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The Affordable Care Act

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The Affordable Care Act (ACA) was enacted March 23, 2010 and was one of the most debated pieces of legislation since Medicare in 1965. There is a lot of information covered in the Act but here we want to touch on who is required to file, types of insurance and ACA forms.

 

What’s required to file?

If an employer has on average 50 full-time employees, which includes full-time equivalent employees (FTE), the employer is considered an applicable large employer (ALE) and will be required to file ACA for the current calendar year. Whether or not you are self-funded or fully insured will alter the filing procedure somewhat. 

 

Are you an ALE?

Before you do anything with the ACA, you’ll need to determine if you are, in fact, an ALE. According to the IRS, an ALE is an employer who has at least 50 Full-Time Equivalents on average during the reporting year. An FTE calculator will determine whether or not you are an ALE and need to extend insurance coverage to your employees. Keep in mind, even if you are an ALE, this does not mean every employee needs to be offered health insurance. Only employees considered full-time (as in they work 30 hours per week or 130 hours per month on average) will require health insurance

 

Self-Insured vs. Fully-Insured. 

  • Fully insured health plans are traditional group health plans from an insurance carrier.
  • Self-insured health plans are funded and managed by the employer, typically to reduce premium costs.

When it comes to ACA reporting the biggest difference between the two is self-insured companies have to fill out section 3 of the 1095-C which requires a list of each individual the employees covers on their insurance. 

Forms:

Forms 1094-C, 1095-B and  1095-C  are required to prove to the IRS that your employees were offered an affordable method of health insurance, similar to forms W-3 and W-2 but for benefits.

1094-C 

The 1094-C is known as the Employer Transmittal Form. It's used to supply the IRS with the following information. 

  • The number of 1095-C’ss that are filed.
  • Company contact person.
  • Number of employees for the year
  • Employer Identification information

1095-B

1095-B is the transmittal form sent to the IRS for individual employees verifying what employees had minimal essential coverage. Employees that did not have minimal essential coverage may be responsible for a shared responsibility payment.

1095-C 

The 1095-C is known as the Offer of Coverage to the Employee Form, you will need to submit this form to the IRS and to the employee. 

This form provides the following information: 

  • Basic information for the employees and employers.
  • Whether or not the individual accepted coverage.
  • Those individuals who are self-insured are required to list each individual who is covered by their insurance, including dependents of employees. 
  • What months coverage was available

While some businesses calculate FTE and ALE using a time and attendance system, a spreadsheet or by hand, Dominion offers an ACA platform that calculates FTE and ALE for our clients, saving clients time and providing accurate reporting.  

The Affordable Care Act was one of the most debated pieces of legislation since Medicare in 1965. The Affordable Care Act (ACA) went into effect in 2010. The act encompasses many different aspects and can be tricky to navigate. 

 

Understanding the ACA reporting codes

Forms 1094 and 1095 are essentially the W-3s and W-2s of benefits. These forms are required to prove to the IRS that your employees were offered an affordable method of health insurance. These forms are divided into 1094-B and 1094-C. Your company’s insurance carrier will typically submit the B Forms for you, but the employer is responsible for supplying the IRS with the C Forms. 

1094-C 

The 1094-C is known as the Employer Transmittal Form. It's used to supply the IRS with the following information. 

  • The number of 1094-C\s that are filed.
  • Whether the employer qualifies for transition relief.
  • The months that the employer provided minimum essential coverage to a set percentage of its full-time employees. 

1095-B

The IRS uses the 1095-B forms to determine how individuals were or were covered in order to enforce the individual mandate. This form and the income tax return are used to verify the required minimum coverage. 

1095-C 

The 1095-C, known as the Offer of Coverage to the Employee Form, you will need to submit this form to the IRS and to the employee. This provides the following information: 

  • Basic information for the employees and employers, similar to that found on a W-2.
  • Whether or not the individual accepted coverage.
  • Those individuals who are self-insured are required to list each individual who is covered by their insurance, including dependants of employees. 

Employees that are considered full-time or work more than 30 hours per week (or average 130 hours per month) must be offered qualifying health coverage to avoid fines. The 1094 and 1095 reports are how the government determines who is complying and who requires fines. Therefore, each eligible employee must receive a 1095-C. 

 

Self-Insured vs. Fully-Insured. 

Fully insured health plans are traditional group health plans from an insurance carrier whereas self-insured is funded and managed by the employer, typically to reduce premium costs. The biggest difference when it comes to ACA reporting is self-insured companies have to fill out section 3 of the 1095c.

Only self-insured employer groups are required to complete part 3 of the 1095-C. Part 3 requires a list of each covered individual on the employee’s coverage and the months in which the member was enrolled, if not all year. Personal information for the employee, spouse, and dependents is required. 

The various offers of coverage are defined by two different series of codes. Code series 1 and 2 are entered in the second part of the 1095-C. Code series 1 begins with 1A through 1K. Each letter defines different scenarios regarding the employees’ offer of coverage. The codes 2A through 2I further describe an employees’ scenario, providing the IRS with information to determine whether or not a penalty should be applied. 

 

What’s required to file?

Determine if you are required to file. If an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is considered an applicable larger employer( ALE) and will be required to file for the current calendar year. Whether or not you are self-funded or fully insured will alter the filing procedure somewhat. 

 

Calculating FTE Employees 

If you are unsure if your company is an ALE, calculate your FTE. For each calendar month, count all the employees who have worked 130 hours or more. These would be considered your full-time employees.  For the entire calendar month, you’ll add the hours worked by all employees who do not qualify as FTE and are considered as variable hour employees. Since a variable hour employee does not work 130 hours or more consistently, but they could be on the verge of being a full-time employee. Their hours should be used to calculate FTE. You can only include up to 120 hours per employee for the month, so anyone who has between 121 and 129 hours will only have 120 hours included in the calculation. The remaining hours are simply dropped. Once you have all the hours worked by variable hour employees, take that number and divide it by 120. This will provide you with the FTE of your variable hour employees. 

Lastly, you’ll have to add the number of full-time employees to the number of FTE employees you calculated above, this generates your total number of FTEs for that month. Do this for each month of the year and then find the average number of FTEs for the whole year. This will determine whether or not your business is an ALE. It is important to note that if the result isn’t a whole number, you round to the next lowest whole number in order to get an accurate count. 

Dominion offers an ACA platform that will calculate FTE and ALE for a company. A business can also rely on a Time and Attendance program to create a report with the information needed. If a business is doing this on paper, the easiest way to calculate these numbers is by creating an excel spreadsheet. From there, you simply have to adjust hours worked each year. Be sure to take into account employees who have left over the year. Keeping this document up-to-date throughout the year will make this process significantly easier during year-end. 

Once you have determined your FTE status, you may be tasked with reporting. If so, you will obtain ALE status and must file all the correct documents and codes. One important thing to remember is when filing you look at the previous years’ data. For example, reporting in 2021, you would look back at 2020’s data.

The Affordable Care Act can be a rather complicated process. Hopefully, this article provided guidance as to how to file and which forms to are required for specific employees. A payroll software offers the technology to automate some of the calculations necessary to stay compliant. Dominion systems offer FTE and ALE calculations for companies. If you are interested in ACA compliance or other products we offer, schedule a demo with us! 

 

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