Affordable Care Act (ACA): What You Need to Know

June 30, 2022

Most private sector employers, including non-profit organizations, are subject to ERISA. Most government plans, as well as church and church-related plans are excluded.

As defined, an "Employee Welfare Benefit Plan" [ERISA §3(1); DOL Reg. §2510.3-1] is any plan, fund or program established or maintained by an employer, employee group or both which provides:

• Health insurance
• Group life insurance
• Long-term disability
• Severance
• Funded services (i.e., training, scholarships, legal services, daycare)

These do not need to be self-funded.

Every ERISA plan must have a written plan document describing the benefits to be in compliance with IRS regulations. With the Affordable Care Act (ACA) in place, two additional documents are required: a Summary of Benefits and Coverage (SBC) and a Summary of Material Modifications (SMM). 

The SBC is a summary, in plain English, of a health plan’s costs, benefits, covered health care services, and other features that are important to consumers. SBCs also explain a health plans’ features and includes significant limits and exceptions to coverage. The SMM, which is a notice provided by a plan administrator to inform plan participants of any material changes to the plan or summary plan description, may be issued by plan administrators instead of issuing a new summary plan description, but must be communicated to plan participants no more than 210 days after the end of the plan year in which the changes apply. The requirement does not apply to changes that occur at plan renewal.

While COBRA is governed by a different Federal law, the ACA also impacted changes to the notices issued by a group health plan upon initial eligibility and with a subsequent qualifying event. Separate from Welfare Benefit plans, COBRA does generally apply to governmental and religious non-ERISA groups but does not apply to self-funded groups.

So what do groups need to know to abide by the ACA? 

Three important questions determine whether your group falls under the “pay or play” mandates:

Q. Do we have to offer insurance?

A. If you are an Applicable Large Employer (ALE) with 50+ FT or FTEs then you are subject to the mandate. Calculating the number of employees must be figured on a monthly basis: PT employee hours/120; FT+FTE for a calendar month.

Q. Who gets offered insurance coverage?

A. Employees expected to work more than 30 hours per week must be offered coverage with no more than a 90-day waiting period. This includes part-time and seasonal or variable-hour employees. The calculations take into account the administrative or stability periods.

Q. What kind of coverage do we have to offer?

A. It must be affordable and meet the minimum value with a minimum individual out-of-pocket maximum of $8,700. Affordable means not costing more than 9.61% of household income for self-only coverage (adjusted for 2022 amounts). Minimum value must meet the 60% of enrollees’ out-of-pocket costs or the standard “bronze plan.”

ACA requires employer mandated reporting in IRS Sections 6055 and 6056. ALEs who are subject to the employer shared responsibility provision would be subject to IRS Section 6056. Plan sponsors and insurers are subject to Section 6055, and both sections apply to self-funded plans.

The reporting includes:

• Names and tax ID number of employees receiving health coverage
• Employer’s cost share lowest cost option in each enrollment category
• Any imposed waiting periods
• Whether the employer offers minimum coverage to full-time employees and their dependents

There may be some state requirements that vary by state law.

There are three reporting forms that will be sent annually by the employer, insurance carrier or government agency such as Medicare or CHIP:

• The 1094 B or C is sent by the employer to the IRS with the 1095
• The 1095 forms
  • 1095-B for individuals who had health coverage that is not reported on the 1095-A or 1095-C,
  • 1095-C sent to certain employees of the ALE by their employer

Penalties exist and are calculated monthly. The annual penalty is $2,750 for not offering coverage to at least 95% of your full-time employees and their dependents. The annual penalty is $4,120 for not offering affordable coverage, which means it does not meet the 60% minimum value test.