By Helen Karakoudas | ACA Education Director, Integrity Data
March 1, 2016
As of January 1, 2016, all businesses that must comply with the Affordable Care Act are in the assessment period for coverage penalties. That is, every ACA-affected employer – even those with 50 to 99 full-time employees (including equivalents), who had relief from such penalties for Tax Year 2015 – now faces serious financial consequences for:
- Offers of health insurance that should have been made at a certain time but were not.
- Offers of health insurance that were made but which did not meet ACA standards for quality or affordability.
In the User Group calls that we host weekly during 1095-C filing season to support employers working with Integrity Data’s ACA Compliance Solution, high-level questions about ACA penalty risk management for Tax Year 2016 are surfacing.
To help all employers, not just our clients, sort through what is allowable for the very first step in ACA compliance – identification of full-time employees – we are sharing answers to two of those questions here.
If you are new to this particularly bewildering world of regulatory reporting, the following answers will make better sense when you:
- Review definitions for the two ACA eligibility-testing methods, summarized on the accompanying slide and detailed in this blog post.
- Remember that the IRS will be assessing ACA noncompliance penalties monthly.
Q: Once you have picked either the monthly or the look-back measurement method for determining eligibility for coverage, can you change your choice from year to year – or do you have to stay with that method forever?
A: No, you can actually change your measurement method – cautiously.
From the monthly measurement method to the look-back measurement method, the change can be made anytime. If you make this change, you cannot discontinue coverage for employees who were eligible under the monthly method but now are ineligible after the look-back measurement test. For those individuals, you must see whether, in prior three months going into the stability period, they had worked 130 hours in any of those months. If so, they will have to remain covered until they have consecutive months where they do not reach 130 hours.
In going from the look-back measurement method to the monthly measurement method, a concern arises when you had tested people that you know to be in a stability period – that were eligible during a stability period. When you go to the monthly method, their hours do not go away. If someone is in their stability period, you cannot change their coverage eligibility until after that stability period is exhausted.
On the month that the change is made from the monthly method to a look-back measurement, you must have determined eligibility effective that month.
Q: If using the monthly measurement method instead of the look-back measurement method, please review when we must offer coverage.
A: Using the monthly measurement method means that when an employee hits 130 hours of service in any one month, they’re in for coverage. And they will continue to be in.
You will have to offer them coverage by the first day after their first full two months following the month they worked 130 hours.
That’s no different than a non-assessment period. The difference is that you can consider the month in which they hit 130 hours as their first full month of eligibility. So then you have two additional months and then the first day after those two months.
Monthly measurement method is primarily used in companies that have either all salaried employees or where the hourly workforce has stable, predictable schedules. The challenge in using this method for variable-hour employees is that you will find that the administration of coverage can be overwhelming as employees go from being eligible to being ineligible.
Need ACA tracking software that supports both measurement methods?
We are versed in both methods that an employer can use to determine an employee’s eligibility for an offer of health insurance – and then rely on to document that determination for the IRS – because our company’s software is one of the few ACA reporting systems that populates 1095-C forms from data captured through either measurement method.
Learn more about Integrity Data’s ACA Compliance Solution here.
Integrity Data’s publications and presentations are intended to provide current and accurate information about the subject matter covered. They are designed to introduce employers to the IRS reporting requirements of the Affordable Care Act as of the date published.
These publications and presentations are provided with the understanding that neither Integrity Data, nor the authors and presenters, are rendering any legal or accounting advice. With respect to how provisions of the Affordable Care Act affects your business, verify guidance found with legal counsel.