Introduction to the Affordable Care Act

Webinar – Introduction to the ACA

[Speaker 1 -- Amber]

Welcome, everyone, to the introduction to the ACA. Thank you all so much for joining us. The Benefits Compliance team will be answering the questions you send through the Q&A today.

We will try our best to answer all of your questions, but if for whatever reason we are unable to get to your question today, please follow up with your advisor for further assistance. Today's presentation is being recorded. We will be sharing the recording in the follow-up email and on the NFP website.

If there are any portions of this call that you missed, by Monday you’ll receive an email with a link to the full recording. The PowerPoint slides used during this presentation will be shared in that same email. At this time, I'll hand it over to Kelly Eckman, vice president of Benefits Compliance at NFP, and Patrick Myers, vice president and counsel of Benefits Compliance at NFP.

Kelly, the floor is yours.

[Speaker 2 -- Kelly]

All right, thank you, Amber, and thank you everyone for joining us today. This is our second Get Wise Wednesday webinar for 2025. I just wanted to mention that this year we are taking a little bit of a different approach with some of our webinar topics.

We're looking at some of the larger, more common compliance topics that you, our employer clients, face and kind of going back to the basics in an introduction series. I know that many topics, just like the ACA that we're covering today, they're robust, they can be very complex, and so while we're going to take a rather high-level look at it today, there's no way that we can cover all the details and aspects of it in just one hour. I do like to mention though that even though we are calling some of these an introduction to the topic, I still think it's helpful for benefit professionals of all levels and tenures to attend these.

You know, I've been around for quite some time. I would generally say that I speak ACA rather fluently, but even I have to refresh myself on some of the topics that we're going to cover today. So, I definitely think that even though we're calling these introduction series, it's beneficial to all.

And I think sometimes, too, it's helpful to understand the “why” behind some of these laws as well. We all work in this space. We help employees understand the rules and the ACA, but we need to remember that we all are enrollees in group health plans, and so we ourselves are impacted by the ACA just like your employees and participants are as well.

And as always, as Amber mentioned, feel free to submit questions into the Q&A box, please. Our team is behind the scenes, and they'll be answering as many questions as they can. You'll get a copy of the presentation and the slides, and then we'll be talking through some of our resources that are available to kind of help you cover things with the ACA.

And so, as a reminder, we always have this disclaimer. What we're talking about today, it's intended for general guidance purposes only. We're not giving tax or legal advice. Obviously, if you have specific questions of that nature, you need to speak with your own legal counsel, and then the information is current as of today.

Today we're going to look at a history and an overview of the ACA, the coverage mandates and patient protections that the ACA gave us, reporting and notice requirements that employers need to follow. We're going to look, at a very high-level, look at the employer mandate and then leave you with some key takeaways and resources.

All right, and Patrick is going to get us started with the history and overview of the ACA.

[Speaker 3 -- Patrick]

Thank you, Kelly. The ACA is actually not one statute but two. They were enacted in 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.

They were both signed on March 23, 2010. Although it was signed on that date, there have been staggered effective dates of various provisions of the ACA, with the final items becoming effective in 2016. But these two statutes form the foundation of a number of rules that are promulgated by the DOL, the Department of Labor, IRS, and Health and Human Services that are charged by the statutes to administer and enforce them through those rules.

And the ACA is also known as healthcare reform and also known as Obamacare, as these were all enacted during the Obama administration. Next slide, please.

The ACA covers a variety of plans but, generally speaking, employer-sponsored group health plans for employees, whether they're fully insured or they're self-insured, are subject to the ACA.

Even plans that are not subject to ERISA, a whole other series of laws that we'll get to in another webinar, such as government or church plans, they can still be subject to the ACA. That said, group health plans that cover two or fewer current employees are exempt from the ACA, as well as stand-alone retiree plans that do not cover current employees. And then in addition to that, certain accepted benefits, such as dental and vision, can also be exempt under certain circumstances. Next slide, please.

So, what are the objections of the ACA? Why do we promulgate these rules and pass these statutes in the first place? Well, the ACA wants to achieve several different objectives. The first is that the ACA requires individuals to be covered by health insurance. This is the individual mandate that has been something of a thorn in the side of the legal establishment for a while.

But the ACA also requires that applicable large employers, or ALEs, provide affordable coverage to their full-time employees. The ACA also requires health plans to meet specific requirements to ensure a minimum level and quality of coverage and to provide information to participants. Plans that existed before 2010, which are often referred to as “grandfathered plans,” are exempt from some of these requirements if they maintain certain cost-sharing levels.

The ACA also establishes insurance exchanges, also known as “marketplaces,” where the individuals can obtain coverage if they do not obtain that coverage through their employer. The ACA also requires insurance to include certain consumer protections, and it imposes certain fees on both plans and insurers. Next slide, please.

Let's touch on the individual mandate briefly. Now, the ACA originally required individuals to maintain health coverage or pay a penalty. But, of course, this individual mandate was almost immediately challenged in the courts.

In 2012, the US Supreme Court held that the individual mandate was within the constitutional power of the government through its ability to tax its citizens. And in 2019, the Congress reduced the penalty for failing to maintain health coverage to zero dollars, effectively defanging the individual mandate as it was originally conceived under the ACA.

That said, several states, such as California, New Jersey, as well as D.C. and Rhode Island, impose individual mandate and reporting requirements, often requiring individuals and employers in those states to let the states know that the individuals that they're employed have coverage. Next slide, please.

So, the ACA does also create those exchanges, and those exchanges provide a marketplace where individuals and small businesses can purchase health insurance. The ACA required states to either create their own exchange or participate in the federal exchange.

Individuals can enroll in plans offered in the exchange from November 1 through January 15, and this is called the “annual open enrollment period.” Individuals may also enroll during special enrollment periods, which occur when certain events happen, such as when they lose other minimum essential coverage, say, through their employers, they lose their job, or similar situations occur. Next slide.

So, there are several abbreviations. Benefits law loves its abbreviations. We've got more than a few here, and so we wanted to go ahead and introduce you to some of those now, and we'll be referring to them later on throughout the presentation.

The first, of course, is the ACA, which is the Affordable Care Act. ALE stands for applicable large employer. When we talk about an EHB, we're talking about an essential health benefit.

MEC stands for minimum essential coverage. MV stands for minimum value. PCOR is the Patient-Centered Outcomes Research Institute.

And then, finally, SBC means the summary of benefits and coverage — each of the things we will touch on, of course, throughout the remainder of our presentation. Just wanted to give you a heads up of what these abbreviations stand for.

So, at this point, I will give this back over to Kelly to talk about coverage mandates and patient protections.

[Speaker 2 -- Kelly]

All right. Thanks, Patrick. So now we're going to look at… You know, I talked about the why and some of the reasons behind the ACA and kind of what it set out to do beyond what Patrick just mentioned about the individual mandate and creating the exchanges.

The ACA gave us mandates and different protections that were supposed to provide financial protection to participants. So, setting limits on costs and out-of-pocket limits. The ACA set out to set minimum eligibility and access parameters. So, looking at how people can access coverage.

The ACA gave us some basic coverage mandates that health plans need to cover. It gave us specific claims and appeals steps and processes that plans need to go through. And then, it's important to understand that the mandates under the ACA, for our purposes today, they're going to apply to all group health plans except in some limited instances with grandfathered plans.

And like Patrick just mentioned, grandfathered plans, you know, there may be a few of you on this call today who have grandfathered plans. They're not common anymore just because it's been hard to maintain those cost-sharing requirements. But there are some mandates that do not apply to grandfathered plans, although the majority still do.

And so, we're going to kind of walk through some of the main mandates and patient protections that the ACA gave us. We're not going to go through all of them, but I think it is important to point them out.

Again, as we are all consumers of healthcare, I think it's important to kind of have that reminder because as a participant in a group health plan, these apply to you. These protections help you out as well.

So, one of the popular ones here, the prohibition on excessive waiting periods. Hopefully most are aware that a waiting period for a group health plan cannot exceed 90 days. The ACA gave us annual and lifetime dollar limit prohibition. So, again, those essential health benefits that Patrick mentioned in our alphabet soup, there are prohibitions on applying annual and lifetime dollar limits just to that subsection of essential health benefits.

Dependent coverage until age 26. I think this was a popular part of the ACA. Now, it is important to understand that the ACA doesn't actually require coverage for dependents, but if a group health plan is going to cover dependents, then they need to make sure that you are covering them up to the age of 26, regardless of student status, regardless of marital status, you know, whether or not the person lives with the employee or not. I think sometimes that still trips people up just a little bit because it seems strange to have a married child still on your plan, but technically that is possible.

The ACA gave us maximum out-of-pocket limits. So, every year we get a set of limits for out-of-pocket expenses. They apply these both on the self-only and the family tier.

If you sponsor a high deductible health plan with HSA, there's another set of out-of-pocket limits for HSA compatibility, but these ACA limits are a little bit higher than that.

This next one is one of the very popular ones — preexisting condition exclusions. This means group health plans cannot exclude a participant, charge them more or deny any services under the plan based on any preexisting conditions that that person had. And I think this gets missed sometimes. Not too long ago, I was talking to a friend who was looking at changing jobs, and she was concerned that her cancer diagnosis would make it so that her insurance at her new job would not cover her, right?

And so this prohibition has been around since 2014, and not everyone understands how it applies to group health plans. So, I think it's still important that we're getting this information out to people that plans cannot deny or change coverage because of someone's preexisting condition.

Preventive care. The ACA gave us a couple different groups of preventive care services that plans have to cover, both general preventive care and then also women's preventive care services.

This next one here, prohibition on rescission of coverage. This one comes up quite a bit for our group. What the ACA said was that a plan cannot retroactively cancel coverage except in cases of fraud or intentional misrepresentation.

Generally speaking, if you have someone who you need to make a change to their health coverage, it needs to be on a prospective basis. Only in very rare circumstances should you be going back, let's say, two or three months and retroactively canceling someone's health coverage. I think that's an important one to tuck away for the future because it does come up quite a bit.

The ACA also says that plans need to allow someone, if they're a qualified individual, they should not be denied participation in a clinical trial. As I mentioned earlier, the ACA gave us specific internal claims and appeals and external review processes. So, there are specific processes and procedures that plans need to go through as part of internal appeals decisions and any adverse benefit determinations that are made.

And so there are steps to take and, obviously, you're typically going to be working with your carrier or your TPA on those, but just understand that there are specific requirements.

The ACA gave us kind of this general thing, what we're calling patient protections. So, again, plans have specific coverage and cost-sharing requirements that they must abide by for emergency services.

Plans cannot require referrals for OB/GYN coverage or for pediatricians. There are specific notices that if you are required to designate a primary care physician, there's a specific notice that should be going out to participants, that kind of thing.

This last one here on this page, so over-the-counter medicine and drugs. This is kind of an interesting one because for a long time, over-the-counter medicines and drugs, you could use your HSA or FSA to purchase those. Then, when we got the ACA, that was prohibited. Once the ACA was enacted, you could no longer use your FSA, your HSA, to purchase over-the-counter medicines or drugs unless you had a prescription. Then, during COVID, we had the CARES Act, and the CARES Act actually reinstated this. It changed it and said that now you can use your HSA or your FSA or HRA for over-the-counter medicine and drugs.

It is important to understand, though, that for a health FSA, this is something that is optional. So, an employer had to actively opt in to allowing the FSA to cover over-the-counter medicines or drugs.

If you're not sure if you opted in or not, you'll definitely want to check with your health FSA administrator to understand “Do you allow that or not?” Then, if you don't, but you want to, you want to work with your vendor or your administrator to get that taken care of so that you can allow participants to use their health FSA for those over-the-counter medicines and drugs if you choose to.

Then, the last page here with some of the mandates, again, some of these apply more to the small group, but this left-hand column, again, just a few miscellaneous ones dealing with the creation of small and large group markets.

There are specific provisions just for small groups related to the way that rate increases are provided from insurers, guaranteed availability, so making sure that those insurers must accept employers who are wanting to have a plan with that insurer. There are specific non-discrimination in plan design, so related to provider networks, health status, that kind of thing.

Then, we talked about those essential health benefits and, again, small group markets, and then obviously also individual markets have specific essential health benefit requirements there.

On this right-hand side of the chart, we mentioned grandfathered plans. Again, here are just a few of the mandates that grandfathered plans do not have to comply with.

If you do have a grandfathered plan, again, you're not going to have to comply with a few of these, but for the most part, everything that we talked about earlier is going to apply to all plans.

Then we say “What happens if a plan violates the mandates?” There can be some penalties that come up. The IRS can actually assess an excise tax of $100 per day per affected individual for failure to comply with a mandate. For non-federal government plans, HHS actually assesses a similar penalty as well, so there can be some financial penalties that arise.

And then also what we see sometimes is this second bullet point here, DOL involvement. Because again, Patrick mentioned earlier too, we have a crossover between the laws with what the ACA mandates and what ERISA says, and if a plan is not covering things like a participant thinks they should have or they think there's been a failure, someone may make a complaint to the DOL, and then the DOL opts to investigate the plan to determine are they complying with these mandates.

There can also be situations where participants bring lawsuits against the plan for failure to provide benefits that should have been required under the plan. So, it's obviously important to make sure that your plan is complying with these mandates.

Obviously, as a broker, we're making sure that we're working closely with carriers and TPAs to make sure that plans are designed compliantly, that you're not going to have a plan that's not going to comply with these, but it's still important to understand that these mandates do exist and that there can be some hefty penalties or audits from the DOL if you are not complying.

Now Patrick's going to take us through some reporting and notice requirements that the ACA gave us.

[Speaker 3 -- Patrick]

Thank you, Kelly. Yes, as you can imagine, the ACA has an abundance of reporting and notice requirements that employers and providers of health plans are required to comply with, and the first one that we want to touch on today is the Summary of Benefits and Coverage, otherwise known as the SBC. Group health plans are required under the ACA to provide an SBC describing the plan benefits and coverage to all applicants and enrollees.

This is a document that must be precluded upon application, that is with open enrollment materials, at renewal, upon request and at special enrollment periods. For midyear changes, the ACA requires that a 60-day advance notice must be provided to all participants in the health plan for any changes that would be reflected in the Summary of Benefits and Coverage. Next slide, please.

Another reporting or notice requirement that the ACA imposes is the Exchange Notice. Now, I mentioned earlier that the ACA created these exchanges or marketplaces where individuals and small employers can purchase insurance. These exchange notices are required to provide all new hires with a written notice about the health coverage options that are available through the exchange and some of the consequences if an employee decides to purchase a qualified health plan through the exchange instead of getting their coverage through their employer.

Now, this often trips up a lot of employers, but this notice has to be provided to all new hires, and they have to be provided within 14 days of their start date. This is something that some employers overlook as a notice that needs to be given to them not when they're enrolled in the coverage but right when they get hired in the first place.

So, employees who are not benefits-eligible still need to receive this notice, so providing this notice in the benefit packet when you send out the packet full of enrollment and benefit information prior to open enrollment, including the notice in that packet would not be sufficient to meet the requirements for this notice. Just be aware that that's there.

Another reporting requirement the ACA imposes is the W-2 reporting requirement. This requirement requires employers who provide applicable employer-sponsored coverage to their employees to report the aggregate cost of that coverage on each employee's Form W-2.

When we say applicable employer-sponsored coverage, what we mean is group health coverage that is excluded from the employee's gross income.

Now, employers that file fewer than 250 forms W-2 for one calendar year, if you're a self-insured plan that's not subject to COBRA, and that includes church plans and multi-employer plans like union plans, continue to be exempted from this notice requirement, and they continue to until that is changed. This requirement is informational only, and the information can be found in Box 12 of Form W-2.

Now, what we have here on this slide is an image from our ACA Form W-2 reporting requirement publication. It's part of our ACA resources toolkit that includes information not only on this reporting requirement but other reporting requirements, as well as other information about the ACA that we touch upon today but is dealt with in more detail and at length in our toolkit and the publications in that toolkit. Next slide, please.

In addition to those other reporting requirements, there's an information reporting requirement. The ACA requires employers to report their compliance with the employer mandate. Employers must report information to the IRS about the health coverage provided to employees during the prior calendar year.

Employers must also provide this information to their employees, and this consists of two kinds of forms. There are the information reports, which are referred to as forms 1095-B and 1095-C, and the transmittal forms, which are forms 1094-B and 1094-C, and those transmittal forms accompany the information reports. The forms that an employer uses will depend on whether the employer is a large employer, that is to say it employs 50 or more employees, and whether the plan is fully insured or self-insured.

Again, we have an excellent publication that covers these reporting requirements, as well as several others that get more into the nitty-gritty of how those reports are filled out and other issues relating to this reporting requirement. Next slide, please.

And indeed, pulled from one of those publications is this handy chart that summarizes what kind of employer needs to file what kind of information or transmittal form and to whom they report that to or provide it to.

For instance, if you're a small, fully insured employer, you have no obligation to report anything at all. If you are a small, self-insured employer, then you are required to provide Form 1094-B as well as Form 1095-B, and then you have to provide to your employees a copy of Form 1095-B or a substitute.

If you're a large, fully insured employer, then you would be required to submit Form 1094-C, 1095-C, although parts one and two only of Form 1095-C, and then you would be required to provide a copy of Form 1095-C or a substitute to your employees.

And finally, if you are a large, self-insured employer, you would be obliged to provide Forms 1094-C and parts one, two and three of Form 1095-C, and then you would need to provide a copy of that Form 1095-C to your employees. Next slide, please.

So, employers have to electronically file their reports on or before March 31 of the year following the calendar year to which the reporting relates. And as of 2023, virtually all employers must file electronically, not by paper, although before then that was an option for several kinds of employers.

Now, the thing to note is that starting this year, employers now have the option to provide Form 1095-C to employees only upon request, provided that the employers give those employees sufficient notice that that is an option for them. We don't know a whole lot about some of the details about this requirement. We're currently awaiting some further guidance on those requirements, which, of course, we'll pass along as soon as we get them. Next slide.

Another thing we wanted to touch on is PCOR, which, remember, is a fee that is required by the ACA that some employers and insurers have to pay. This is a fee that's paid by insurers and sponsored as self-insured health plans, and that includes, by the way, HRAs to fund certain clinical research. The fee is reported and paid by filing IRS Form 720 by the 31st of July of each year. Self-insured plans pay that directly via Form 720, but fully insured plans have this handled by the carrier, although the fees are generally baked into the premiums.

Just to note, the fee was originally due to sunset but was extended for 10 years in late 2019, so this obligation to pay this fee will continue until at least 2029. Next slide.

So, at this point I'm going to hand this back over to Kelly so she can talk more about the employer mandate itself.

[Speaker 2 -- Kelly]

All right. Thanks, Patrick. Yeah, I think the employer mandate really is the part of the ACA that most of us on the call today deal with quite a bit when it comes to the ACA.

So many of the other things, like the mandates, are sort of baked into our plans at this point. Some definitely have active steps to take with some of the notices and reports that Patrick just mentioned.

And then ACA reporting and the employer mandate is something I think a lot of us, especially right now at this time of year, are dealing with quite a bit. So really we want to look at the employer mandate, just kind of the overall high level “What is the employer mandate? Why do we have it?”

Applicable large employers, those ALEs, the employer mandate says you are required to offer coverage to full-time employees’ independents or you may be subject to a penalty. So we're going to kind of talk through which employers are ALEs, who is considered a full-time employee, how do employers comply with the employer mandate, and then what are the penalties for noncompliance.

And I would say every day this time of year I'm answering some sort of question related to each of these bullet points, so definitely these are still hot topics that are taking place.

So, we'll start with what employers are ALEs because that's sort of the first step to determining whether or not the employer needs to comply with the employer mandate.

An ALE, and I think we've mentioned this a little bit, ALEs are employers that have 50 or more full-time employees or equivalents in the prior calendar year. And that prior calendar year part is important because we will sometimes get questions, saying “Oh, this employer just hired their fifty-first employee today. Do they have to start complying?”

And so the answer is generally no. We have to look at that prior calendar year to determine when the employer gained that ALE status.

Now some important reminders for determining that status. So, if you have multiple employers that are part of the same controlled group, you must aggregate the head count. Employers should know if they're part of a controlled group because it is further reaching than just benefits compliance. But you must count all of those employees together for determining whether or not you have 50 or more.

And then for that calculation, any employee that's averaging 30 hours or more is going to count as one employee, and then part-time employee are going to count as a fractional share based on the number of hours that they work each month.

The way the calculation goes, if the number of full-time employees plus those fractional equivalents equal 50 or more, then the employer is considered an ALE. And, again, if you are part of a control group and you're aggregating those counts, then if the entire group together has more than 50, each member or each entity in that controlled group is considered an ALE.

So, if I have a group with 20 employees and an employer with 40 employees and they are part of the same control group, together they have 60 employees and, therefore, they are considered an ALE. So, each of those entities would have to comply with the mandate.

Now, sometimes you're going to have employees that are kind of tricky to count, to figure out how they fit into this puzzle.

You are generally not going to include owners, partners in a partnership, someone that's a more than 2% shareholder in an S corp. They are considered to be self-employed and therefore are not employees for these counting purposes. Leased employees. If you use a staffing firm and the staffing firm is considered the common law employer, they would count towards that staffing firm's headcount and not yours.

International employees. They're only going to be included if they're receiving US-sourced income. Volunteers generally are excluded. Interns and student workers are counted, and we'll talk about this a little more, I think, on the next slide. But you can't just ignore them because they're an intern or a student worker.

M&A transactions. So, we always recommend that if you are going through a transaction, make sure your legal counsel is thinking through the application of benefits in general, but especially if the ACA, if one of the entities being acquired is a small employer because that's going to make this more difficult.

We do have a link here at the bottom to the IRS sites for determining if an employer is an applicable large employer. It has a nice way to determine and describe employees that get counted. And then also we have our NFP publication. ACA applicable large employers, it also has a similar description on how to count employees. So, if you are an employer that is hovering close to that 50 head count, definitely make sure you are undergoing this exercise to determine ALE status.

So, let's say we've determined you are an applicable large employer. Now what do we need to do? Well, now we need to identify who are those full-time employees to whom you need to be offering coverage. And, again, we're going to hit this at a very high level. We could spend an entire hour just talking through identifying full-time employees.

The general idea is that a full-time employee is someone who's employed on average at least 30 hours per week or 130 hours per month. And so how do we define an hour? So, hours include any hours in which the employee is paid or entitled to payment. Things like vacation, PTO, sick time, paid disability or paid leave, holiday hours — those all count towards an hour worked for determining full-time status.

For hourly employees, it's usually pretty easy because you're going to track the actual hours that they work. For someone that is salary or non-hourly, you can either count their actual hours worked or an equivalent, such as salary employees work eight hours per day.

And then we've got a list here – it may apply to some on the call – for employees that have difficult-to-track hours.

So, if you have adjunct faculty, there's a 2.25 hour credit of service for each hour of teaching or classroom time. Things like commission-based employees on call hours. Employers are tasked with using a reasonable method to calculate those hours. We don't have a definition of what that reasonable method is, but employers should do their best to accurately credit employees who don't have hours that you can actually count.

Staffing or leasing, again, it depends on who the common law employer is. That's who's going to be tracking those hours.

Student workers and interns. We talked about this. So there's no exception for tracking their hours or potentially offering coverage. You really want to think of them as being the same as other employees. Now, sometimes interns may fall into this next category which are seasonal employees.

So, seasonal employees may be exempt from the definition of a full-time employee if a few conditions are met. If their employment begins and ends around the same time each year, the duration does not exceed six months. We have some examples here. We see this with ski instructors or lifeguards in the summer. Holiday retail. Sometimes interns can fall into this because if you have summer interns, they always start in May and they're done by August, right? They might fall into this seasonal employee category.

But we always tell employers to be cautious in trying to apply this exemption because what employers don't want to be doing is trying to call everyone seasonal just to avoid offering coverage.

And then teachers and educational employees, again, the big thing here is making sure that when they have these breaks from school, those breaks need to be disregarded for purposes of calculating status so, basically, that someone is not being negatively impacted because school is closed for two months during the summer.

There are two ways that employers can calculate or identify full-time status. The ACA gave us these measurement methods. There are two. We have the monthly measurement method and the look-back measurement method.

The monthly is kind of more straightforward. Employers basically have to determine before the month begins. So, if I'm sitting here in February, before March begins I have to identify who my full-time employees are for March and whether they will be working 30 hours per week or not.

The monthly works pretty well for your traditional full-time employees, the salary employees, that kind of thing.

The monthly measurement is very difficult to apply to your part-time or your variable-hour employee. So, those that have fluctuating schedules. You don't know if they're working 32 hours or 23 hours or something in between.

Monthly is great if you've got kind of general full-time employees. But if you've got part-time or variable hour, employers generally will use the look-back method.

And with the look-back method, employers analyze the number of hours that employees worked over a period of time, generally between 6 and 12 months. If the employees averaged 30 hours or more during that look-back time, then that employee would be offered coverage for the entire next plan year.

And so when we think of, pretty commonly, employer plans that start each January. So to determine who should have been offered coverage that began in January, employers will generally analyze hours from October to October, and then they look and determine who averaged 30 hours or more per week during that time, and then they offer them coverage as part of open enrollment. That coverage begins January 1 and, generally, that person will remain eligible through the end of the plan year, so through December 31.

So, that's kind of just the very high level of how that works. Obviously, I'm sure many of you on this call know it definitely can be an administrative burden to analyze hours and make sure that those offers of coverage are made, so that's sort of the downside to using the look-back measurement method.

Where it can also get very difficult is when someone has a change in status. So, I have someone who is a full-time employee and they change to part-time, right? An employer can't just automatically terminate coverage just because someone switched to part-time.

The ACA gives us specific rules about when you can terminate someone's coverage when they change to part-time. If you're using the monthly method, it may happen the next month. But if you're using this look-back, sometimes you can't cancel their coverage until the end of the plan year. So, it definitely can be quite challenging.

It is important to understand that employers should not try to use the rules as a way to delay offers of coverage. So, if you have a new hire and they're replacing someone who has always been full-time, it's always been a full-time job, they should be offered coverage right away the same as any other full-time employee.

You want to make sure you're only treating part-time and variable-hour employees that way if that's truly the nature of the job that they're being hired for.

We do have here on this side the, again, one of our publications, Employer Mandate Measurement Methods. Again, I know this is a really confusing topic. I think our publication is really helpful. It kind of, again, it outlines these different measurement types. We have some nice charts that really explain how does the look-back work, especially when we have new hires, and then versus ongoing employees, because the rules work a little bit differently.

And then we even have some examples for someone that changes from full-time to part-time. So definitely request a copy of this if you're an employer that uses the look-back because I think it can be difficult to kind of understand. But I think that publication really helps to make it as easy to understand as possible.

Okay, we've identified we're an ALE. We need to offer coverage to our full-time employees. We've identified them. But how do we make sure we are actually complying with the employer mandate? The employer mandate says that in order to comply, employers need to be offering coverage to what they call “substantially all,” which is 95% of full-time employees and their dependent children.

The ACA employer mandate does not require an offer of coverage to a spouse. It's only to full-time employees’ independent children. Now, wait a minute, you say. “Well, Kelly, you told me earlier that the ACA doesn't require coverage to be offered to dependents.” And that's true. The ACA overall does not. However, the employer mandate, this subsection of the ACA, does require an offer of coverage to dependent children.

Now, what's interesting to note here is dependent children for these purposes includes biological and adopted children, again, up to age 26. But stepchildren and foster children are not required to have the offer of coverage. The employer mandate is just focused on biological and adopted children for that offer of coverage.

The coverage that is offered by the employer needs to meet minimum value and minimum essential coverage standards. So, like a minimum value, and Patrick mentioned it earlier, that means the coverage pays for at least 60% of the total costs.

And then minimum essential coverage, that's basically doing to apply to all your normal group health plans offered by employers.

So, it has to meet minimum value and minimum essential coverage standards, and then it must be affordable. And this one's always a little tricky because employees often feel like coverage doesn't feel affordable, so they may say it's not. But really we have to look at what the ACA says as far as what is considered to be affordable.

And the ACA gave us three different safe harbors that employers can use to calculate whether coverage is considered affordable in the eyes of the ACA. For 2025, it is 9.02% of either the employee’s Box one wages on W-2, their rate of pay, which is based on 130 hours per month regardless of how many hours they actually work, or 9.02% of the federal poverty line.

So, employers can use three different ways, whatever works best for them. Obviously, using federal poverty line, that is the hardest standard to meet, so employers generally will use either rate of pay or W-2.

The challenge with using W-2 is you don't know someone's W-2 wages until the end of the year, so it's a little harder for employers to calculate ahead of time whether or not coverage is considered affordable. If employers are sort of on the fence with affordability, they'll generally use the rate of pay.

So, Patrick talked through this earlier but, again, just how do employers comply? Obviously, you as the employer are making all the correct offers, but how does the IRS know? Well, the IRS knows that you are complying because you are filling out those 1095 forms. That is what tells the employer. So those lovely Line 14 and Line 16 codes that many of you are familiar with, those codes tell the IRS that you offered coverage to the employee independents, that that coverage met minimum value, minimum essential coverage and it was affordable.

Some of you may be unlucky enough to get one of these IRS 226-J letters. That's essentially a letter from the IRS saying that someone… You have an employee that enrolled in a plan on the marketplace and they received a subsidy, and so now you as the employer have to use Form 14764 to reply and say “Oh, we did offer coverage to substantially all employees and coverage was affordable,” that kind of thing. So, hopefully you haven't received these, but it definitely happens sometimes.

So, what are our penalties? If the employer is not complying with some or all of the employer mandate, what are those penalties going to look like?

The first one is our penalty A. That is failure to offer minimum essential coverage to 95% of full-time employees and dependents. So, again, it's that “substantially all” requirement. So, if that happens, then the IRS can assess a penalty of $22,900 per full-time employee.

Now, they do give us a credit of 30 employees. So, just as an example here, let's say you have hundred employees and you did not offer coverage to substantially all. Your penalty would be assessed based on the 100 employees minus that credit of 30 employees, and so you'd be penalized on 70 employees.

So, how is it triggered? Again, it's triggered if one employee enrolls in a subsidized plan on the marketplace. And the subsidized part is the key because just because an employee enrolls in a marketplace plan, that doesn't matter. It only matters if they got a subsidy. That is then what is going to trigger the IRS to potentially send out one of those 226-J letters.

It is important to note here that if you are part of a controlled group, it does apply separately. So, if you have three entities in the control group and one of those entities did not offer coverage like they should have, only that group is going to be penalized, not the entire control group.

The next penalty that could happen is the penalty B. This is where an employer offered coverage, minimum essential coverage, to 95% or more of its employees. But, either that coverage did not meet minimum value standards or it did not meet affordability standards.

Now, this penalty looks a little bigger, so, 4350. However, instead of being assessed on your entire headcount, it's only assessed based on the number of employees who enrolled in a subsidized plan. So, if you had two employees for whom coverage was not affordable and they enrolled in a subsidized plan, you would be assessed a penalty of 4350 for each of those two employees. So, a much smaller penalty than the penalty A because it's just based on those number of employees who got a subsidy.

Other penalties that can sometimes come up, and we get asked this quite a bit, is a failure to file forms. Maybe an employer didn't realize they were an ALE and they haven't filed their forms for a couple years. And, so, we get asked “Well, what do these penalties look like?”

The IRS can assess a penalty of $330 per form. This is based on current year amounts, and this is essentially doubled because you get penalized for not distributing it to employees and then a penalty for not filing it with the IRS.

Now, that penalty can be brought down to $60 per form if it is corrected within 30 days of the due date or $130 per form if corrected by August 1. So, hopefully everyone on this call is  you're already working on or maybe you're already done with your 1095 reporting. But if not, or you're concerned with past years, you definitely need to make sure that you're working with your ACA reporting vendor or your payroll provider to make sure that you do get these out in a timely manner because you don't want to incur these larger penalties.

Now, Patrick mentioned earlier we do have some newer rules starting this year with employers not having to distribute the 1095-C but instead providing a notice to employees. We don't yet have clarity as far as how that new rule is going to affect a penalty like this where there's a failure to distribute, so we're kind of in a wait-and-see pattern there.

But just understand that penalties can add up if you are not distributing those appropriately.

And so now Patrick is going to round us out with some key takeaways and resources.

[SPEAKER 3 – Patrick]

Thank you, Kelly. Of course, all group health plans must comply with at least some aspects of the ACA, and so it's important to work closely with either your carrier if you're fully insured or your TPA if you're self-insured to ensure that the plan meets coverage mandates.

It's also important to identify those filing requirements, those 1095s we've been talking about, the PCOR fees, Form 720 and the like. It's also important to make sure that the plan documents are updated to reflect compliance with the ACA as well as make sure that those required notices are distributed at the right times, especially, as I pointed out earlier, that marketing exchange notice can sometimes trip people up, so it's important to make sure that you distribute that at the right time.

It's also important to determine if an employer is an applicable large employee and they have a plan in place to track those employee hours to make sure that they are actually offering coverage to full-time employers, at least full-time as defined by the ACA, and make sure that they can handle the reporting requirements.

Again, it's important not to ignore those letters from the IRS or state exchanges because those penalties can add up. And then also we have, as I've mentioned before, we have our ACA resources toolkit which has a lot of helpful publications on various aspects of the ACA that we've touched on today, including employer mandate compliance, as well as those reporting requirements that I touched on earlier.

So if you'd like a copy of that toolkit and all the publications within it, please be sure to request a copy from your consultant or your advisor.

So that concludes our introduction to the ACA. Thanks so much for joining us.

[SPEAKER 2 – Kelly]

Yes, thank you, Patrick. Yeah, I really think if you have not yet gotten a copy of that toolkit from your consultant or advisor, we highly recommend requesting a copy because we really tried to divide it into smaller chunks to help out.

But I definitely think that especially for identifying employees and those measurement methods, we get asked this all the time and so I know it's kind of difficult to understand, but I definitely recommend taking a look at that if you are an employer that has part-time or variable employees and you're still just not quite sure how those measurement periods work.

But yes, thank you all for joining us and hopefully you found this helpful today. Amber, I will go ahead and let you take us out.

[SPEAKER 1 – Amber]

All right. Thank you, Kelly and Patrick, for sharing your valuable time and expertise with us today.

To reiterate, today's presentation was recorded. We'll be sharing the recording in the follow-up email and on the NFP website.

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That concludes our webinar for today. Thank you, everyone, for joining us and have a great day.