If ACA Reporting for ALEs gives you a headache in a normal year, 2020 could give you a migraine. Here are just some of the complications facing large employers.
The Affordable Care Act requires large employers (Applicable Large Employers, called ALEs) to either provide healthcare to their full-time employees or pay a penalty (often called the Play or Pay provision). For 2020, with the coronavirus causing layoffs, furloughs, reduced hours, and in some cases increased hours, ACA reporting is more difficult than usual.
ACA Reporting Codes
When compiling ACA employer reporting forms for ALEs, each month every employee’s form must include a code on Line 14 and on Line 16. Line 14 indicates whether the employee was offered coverage, and if so, what type of coverage: did it provide Minimum Essential Coverage (MEC), is coverage of Minimum Value (MV), was it affordable under a safe harbor? Line 16 denotes whether an employee was covered, waived, or was not eligible and in some instances will be left blank.
Line 14 Codes
1A Offered EE/SP/CH coverage with MEC + MV + < 9.78% of FPL Safe Harbor ($101.79)
1B Offered EE only coverage with MEC + MV
1C Offered EE/CH only coverage with MEC + MV
1D Offered EE/SP only coverage with MEC + MV
1E Offered EE/SP/CH coverage with MEC + MV (use instead of 1A if plan cost > 9.78% FPL)
1F Offered coverage with MEC only
1G Offered self-funded coverage to a NON-FT EE any month of the calendar year
1H Not offered coverage OR offered coverage that is NOT MEC
1J Offered EE/SP only coverage with MEC + MV – spouse coverage conditional
1K Offered EE/SP/CH coverage with MEC + MV – spouse coverage conditional
1L Offered ICHRA to EE only, affordable based on employee’s home zip
1M Offered ICHRA to EE/CH, affordable based on employee’s home zip
1N Offered ICHRA to EE/SP/CH, affordable based on employee’s home zip
1O Offered ICHRA to EE only, affordability safe harbor based on employment site zip
1P Offered ICHRA to EE/CH, affordability safe harbor based on employment site zip
1Q Offered ICHRA to EE/SP/CH, affordability safe harbor based on employment site zip
1R Offered ICHRA that is not affordable
1S Offered ICHRA to a NON-FT EE
Line 16 Codes
2A Employee not an employee for that ENTIRE calendar month
2B Employee not FT AND did not enroll, or
Coverage ended before LAST DAY of month due to termination
2C Employee ENROLLED for all days of that month
2D Employee in their waiting period, or
A Variable Hour employee in initial measurement/admin period
2E Multi-employer plan
2F If using W-2 affordability safe harbor, and the person waived
2G If using FPL affordability safe harbor, and the person waived
2H If using rate of pay affordability safe harbor, and the person waived
COVID Employment Upheaval
For 2020, ACA employer coding will be more complicated due to fluctuations in employees’ employment status, monthly pay levels, monthly hours worked, and monthly cost for coverage. Getting answers to a laundry list of questions will start the process of understanding how complicated the coding will be for each employer.
Typical Full-Time Employee Coding
During a typical calendar year, coding lines 14 and 16 for FT employees is usually straight forward. Let’s assume an employer offers coverage that is MEC, MV, and affordable under the FPL safe harbor. Coding would include:
An employer will face penalties under the ACA’s Play or Pay rules if they did not offer the right coverage (MEC/MV) to enough of their FT employees or offered coverage that was unaffordable. Coding combinations from month-to-month can trigger penalty letters from the IRS to the employer. We’ll review the penalties at the end of this blog. But first we’ll delve into the changes to codes because of COVID.
Warning…here is where your head, like mine, will start to hurt. I’ve been dealing with each employer’s ACA reporting on a facts and circumstances basis, using the answers to those 8 questions above. The more items they answer yes to, the more Advil you may need, especially if they have Variable Hour employees.
Full-Time Employee Coding with COVID Changes
With COVID changes to employment status, pay, and premiums, more codes will be required to designate month-by-month changes.
These are only some of the changes to coding that could occur. We have not even delved into the codes for employers who use one of the other two affordability safe harbors or Variable Hour employee coding.
Rehiring Full-Time Employees
During the past year, many employers had to terminate employees and were then able to rehire them. Under ACA Play or Pay rules, a FT employee can only be subjected to a medical plan waiting period once. With an employee who is termed and rehired, there are specific rules with regards to imposing a new waiting period. If the employee worked zero hours for 13 or more weeks, then a new waiting period can be required by the employer. Otherwise, no new waiting period can be imposed.
The pitfall comes when an employer rehires employees withing 13 weeks of their termination and mistakenly makes the employee meet a new coverage waiting period. Under ACA Play or Pay rules, such an employee should be offered coverage 1st of the month following their return to work. Not offering coverage timely can subject the employer to Penalty B, or in some cases, Penalty A.
For example, let’s assume an employer has 150 FT employees, all eligible for coverage. They terminated 50 employees as of April 1st and rehired them as of May 15th.
Newly Hired, then Furloughed
Another potential pitfall for employers is when a newly hired employee, who has not yet met their coverage waiting period, is placed on furlough or leave. Whether paid during the furlough/leave or not, they will still be considered an active employee under ACA employer Play or Pay rules. If the employee met their coverage waiting period during the furlough/leave, they should have been offered coverage as any other FT active employee. If the employer did not offer coverage timely, an ACA penalty may be imminent.
For example, let’s assume an employee was hired in mid-January, and there is a 60-day waiting period for coverage. They would normally be eligible to start coverage as of April 1st. The employee qualified for paid emergency FMLA as of March 15th due to their child’s school closing. The employee returned to work on June 15th.
Variable Hour Employees
Dealing with VH employees through layoffs, furloughs, and shift/pay/premium differentials will run up against the same issues as FT employees. Unfortunately, there are extra pitfalls for those using the Measurement/Administration/Stability method for determining a VH employee’s coverage eligibility. We won’t delve into these here, since it can be much like running down a rabbit hole and typically each VH employee will need to be reviewed on a facts and circumstances basis to determine the best codes for Lines 14 and 15 each month of the calendar year.
Play or Pay Penalties
More employers may be subject to ACA’s Play or Pay penalties in 2020 than any other year. Without clear guidelines from the Federal government regarding terminations/layoffs and leaves/furloughs, most employers provided what they could to their employees. Now, after the fact, employers may face a costly penalty.
There are two penalties under ACA’s Play or Pay rules that an employer must be aware of: Penalty A (the sledgehammer) and Penalty B (the tap hammer).
Penalty A is levied when an employer does not offer MEC, MV coverage to at least 95% of their FT and eligible VH employees. While the penalty is listed in the regulations as $2750 per year per employee (minus 30 of those FT/eligible VH employees), this fee is actually levied on a monthly “failure” basis. While an employer may have set their healthcare offering parameters to meet this threshold, with layoffs, leaves, and furloughs some months in 2020 might result in a surprise Penalty A payment required by the IRS.
If an employer is not subject to Penalty A, they must then determine if they are subject to Penalty B, which is an employee-by-employee penalty. Any FT/eligible VH employee not offered MEC, MV coverage (those employees in that 5% leeway under Penalty A) would be included in this category. In addition, anyone offered MEC, MV coverage that was not affordable under the ACA rules may result in a penalty. Like Penalty A, Penalty B is denoted in the regulations as an annual penalty of $3860 but is levied monthly. The bar is quite high for Penalty B, though; any employee who should have been offered coverage and was not, or any employee who was offered unaffordable coverage, must have ALSO
An employee who waived coverage and enrolled on a spouse’s employer plan, a parent’s plan, another employer’s plan, Tricare, Medicare, or Medicaid won’t result in an employer being hit with a Penalty B charge.
The Bottom Line
Unfortunately, COVID has created a minefield with regards to ACA Play or Pay penalties for large employers. Without direction from the Federal government, employers did the best they could. Now they may be finding that their efforts will be met with penalties. It will remain to be seen if the IRS will provide any leniency. For now, employers need to ensure that they code each employee’s 2020 form correctly, which in itself is quite the task. And, while I rarely use this blog as a forum for a sales pitch, I would suggest that if your agency has any employers who had layoffs, terminations, leaves, furloughs, pay changes, benefit cost changes, or fall into any of the “pitfall” categories above, you would be wise to hire a professional like The Benefits Academy to ensure forms are coded correctly.
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I love numbers. I'm a math geek. I read benefits industry articles and periodicals for relaxation (but, honestly, I'm still a fun gal). I also like to share what I've learned and you'll find it all here.