How the Affordable Care Act (ACA) affects employers
What the law means for employers
The Affordable Care Act (ACA) established new standards and opportunities for access to health care in the United States. Congress enacted this law in March 2010.
Now almost everyone must have insurance. To help enforce these rules, the law set up new reporting requirements and penalties. They affect both individuals and employers. We want to help you understand what the law means for you.
Here are a few highlights of the law:
- Large employers – those with 50 or more full-time-equivalent employees – must provide health insurance that meets certain standards, or potentially pay a penalty.
- Smaller employers and individuals have another option for buying coverage. It’s called a public exchange, or marketplace.
- If you offer health insurance to your employees, you or your insurance company must provide a Summary of Benefits and Coverage in a standard format.
- Health insurers must spend a set percentage of premium dollars on health care expenses. If we don’t hit this target, we have to send you a rebate. This rule is called the minimum medical loss ratio rule. It applies only to fully insured plans.
- If the cost of health insurance for some of your employees exceeds a certain dollar amount, you may have to pay an excise tax beginning in 2020. Some people call this the Cadillac tax.
- Reporting rules are in effect to confirm that you and your employees comply with the law.
- Most health plans must include preventive care at no cost to the individual.
You can find more details about the Affordable Care Act below.
Large employers may be penalized for not offering health coverage
This part of the ACA is called employer shared responsibility. It affects large employers. Your company is included if you had an average of 50 or more full-time and full-time-equivalent employees in the last calendar year.
Here are some basics about how the rule works:
- Large employers can be penalized if they don’t offer health coverage to all full-time employees and their dependents. “Full time” is defined as at least 30 hours per week on average.
- The coverage must be affordable, as defined by the law. This means that employees shouldn’t have to pay more than 9.5 percent of their household income for coverage. This is based on the amount they would pay to insure only themselves, not their families.
- The health coverage has to cover at least 60 percent of the total allowed costs of benefits under the plan.
- Large employers that don’t meet these requirements may have to pay a penalty to the IRS. This penalty is triggered if at least one of your full-time employees buys a health plan on an exchange and receives a premium tax credit.
Buying a plan on an exchange
If you have fewer than 50 full-time and full-time-equivalent employees, the shared responsibility rules do not apply to you.
You have the option to buy insurance for your employees through the Small Business Health Options Program (SHOP). This is another program set up under the ACA. SHOP is an online public health exchange where small employers can buy insurance for their employees.
Of course, you can still work with a broker or buy group insurance directly from Aetna.
If you have fewer than 25 full-time employees and you offer a health plan, you may qualify for a tax credit. Still trying to decide whether to offer coverage? The U.S. government’s exchange shopping website offers tools that can help. They include a tax-credit calculator.
Summary of Benefits and Coverage
All health plans must provide a Summary of Benefits and Coverage (SBC) that follows a standard format. This makes it easy to compare plans. The SBC must be written in simple language.
The SBC shows what the plan covers and what your employees’ costs may be. We’ll give you the information you need for the SBC. But the law says that employers give the SBC to employees. There are specific rules about what you have to provide and when. In general, you must provide the SBC to employees:
- When they shop for a plan
- After they enroll
- When they renew a plan
- When there’s a change to the plan
- When they ask for a copy
Learn more about the Summary of Benefits and Coverage (SBC)
Minimum medical loss ratio
The medical loss ratio (MLR) is the percentage of premium dollars that a health insurer spends on health care costs and quality improvement. The ACA sets a minimum amount for the MLR.
For large group plans, the MLR must equal at least 85 percent of premiums. Taxes and fees are deducted before making this calculation. The MLR must be at least 80 percent for small group plans and individual plans. Some states have higher MLR minimums.
To calculate the MLR, we first place policyholders into pools. There’s a pool for each insurance market in a state (large group, small group and individual) and for each legal entity that issues coverage. We calculate an MLR for each pool. We don’t calculate MLR separately for each customer or group.
If we don’t meet the minimum MLR for any pool, we send out rebates. Fully insured medical plans are eligible for rebates. Self-insured plans are not. Most plans don’t get rebates.
If a rebate is due for a given year, you’ll receive a notice on or before September 30 of the following year. In most cases, we send the rebate check to the employer. For individual policies, we send the rebate to the person who bought the health plan.
The federal government set guidelines that employers are required to follow when using rebate dollars.
Tax and reporting requirements
The ACA says that:
- Almost everyone must have health insurance
- Large employers must offer affordable health insurance that meets certain standards or possibly pay a penalty
The IRS requires that certain forms be filed to show compliance with the law. Employers and individuals who don’t comply may have to pay a penalty. Here’s a brief summary of some reporting rules that apply to employers.
All employers who provide insurance
Section 6055 of the tax code covers the reporting rules for insurers. This includes:
- Health insurance companies
- Employers who insure their own health plans
For a self-insured plan, the employer completes form 1095-B or 1095-C for each employee. For fully insured plans, the insurer submits the form. The IRS and the employee both get copies.
Form 1095-B includes:
- The name of the employer and type of health plan
- The name, address and Social Security number for each employee and dependent
- Which months of the year, if any, they were covered by the employer health plan
If you offer health insurance to employees, you also must report the value of the plan on the W-2 form of each employee who enrolled.
All large employers
Section 6056 of the tax code applies only to large employers. “Large” is defined as having more than 50 full-time and full-time-equivalent employees. If you are a large employer, you must file form 1095-C for each employee. The IRS and the employee each get a copy.
Form 1095-C contains some of the same information as form 1095-B. It also lists what the employee would pay for self-only coverage under the lowest-cost health plan you offer. The IRS uses this amount to calculate whether you provided affordable coverage, as the law requires.
Large employers that don’t provide minimum affordable coverage may have to pay a penalty.
Learn about penalties for large employers
Read about other taxes and fees
Guide to reporting requirements
The U.S. Department of Labor has a guide to reporting requirements, including those not related to taxes.
Excise tax (Cadillac tax) for high-cost plans
The ACA includes an excise tax on employer-sponsored health plans when their cost exceeds a set amount. Many people call this excise tax the Cadillac tax because it applies to higher-cost plans. The tax applies to plans that are fully insured or self-insured.
Collection of this tax has been delayed. It is now scheduled to take effect for group health plans offered in 2020 or later. The Internal Revenue Service (IRS) has not yet released final regulations.
The amount of the excise tax is 40 percent of the “excess benefit.” The dollar limit used to determine excess benefit will be adjusted each year based on the Consumer Price Index.
The excise tax applies to applicable employer-sponsored coverage for employees and retirees. This includes:
- Plans offered by private and government employers
- Multi-employer plans
Find out more about the excise tax
If you want to estimate your possible excise tax liability, you can try this calculator. It comes from The Alliance, a cooperative of employers with self-funded health plans.
No costs for preventive care
Most health plans must cover preventive care without cost to the individual. If your employees use doctors in the plan’s network, they don’t have to pay any cost sharing for preventive care services.
The U.S. government defines what must be covered under preventive care. The list includes:
- Recommended vaccines for children
- Screening tests for some conditions
- Certain women’s health services, including birth control
Find out more:
Some religious employers or organizations do not have to cover birth control and certain related services.
Learn about religious exemptions
Certain health plans that were sold before the ACA was passed do not have to cover preventive care. They are called grandfathered plans.
The information above does not cover all provisions and requirements of the ACA. You can find much more information on the IRS and Department of Labor websites.
See the IRS guide for large employers
Note: this information is not meant as legal or tax advice. Please talk to your legal or tax advisor about any questions.