Health Care Reform Glossary

Health Care Reform Help is Here, Get Started

Affordable Coverage

An employee’s required contribution for self-only coverage to the lowest cost plan that offers minimum essential coverage cannot exceed 9.5 percent of their modified adjusted gross household income. Employers may not be able to determine an employee’s gross household income. However, they may use one of three affordability safe harbor methods to assist them in determining whether the coverage they are providing is deemed affordable:

  1. Form W-2 Safe Harbor: Use employee’s Form W-2 wages shown in Box 1.
  2. Rate of Pay Safe Harbor: Multiply an employee’s hourly rate by 130 to determine monthly wages or use a salaried employee’s monthly pay. Note: This method may only be used if the employer did not reduce the employee’s rate of pay during the year.
  3. Federal Poverty Line Safe Harbor: Use the federal poverty line for a single individual.

Back to top

Applicable Large Employer (ALE)

A business entity that employs 50 or more full-time equivalent employees (FTEs).

All member entities within a controlled group under Code Section 414(b), (c), (m), and (o) are taken into account when determining if an employer is an applicable large employer.

Each member entity within a controlled group will be looked at separately when determining assessments that may apply. Assessments will be charged only to the member entities within the controlled group that do not meet the requirements.

Note: Enforcement of ESR provisions begins January 1, 2015 for employers with 100 or more full-time employees and January 1, 2016 for employers with 50-99 full-time employees.

Back to top

Dependent

A child of an employee who has not yet attained age 26. This does not include the spouse of an employee.

Back to top

Full-Time Employee

An employed person who averages 30 or more hours of service per week or 130 hours per month. This definition of employee is based on the common-law standard. It does not include individuals such as a leased employee, a sole proprietor, a partner in a partnership, or a two-percent S-Corp shareholder.

Back to top

Full-Time Equivalent Employee (FTE)

The number of full-time equivalent employees is determined by adding the number of full-time employees plus total hours worked by part-time employees in a given month (capped at 120 per employee), divided by 120:

Total number of full-time employees + (Total hours per month of part-time employees/120) = Total FTEs

Back to top

Hours of Service Calculation

The following methods are used to calculate hours of service for hourly and non-hourly employees:

  1. Hourly employees - Use actual hours of service from records of hours worked and hours for which payment is made or due.
  2. Non-hourly employees - Use one of the following methods:
    1. Actual hours of service from records of hours worked and hours for which payment is made or due.
    2. Days-worked equivalency - The employee is credited with eight hours of service for each day in which the employer would be required to be credited with at least one hour of service.
    3. Weeks-worked equivalency - The employee is credited with 40 hours of service for each week in which the employer would be required to be credited with at least one hour of service.

The employer is not required to use the same method for all non-hourly employees and may apply different methods for different classifications of non-hourly employees as long as the classifications are reasonable and consistent.

The equivalency methods are not permitted to be used if they would substantially understate an employee’s hours of service.

Hours of service generally do not include hours of service worked outside the United States. Employees working overseas generally will not have hours of service and will not qualify as full-time employees. However, all hours of service for which an individual receives U.S. source income are counted as hours of service for these provisions.

Back to top

Household Income Reporting

As the employer has no way of knowing the total family income of the employee, the IRS has provided additional affordability safe harbor methods to determine affordability (see Affordable Coverage definition). However, the IRS is still requiring the employee to use household income when determining eligibility if a subsidy is requested. When the employee’s taxes are filed, the cost of insurance compared to income will be determined.

The IRS will use a modified adjusted gross income (MAGI) when determining if a household is eligible for a subsidy. This includes both spouses’ wages and the wages of any eligible dependent, even though the employee may file separately.

Back to top

Minimum Essential Coverage (MEC)

Health-insurance coverage that meets the minimum benefits standard of the small- or large-group market within the state is considered to offer minimum essential coverage (MEC). This includes most broad-based medical coverage typically provided by employers. It would not include certain specific coverage, such as accident or disability income, stand-alone dental or vision coverage, or workers’ compensation insurance.

To avoid a penalty, an employer must provide MEC to all but five percent of full-time employees and their dependents or to all but five full-time employees and their dependents, whichever is greater.

Back to top

Minimum Value

A health-insurance plan that has an actuarial value that covers at least 60 percent of the cost of medical expenses is considered to provide minimum value.

Back to top

Part-Time Employee

An employed person who averages fewer than 30 hours of service per week or 130 hours per month.

Back to top

Penalties

On February 10, 2014, the U.S. Department of the Treasury announced a one-year delay in enforcement of the Employer Shared Responsibility (ESR) provisions of the Affordable Care Act for employers with 50 to 99 full-time employees until 2016.

Companies with 100 or more full-time employees are still subject to the ESR provisions in 2015; however, those employers with 100 or more full-time employees who offer coverage to at least 70 percent of this workforce (instead of the previous standard of 95 percent) can avoid potential penalties. This percentage goes back up to 95 percent in 2016.

There are two types of penalties for applicable large employers for not complying with the ESR provisions, depending on whether the employers do or do not meet the minimum essential coverage (MEC) offer test:

When an employer does not meet the MEC offer test and at least one full-time employee receives a premium subsidy through a federal or state government health insurance marketplace (exchange), the annualized penalty will be:

  • The number of full-time employees minus 30 x $2,160.

When an employer does meet the MEC offer test, but 1) does not offer coverage that meets the minimum value, 2) does not offer affordable coverage to at least one full-time employee, or 3) there is at least one full-time employee who is not offered coverage and who obtains a subsidy through a marketplace, the annualized penalty will be:

  • $3,240 for each applicable full-time employee (see above conditions) who receives a premium subsidy through a marketplace. Note: The penalty cannot exceed the payment for not having offered health insurance (number of full-time employees minus 30 x $2,160).

When a full-time employee receives a premium subsidy from a marketplace, the employer may not necessarily be subject to a penalty if the employer-sponsored coverage is considered to offer MEC, meets the minimum value test, and is deemed affordable using one of the safe-harbor methods provided. Under these circumstances, the employer would only be charged a penalty for any full-time employees who are not offered MEC and who receive a premium subsidy.

No penalties will be charged to applicable large employers who have fewer than 30 full-time employees.

The determination of applicable large employer is made on a controlled group basis; the liability calculation is made on a member-company-by-member-company basis. The 30-employee reduction when determining the liability for non-coverage, however, must be allocated pro rata among the members of the controlled group. This is based upon the number of full-time employees employed by each member (if a member’s allocation is less than one, but more than zero, round up to one fulltime employee).

Back to top

Seasonal Employee Exception

If an employer’s workforce exceeds 50 FTEs for 120 or fewer days (four months) during a calendar year, and the employees in excess of 50 during that period are seasonal workers, the employer would not be considered an applicable large employer. The four months/120 days need not be consecutive. Seasonal employees are not limited to agricultural or retail workers.