Q: What Are My Affordable Care Act (ACA) Requirements?

Under the Affordable Care Act (ACA), you must provide health insurance to full-time employees if you have 50 or more full-time equivalent employees (FTEs). This is known as the employer mandate.

That may sound simple enough, but the ACA is peppered with tons of rules you need to follow in order to keep your employees safe and sound. In fact, the National Small Business Association found that the average employer spends 13 hours a month fiddling with ACA compliance.

So, what is the ACA?

The Affordable Care Act was passed in 2010. It’s meant to help people access more affordable medical coverage. It mandates how carriers, employers, individuals, and other entities can make health insurance more accessible.

For small business owners, the employer mandate is where much of that responsibility lies. The mandate requires companies to offer full and affordable health insurance if they have 50 or more full-time equivalents on staff. If you don’t stick to the rules, you’ll have to pay the IRS a fine called the shared responsibility payment.

Does the employer mandate apply to me?

To find out if the rule applies to you, you first have to figure out how many full-time equivalent (FTE) employees you have on your team. The federal government defines a full-time employee as one who works at least 30 hours a week, or at least 130 hours a month for more than 120 days in a year. A part-timer is anyone who works less than that.

Use the formula below to figure out how many FTEs you have:

(Total hours worked by part-time employees each week / 30) + number of full-time employees = Your FTE number)

If you need a little more help, you can also jump through the steps below:

  1. Add up the number of hours each of your part-time employees work in a week.
  2. Divide the result you get by 30.
  3. Round down to the nearest whole number.
  4. Add this number to the number of full-time employees you have.

Have that final number in mind? Good. Now, think back to how big your team was in the previous year and see whether you’re required to offer insurance today:

I have 49 or fewer FTE employees: Nope, you’re not required to provide health coverage. That being said, many companies offer insurance to their teams anyway to keep everyone happy and healthy.
I have 50 or more FTE employees:Yes, you do have to offer health coverage! 95% of your full-time employees have to be covered.

What kind of health insurance do I need to provide?

Under the ACA, if you have 50 or more FTEs, the insurance you supply to your employees and their dependents must meet two requirements:

  • It must be “affordable.” In 2020, that means the cheapest single-person plan must have a premium that is 9.78% or less of an employee’s overall household income. You can use employees’ Form W-2 wages, rate of pay, or the federal poverty line to determine whether a policy is affordable.
  • It must provide “minimum value.” A plan provides “minimum value” if it covers at least 60% of the expected total cost of services. The IRS provides a minimum value calculator and other guidance.

What happens if I don’t provide coverage to my employees?

If you are a large employer and don’t offer health insurance to at least 95% of your employees, you could pay a penalty. In 2020, the penalty is $2,570 per full-time employee (not including the first 30).

You could also face penalties if the policy you offer is not affordable or doesn’t provide minimum value. Penalties may also come into play if one employee buys health insurance on their own and receives a federal premium subsidy.

The Affordable Care Act is a big Act to follow. But hopefully you now have the basics down. If you’re still not sure about your requirements, talk to a certified broker who can help you figure out if and how you can provide health insurance for your team.

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