Understanding the ACA’s “Pay or Play Provisions”

file15Under the Affordable Care Act’s employer shared responsibility provisions (commonly referred to as the employer mandate) certain employers (called applicable large employers or 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.

For this reason, the employer shared responsibility provisions are sometimes referred to as “the pay or play provisions.”

Who has to offer coverage?

Applicable large employers.  Employers with 50 or more “full-time equivalent” employees need to offer coverage or may be fined for failing to provide coverage to their full-time employees (and their dependents).   In determining whether you have 50 or more full-time equivalent employees, you must include the hours worked by your part-time employees.

For purposes of the employer shared responsibility provisions:

  • a full-time employee is, for a calendar month, an employee who works on average at least 30 hours of service per week, or 130 hours of service per month.
  • a dependent is an employee’s child (including a child who has been legally adopted or placed for adoption) who has not reached the age of 26.  Spouses are not considered dependents and neither are stepchildren or foster children.

How do you avoid the penalties?

ALEs must offer minimum essential coverage that is “affordable” and provides “minimum value” to their full-time employees. For more information on what coverage counts as minimum essential coverage, please click here.

How is this information reported?

Applicable large employers (ALE) must report to the IRS information about the health care coverage, if any, they offered to full-time employees.  ALEs also must furnish to employees a statement that includes the same information provided to the IRS.

Picture1What are the ALE reporting requirements?

Under IRS Code Section 6056, applicable large employers are required to report to the IRS whether they offer qualifying coverage to their full-time employees and their employees’ dependents. The reporting is needed by the IRS for the administration of the employer mandate requirements and to determine the assessment of penalties under IRS Code Section 4980H.

The reporting is required beginning in early 2016 to report information about 2015. There are multiple components to the reporting requirements. As an applicable large employer you will be required to complete at least two components:

  • Transmittal of Form 1094-C to the IRS
  • Distribution of Form 1095-C to Employees

If your plan design includes offering fully-insured medical plans, your insurance provider will also be completing two components:

  • Transmittal of Form 1094-B to the IRS
  • Distribution of Form 1095-B to your Employees

Note: Employers also face penalties for incorrect filing or untimely filing of these forms.