December 4, 2019 by Paul Roberts
The closing of the calendar year – and beginning of a new one – brings annual compliance responsibilities to employers regarding their health plans. It is imperative for such employers to adhere to these responsibilities because a miscalculation, a missed deadline, or an overlooked compliance item can result in significant non-compliance penalties. Here’s what you need to know as we sunset 2019 and welcome a prosperous 2020 new year.
Affordable Care Act (ACA): Applicable Large Employer (ALE) Determination
Each employer must determine whether it is considered an Applicable Large Employer (ALE) according to the ACA. If an employer is an ALE, it is subject to the ACA’s shared responsibility “employer mandate.” Under the mandate, ALEs must offer all eligible Full Time (FT) employees at least Minimum Essential Coverage (MEC) that is affordable and meets a “Minimum Value” standard, which is a Bronze tier (or better) health plan. ALEs must also offer at least MEC to those FT employees’ dependents.
To determine whether an employer is an ALE, the employer must calculate its workforce size on January 1st annually, by averaging its workforce count for all 12 months of the preceding tax year. This means, for each month of 2019, the employer should count all its FT employees and its Full Time Equivalent (FTE) employees, then average those results to get its final workforce size. If the group size averages 50 or more FT + FTE, it is an ALE – and it must comply with the employer mandate in 2020 and related reporting responsibilities in 2021. If it has fewer than 50 FT + FTE employees, it is not an ALE and is not mandated to offer health coverage in 2020 or report offers of coverage to the IRS.
An employer’s result will remain in place for the entire calendar year going forward, regardless of fluctuations in size. January 1st is the only time an employer’s ALE status can change.
The ACA considers an employee to be FT if he or she averages at least 30 hours of service per week or 130 hours of service per month. FTEs are fractions of FT employees who, when totaled together, equal the equivalent of one FT employee. To calculate FTE count, total the part-time employees’ hours of service for each month (using a maximum of 120 hours for each PT employee, even if he or she averaged 121-129 hours of service), and divide each month’s total by 120.
Refer to Word & Brown’s exclusive ACA Group Size Calculator and FTE Calculator for California employers and for Nevada employers for help making this determination.
ACA: Reporting Responsibilities
If the employer determined on January 1, 2019, that it is an ALE for all of 2019, it must also report on the coverage it offered (or did not offer) to any person employed FT for one full calendar month of 2019. Employers usually complete this reporting during December or January using IRS Forms 1095 and 1094.
Copies of IRS Form 1095 are due to employees on or before March 2, 2020, which is a 30-day extension (announced 12/2/2019) of the former January 30, 2020, deadline. IRS Forms 1095 are due to the IRS on or before the end of February if submitting by paper, or the end of March if submitting electronically.
Note: The IRS may postpone more of these dates, but employers should not assume date changes until officially announced by the IRS. Refer to Word & Brown’s exclusive IRS Reporting Deadlines chart for details on form submission deadlines, and refer to Word & Brown’s exclusive Employer Reporting Penalties reference sheet for details on reporting non-compliance penalties.
Word & Brown annually hosts a series of webinars for brokers and employers on ACA reporting to the IRS. Please join us for the ACA IRS Reporting Webinar Series: Don’t Fear the Forms! scheduled in December 2019 and January 2020.
COBRA Group Size Calculation
Employers must also determine COBRA responsibilities annually on January 1st, by evaluating workforce size under COBRA law. Unfortunately, it is a different (yet similar) calculation than the ACA’s ALE count.
Employers that have employed at least 20 employees on 50% or more of the typical working days in 2019 are subject to federal COBRA law for all of 2020 if they sponsor a group health plan(s).
Employers domiciled in California, with California group health plan(s), that have employed fewer than 20 employees on 50% or more of the typical working days in 2019 are subject to Cal-COBRA law for all of 2020.
In Nevada, there is no state COBRA continuation; employers with fewer than 20 employees are not subject to COBRA law in Nevada. Federal COBRA law, however, applies in all states.
When making the COBRA determination, both full-time (FT) and part-time (PT) employees are counted. Each PT employee counts as a fraction of a FT employee. To calculate PTs as FTEs in COBRA, the employer should total all PT employees’ hours of service and divide it by whatever the organization considers to be full-time.
Different benefits and administrative billing charges/fees on premiums are associated with federal COBRA and Cal-COBRA, so it is very important for the employer to make the determination accurately at the beginning of the year. An employer must generally notify its carriers and applicable COBRA Third Party Administrators (TPAs) of any changes to COBRA status as soon as the determination has been made.
Just like the ACA calculation, the employer remains in its COBRA category for the entire calendar year – regardless of future fluctuations in workforce size.
IRS Controlled Groups
If an employer has ownership in multiple businesses, its employees can be combined for purposes of determining group size – even if the businesses have separate tax IDs and are otherwise not related.
It is critical for a tax professional to make this determination for employers in accordance with IRC Section 414, subparagraphs (b), (c), (m), and (o).
California’s New Individual Mandate
California is implementing a new health insurance individual mandate effective 1/1/2020. It requires all Californians to carry Minimum Essential Coverage (MEC) for the tax year, or be subject to a tax-penalty fine. Refer to our previous column for a deep dive into the new state mandate, to understand what it means for employers and their employees – California’s Individual Mandate 2020: What You Need to Know.
Booming Success in 2020 and Beyond
Word & Brown partners with you throughout the year to ensure your success. Stay tuned for more information on the ACA, IRS Reporting, COBRA, the California Individual Mandate, and more. For extra help with employer group size determinations, refer to the Word & Brown exclusive employee count reference.
More about the author:Paul Roberts is our Compliance Manager, leading the General Agency’s educational initiatives and providing support for the compliance team in California and Nevada. Paul is a tenured veteran in the health insurance industry, carrying a long history of health insurance experience and an education in business management. He has performed nearly every operational role at Word & Brown General Agency, and has a fervor for education and keeping health insurance brokers and employers in-line with compliance. Paul can be found at many industry events across the nation delivering CE, HRCI & SHRM courses, educating himself, advocating for the role of the agent, and working directly with brokers and employers. This gives Paul the best ability to innovate and improve compliance resources & education curriculums to support the businesses and abilities of brokers. Paul is passionate about education, diversity and helping others. He is grateful for his opportunity to support both brokers and employers and is committed to your success.