Employer Mandate
The Employer Mandate guidelines state that coverage is affordable when an employee has to pay no more than 9.5% of their household income (inflation-adjusted to 9.83% for the 2021 plan year) for self-only coverage which is offered, but which employers know the household income of an employee? As a result, there are three alternative methods that an employer can rely upon when determining if the coverage they offer is affordable. These methods are explained below and some general examples of how to apply each method have also been provided.
The Internal Revenue Service (IRS) has issued draft reporting forms for the purpose of filing information necessary to enforce the Employer Mandate. The 2020 draft version of the applicable forms can be found below (with finalized versions expected to be released later this year):
The Internal Revenue Service (IRS) recently issued Rev. Proc. 2020-36 which includes details on the minimum required contribution percentage in determining whether employer-sponsored health coverage is affordable. In 2021, employer-sponsored health coverage will be considered affordable if an employee has to pay no more than 9.83% (an increase of 0.05% from 2020) of their income for such coverage.
The Employer Mandate requires employers with 50 or more employees to offer “minimum essential coverage” to at least 95% of its full-time employees. Failure to do so can result in a penalty of $2,570 for each full-time with a break on the first 30 employees. Most employers assume minimum essential coverage must come in the form of a traditional group health insurance plan, but that is not the case.
Many employee benefit laws only apply to employers who have a certain number of employees. The challenging part is that each law has its own definition and rules on how to count the number of employees when determining if a law applies to an employer. Here are some key examples:
Senator Susan Collins (R-ME) submitted an inquiry to the Internal Revenue Service (IRS) earlier this year asking two very specific questions. She wanted to know if penalties related to the Employer Mandate could be reduced or waived if it would cause a hardship on an employer. She also wanted to know if the IRS would extend the transition relief that was previously available to employers with 50-99 employees. Previous transition relief exempted most employers of this size from the Employer Mandate during its first year of implementation in 2015.
The Internal Revenue Service recently released Revenue Procedure 2019-29 which included details on the affordability percentage related to the Employer Shared Responsibility provisions of the Affordable Care Act (ACA), also known as the Employer Mandate. In 2020, an applicable large employer (ALE) will be considered to offer affordable coverage to its full-time employees if the cost of coverage is 9.78% or less of the employee’s household income.
The Departments of Labor, Health and Human Services and the Treasury (collectively, the Departments) released new guidance on June 13, 2019 which permit a new type of Health Reimbursement Arrangement, referred to as an Individual Coverage Health Reimbursement Arrangement (ICHRA).
The Employer Mandate requires applicable large employers (ALEs), which are defined as employers with 50 or more full-time equivalent employees in the preceding year to offer health insurance to full-time employees. Generally, at least 95% of full-time employees must be offered health insurance.
The Internal Revenue Service (IRS) is continuing to send Letter 226J to employers for which the agency believes an Employer Mandate penalty is due. Currently, these notices are being sent to employers for penalties that apply to the 2016 calendar year.
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