How to Avoid the ACA Minimum Essential Coverage Penalty
by Vita, on August 10, 2016
Minimum essential coverage is the level of coverage required by the Affordable Care Act (ACA) in order to meet the “individual shared responsibility” provisions that all U.S. citizens are subject to. Individuals who cannot prove they have minimum essential coverage are subject to personal income tax penalties defined in the ACA. That coverage can be obtained in a number of ways, but the most common is through an employer-sponsored group health plan. (Note that employers with fewer than 50 employees are not required to offer health insurance plans. Employers who want to help their employees avoid the ACA penalty should make sure that:
- the group health plan meets the minimum essential coverage requirements,
- their employees are signed up for the company’s health care plan for the entire year, and
- all dependents in the employee’s family are covered for the full year.
Certain types of insurance or discounts that your company may offer do not meet the criteria for minimum essential coverage. Products that do not qualify include plans that offer only discounts on medical services, coverage for only vision or dental care or a specific illness or condition, short-term or temporary health insurance, and workers’ compensation.
How can our HR department help employees stay in compliance with the ACA?
First, make sure your onboarding process fully educates new employees about how to sign for your group health plan. Next, assess your open enrollment methods to make sure all qualifying employees and the family members they wish to insure are signed up in a timely manner. Ensure that HR explains to employees that if they, or a person whom they wish to insure under the group plan, are not covered for the full year, they will have to pay the IRS a penalty for every eligible person in their family who does not have minimum essential coverage. Alternatively, they may be required to make an individual shared responsibility payment, or apply for a coverage exemption.
Educate the employee on alternative options, such as purchasing health insurance independently directly from an insurance company or the federal government’s Health Insurance Marketplace, or enrolling in a student health care plan if the employee happens to be a student who qualifies for such a plan.
Most importantly, HR should explain to employees that in 2015, the fee for not having coverage increased to 2 percent of household income or $325 per person.
In a recent update (released August 2016), the IRS described proposed regulations, incorporating the guidance given in IRS Notice 2015-68. These regulations are proposed to apply for taxable years ending after December 31, 2015, and may be relied on for calendar years ending after December 31, 2013.
The proposed regulations provide that:
- Reporting is required for only one MEC plan or program if an individual is covered by multiple plans or programs provided by the same entity.
- Reporting generally is not required for an individual's eligible MEC only if the individual is covered by other MEC for which section 6055 reporting is required.
These rules would apply month by month and individual by individual. Once finalized, the regulations would adopt the same rules and procedures outlined in the final instructions for reporting under sections 6055 and 6056 of the ACA.
What should your HR department do to make sure it's in compliance with the ACA?
Your HR department must provide Form 1095-B statements to employees covered by the group plan, and file copies of this form with the IRS to verify these employees have minimum essential coverage. If HR has not done so already, it must collect all the information required to engage in this reporting, particularly on Form 1095-C. This form requires that you enter the employee’s date of hire and/or termination date, the length of your company’s waiting period to receive health insurance, the type of coverage you offer, whether the plan has an applicable affordability safe harbor, and other factors. HR must also assist in helping the company file annual reports of the health care options the company offers as employee benefits.
The purpose of these efforts is to avoid having to pay fines of $3,000 for every employee who seeks government-subsidized care, and $2,000 for every full-time employee that has not been offered health insurance. The ACA considers anyone who works over 30 hours a week to be a full-time employee.
Be aware that with the right information and best management practices, you can collect the information you need to get all qualifying employees enrolled on deadline.
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