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ACA Service Team's Frequently Asked Questions

We've received many inquiries from people who need help navigating the ACA's compliance requirements. We've shared a few of our answers regarding:

We'll continue to update the questions as we get them, so bookmark this page and check back from time to time.

Employer Mandates and "Play or Pay" penalties


Our company has a number of employees who waive coverage because they are covered through their spouse’s employer.  Do these employees count against us in determining if we provide coverage to at least 95% of our full-time employees (i.e., the coverage test)?


No. These employees will not adversely affect the coverage test because they have been offered coverage. The test is based upon an offer of coverage; not actual coverage.

Q:     Our company currently requires an employee to work 35 hours per week to be eligible to receive health benefits.  Do we need to modify our policy so that all employees who work 30 or more hours per week are eligible to receive health benefits?


The answer to that question depends upon a number of facts. Under the current 35 hours per week requirement, your company would not necessarily be required to drop the eligibility requirement down to 30 hours per week if your health plan covers at least 95% of the employees working 30 hours or more per week (i.e., the coverage test).

We discussed this issue with one company that was going to do the specific analysis to see how many employees would fall in the range of 30-34 hours per week. If the number they derive is less than 5% of the total employees working 30 hours or more per week, the company need not change their eligibility requirement in order to remain compliant under the ACA.

If, on the other hand, the health plan fails the coverage test, then a company may determine if the penalty that would be assessed for failing to cover enough people would be less than the premium costs associated with covering more employees.

Q:     If our company is considered to be a large employer, is the company required to offer health insurance to our full-time employees?

A:     No. A large employer is not required to offer health insurance to full-time employees. However, if a large employer does not offer health insurance or does not offer health insurance to more than 95% of its full-time employees, it will pay a penalty equal to $2,000 (indexed annually) per full-time employee (less the first 30 full-time employees), if even one employee goes to the exchange and receives a premium credit or cost-sharing subsidy.

Q:     Since I don’t know the household income for most of my employees, how do I use the Form W-2 affordability safe harbor correctly?


When employers are looking at their employees’ Forms W-2 for purposes of the 9.5% affordability test under the W-2 safe harbor method, they must use Box 1 of the Form W-2.

This means that pre-tax elective deferrals to a 401(k) or 403(b) plan and to a Cafeteria Plan will NOT be included in the figure. Note that the Rate of Pay Affordability safe harbor does not reduce wages by elective deferrals. Thus, the Rate of Pay safe harbor could, in some cases, result in a higher end-product wage level and, accordingly, a better chance of passing the 9.5% affordability standard.

Q:     Who should be included in determining household income and where do I find out what the standards are for assessing that?


Regarding the definition of “household income”—it’s complex. For example, if your 27 year-old child is living with you but has an income of his own and is filing a tax return separate from you, is his income included in household income for ACA purposes? Most likely not. The dependency rules can be very complex and there are a number of areas in the Internal Revenue Code (IRC) that apply.

IRC Section 5000A defines household income for ACA individual mandate purposes. IRC Sections 151 and 152 contain the personal exemption rules. The rules take into account the taxpayer’s income, plus the income of all individuals for whom the taxpayer is allowed a personal exemption deduction. In general, the rules allow:

  1. An exemption for children living with the taxpayer who are younger than age 19 or who are students under age 24.

  2. An exemption for a qualifying relative of any age living with the taxpayer if the relative has gross income that is less than the personal exemption amount ($4,050) for 2016. The income standard is a difficult one to meet. The 27 year-old in this case may meet the qualifying relative standard if his/her gross income is less than $4,050. If so, there are other rules which must also be met.

Small Employer Requirements 

Q: As a small employer, can we drop employer-provided health benefits and, instead, provide a stipend to our employees to purchase health benefits under the Health Insurance Marketplace (aka Exchanges)?


Yes. You could drop employer provided health benefits. Any "stipend" should be broad-based, not tied to the purchase of health insurance, and would be considered taxable income to your employees. If an employee purchases coverage through the Exchange, the payments for coverage will be made on an after-tax basis and will not be made through payroll deductions.

Currently, most employees pay for employer-provided health benefits with pre-tax contributions through a Section 125 plan. This is a point that cannot be overlooked by the company or its employees. If an employer offers health benefits, employees pay their share of the premiums pre-tax (for income and employment taxes) through payroll deduction. If an employer discontinues employer-sponsored health coverage, the amount of FICA taxes the company and its employees pay will increase since the health insurance premiums are no longer being paid with pre-tax dollars.

Finally, the company will need to carefully consider whether it can attract and retain the type of employees it needs to run the business if the company does not offer health insurance.

Marketplace Notice Requirements


Does the Marketplace Notice requirement apply to all employers?


No. The Marketplace Notice requirement applies to employers subject to the Fair Labor Standards Act (FLSA). The FLSA generally applies only to those employers who have one or more employees engaged in or producing goods for interstate commerce and who have more than $500,000 in annual gross revenue. Also, the requirement applies to all hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state and local government agencies.

Q: Does the Marketplace Notice requirement apply to all employees?

A: Yes. All employees of a covered employer must receive the Notice whether or not they are covered under any plan of the employer and whether or not they are full-time or part-time.

Q: Is there a requirement to provide a Marketplace Notice to new employees hired after October 1, 2013?

A: Yes. Employees hired after October 1, 2013, must receive a Marketplace Notice within 14 days of their start date with the company.

Q: Is it permissible for another entity (such as an issuer, multiemployer plan, or third-party administrator) to send the Marketplace Notice to employees on behalf of an employer to satisfy the employer’s obligation?

A: Yes. Guidance issued by the Department of Labor on September 4, 2013, indicates that another party may issue the Notice instead of the employer. However, the employer is ultimately responsible. Thus, the employer must be sure that the Notice goes to all employees, not just those covered under any plan the employer may offer.

Q: Has the Department of Labor (DOL) provided a Model Notice?

A:  Yes. The DOL provided two Model Notices in May. One is for employers that do not offer coverage and the other is for employers that do offer coverage. Only Page 1 of each Notice is required. The other pages are optional. Here is the link to the DOL Model Notices.

Q: Are there specific rules on how the Notice must be provided to employees?

A: Yes. The Notice must either be provided in hard copy (e.g., for distribution by the employer or by first-class mail) or electronically pursuant to the DOL electronic delivery rules (which can be cumbersome.)

Q: Is there a penalty for failure to provide a Marketplace Notice?

A: No. The Department of Labor issued guidance on September 11, 2013, stating that a company will not be fined or penalized for failing to provide a Marketplace Notice.