What you need to know in 2014
In order to comply with Obamacare, the requirements must be fully understood. Some changes have been made to the proposed regulations based on feedback. Now that the requirements have been defined, it is important to have an up-to-date understanding. However, there is a lot of complicated jargon associated with Obamacare that may make it difficult to read and retain all of the information being presented.
Here is a brief Obamacare glossary of some of the most essential Affordable Care Act terms:
Applicable Large Employer (ALE) – Only ALEs are required to offer healthcare coverage to their full-time employees. So, it is important to understand what defines an ALE. If the average combined total of full-time and full-time equivalent employees in your company is 50 or more during a year, you’re considered an ALE for that year. So, who are full-time employees and what is a full-time equivalent?
Full-time Employees – Any employee who works, on average, at least 30 hours per week or 130 hours per month for the year being reported is considered full-time for that year. Many employers will be able to easily calculate their employees’ full-time statuses using the weekly measurement, especially if employees work approximately the same schedule each week. However, if employees work a variety of shifts and schedules each week, the monthly average may be simpler.
Full-time Equivalent (FTE) – Your company’s FTE calculation for each calendar month can be determined by adding up all hours worked by part-time employees during the month and dividing the total by 120.
Minimum Essential Coverage – ALEs are required to offer healthcare that provides minimum essential coverage to each full-time employee and the employees’ dependents during each month that the employer is considered an ALE. Minimum essential coverage is defined as group health insurance plans offered under a specified government-sponsored program or eligible employer-sponsored program, other coverage plans in small or large group markets within states, grandfathered health plans offered in group markets, and any other coverage that is recognized by the Secretary of Health and Human Services. Minimum essential coverage does not include coverage that consists solely of excepted benefits.
Affordable Coverage – The coverage offered by ALEs must be considered affordable. Affordable coverage is defined as any plan that’s lowest premium cost for an employee only (excluding dependents/spouses) is less than 9.5% of the employee’s household income. Since ALEs may not know their employees’ household incomes, the IRS has established some safe harbors. These guidelines stipulate that if the offered coverage is less than 9.5% of the employee’s pay, the employer can be confident that the coverage is affordable. Therefore, the employer will not be penalized.
Minimum Value Coverage – When ALEs offer healthcare coverage to their full-time employees and dependents, it must be considered of minimum value. A healthcare plan that is of minimum value will not require the insured to pay more than 40% of medical expenses out of pocket.
While there are many more terms associated with Obamacare and IRS reporting, understanding these six is a good starting point. Even if you are not an ALE, you still need to follow the Obamacare reporting guidelines. If the definitions provided in this Obamacare glossary were helpful, visit www.EmployersAndObamacare.com to purchase your own copy of Obamacare: A Handbook for Employers. It’s your step-by-step guide to addressing Obamacare in your business!