Jumping through Benefit Hoops: Navigating the changing ACA requirements for small employers

The Affordable Care Act ushered in a host of changes for the health insurance market—and a whole lot of confusion. It’s left small employers with uncertainty and many questions.

For example: how is a “small employer” defined? Well, it’s complicated. Currently, employers with 100 or more full-time equivalent (FTE) employees must either offer affordable health benefits or pay a penalty—the so-called “play or pay” provision. In 2015, that number was supposed to drop to 50 or more FTE, but “they pretty much got a pass” last year, explains Carolyn Cox, vice president and corporate counsel at Moreton & Company, who spoke at a panel on the small group market at the Utah Employers Healthcare Summit.

But they’re not off the hook. Employers with 50 or more FTE will be subject to play or pay when their benefit year starts in 2016. At that point, they’ll be considered “mid-sized” employers, rather than small employers.

Cox also explains that companies that are held in common ownership are essentially lumped together for purposes of the pay-or-play provision. So if one company has 20 employees and another has 40 employees, but both companies are held by a common owner, then they are counted together as having 60 employees—and therefore a mid-sized employer.

Another area impacted by company size is community rating. Community rating is a system that took the place of extensive medical underwriting when determining premium rates for a business. Now, for small employer groups, insurers are only able to consider factors like the geographic location of the business, age of employees and their dependents, and tobacco use. For purposes of community rating—at least for now—a small employer is defined as 2 – 50 employees.

Yet another complication is the transition from “eligible” employees to full-time equivalent employees. In the past, carriers have looked at the number of full-time employees who are eligible for benefits in determining company size. So a company with 200 part-time workers but 25 full-time workers would be considered a small employer. Now, carriers will be required to count full-time equivalent employees—a number determined by dividing the total number of hours worked by an employer’s labor force by the number of its employees. So that company with 200 part-time workers would have at least 100 full-time equivalent employees and be categorized as a large employer.

The transition from eligible employees to FTE is also in a little bit of legislative limbo right now, says Katie Wood, small group account executive at GBS Benefits. “My motto with my clients is ‘I’m telling you what is true today, but tomorrow the government might make a liar out of me,” she says. “There is a lot of change. There is a lot to know.”

Community rating

Community rating is set to take full effect October 1, 2017. Wood says community rating has proved to be a mixed bag for small companies. “Some employers benefited from that. Others have seen significant increases, because we compressed that age banding to a three-to-one ratio and we took out all the medical risks,” she says.

Geography now has a significant impact on employer premiums. Utah is divided into six areas for purposes of community rating:

  • Utah County
  • Salt Lake, Tooele, Davis, Wasatch and Summit Counties
  • Rich and Cache Counties
  • Box Elder, Weber and Morgan Counties
  • Iron and Washington Counties
  • All other Utah counties

Wood says Utah County has the highest premiums in the state—they can be as much as 10 percent higher than in Salt Lake County. She also notes that the geographic designation is based on where the company is domiciled, not where individual employee live.

More paperwork

Changes in the healthcare laws have added another burden for businesses: extra reporting requirements. Companies are now required to report who they offered benefits to and what, exactly, was offered. This requirement goes into effect for the early 2016 tax season.

“Now in addition to preparing a W-2 for your employees … large employers will have to do certain reporting about their healthcare coverage. It will work like the W-2; the employer will give a copy of a form [to the employee] … and then you file all those forms with the federal government,” says Cox.

The reporting lets the federal government know if you are offering benefits that are deemed “affordable” or if you need to pay a penalty. Cox says it also helps the government figure out when individuals have received subsidies on the federal exchange who shouldn’t have because they were offered benefits through their work.