility payment because it doesn’t offer minimum essential coverage to its full-time employees (and their dependents), the annual payment is $2,000 for each full-time employee (adjusted for inflation), after excluding the first 30 full-time employees from the calculation.  For 2015 (and, for an employer with a non-calendar year plan year, the months in 2016 that are part of the 2015 plan year), if an ALE member that is part of an ALE with 100 or more full-time employees (including full-time-equivalent employees) is subject to this payment, the number of full-time employees used to calculate the payment will be reduced by 80 rather than 30.

References:

CalChoice Affordable Care Act Calculator.

1: http://www.jdsupra.com/legalnews/dont-forget-preparing-for-the-affordab-84750
2: https://obamacare.net/2015-federal-poverty-level
3: http://obamacarefacts.com/health-insurance/out-of-pocket-maximum
4: http://www.shrm.org/hrdisciplines/benefits/articles/pages/what-is-affordable-coverage.aspx
5: http://www.shrm.org/hrdisciplines/benefits/articles/pages/irs-affordability-percentage-2015.aspx
6: http://www.irs.gov/Affordable-Care-Act/Employers/Transition-Relief

†: http://www.nilc.org/immigrantshcr.html
‡: http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision
‡‡: http://www.lexology.com/library/detail.aspx?g=d6c750f5-1ee2-49d2-97bb-cac04664cc34

Additional Reading:
https://www.cms.gov/cciio/resources/regulations-and-guidance/index.html
https://www.healthcare.gov/glossary/