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Understanding Basic ACA Terms
Sean Cooper • Sep 28, 2022
Understanding Basic ACA Terms
Since the inception of the Affordable Care Act (ACA) which overhauled the country’s healthcare coverage, terms used within the business world have changed drastically. Many acronyms and terminologies were created to keep up with the new healthcare reform. Thirteen years after ACA’s inception, these terms are still like speaking a foreign language for most, especially those in the business world. It is the employer’s responsibility to report their offers of coverage to the IRS or face penalties and employers are finding it cumbersome to being well-informed on the ever changing terms and laws of the ACA.
Let’s look at some of the terms that were either modified or have a different connotation due to ACA. This is by no means an all-inclusive list, but it does highlight the main terms that are commonly misinterpreted today or used most often when dealing with ACA compliance.
1. Full Time
– Prior to the actual first reporting period of 2015, this term could be a multitude of things based on the definition in your employee handbook. Each company could really set their own standards for what this meant and the calculations that were applied. January 1, 2015 changed this term to mean one thing and one thing only for all businesses across the US; any employer working on average above 30 hours per week or 120 hours per month. Prior to this date, full-time typically meant a 40-hour work week. But once the ACA was in effect, full-time defined hours were reduced to 30 hours per week and employers are responsible for tracking these hours.
2. Full Benefits
– “Yes girl, I got me a new job and one of the main perks and why I took it was for the full benefits it offered!” Employers today are more aware of which plans meet the ACA standards than they were before such as health plans versus ancillary plans. The qualifying health coverage that an employer needs to provide to avoid IRS penalties is a minimum essential coverage plan. This can include plans such as Medicare, Medicaid, student health plans, etc. Ancillary plans such as vision and dental insurance do not have to be reported.
The sad part is employees are still at the disadvantage of not knowing what is meant by FULL HEALTHCARE COVERAGE. For employers to comply with ACA standards, plans must meet a certain criterion to be considered acceptable plans. Those plans must include minimal essential coverage, minimal value coverage, and still be affordable (our next defined term) for those enrolled. In recent years, Conditional and ICRHA plans have be included as well. Employers must understand these terms to avoid reporting incorrectly and facing IRS penalties.
a. Minimal Essential Coverage – abide by the ACA requirements but overall, the policy must cover 60% of covered cost and cover 10% essential health benefits which are:
i. Chronic disease management, preventive care, and wellness services;
ii. Outpatient care (or “ambulatory patient services”);
iii. Emergency services;
iv. Hospitalization (inpatient care);
v. Laboratory services;
vi. Prescription drugs;
vii. Mental health and substance use disorder services, including behavioral health treatment;
viii. Rehabilitative or habilitative services and devices;
ix. Maternity and newborn care; and
x. Pediatric services (including oral and vision care for children).
b. Minimal Value Coverage- the above is covered at or above a threshold level. Usually this means the plan pays 60% of the actuarial value of the total allowed cost dictated by the plan elected.
3. Affordable Coverage
– “Bae, you won’t believe it, but my new security job provides full benefits, and it only costs us $195.97 per month for the entire family!” Unfortunately, the itemized expense receipt starts adding up as soon as an employee crosses the threshold into a medical facility and each aspect utilized is charged back to them at a premium. When the bill comes in, the employee realizes they have been paying for what many call a “masked” benefit plan. The employer plans nothing, the employee pays a fee for their plastic “health” card but in the end, it’s just a façade.
The previous terms barely skim the immense surface of business terms that have been around prior to the ACA but have changed in definition since. The following are terms that have emerged solely because of the ACA.
1. 226-J Letter
– This is the critical letter that employers do not want to receive. The letter states that an employer has not meet the standards of or was late in filing their ACA Compliance and therefore are informed of their infraction and charged a hefty monetary penalty. These penalties have increased annually and, depending on employee size, can lead to employers paying hundreds of thousands of dollars in fines to the IRS.
2. Employer Mandate
– The list of tasks an employer must complete in order to remain compliant to the ACA to avoid receiving one of those very expensive IRS penalty letters. These tasks include, but are not limited to:
- Tracking employee hours
- Calculations for affordability of plans
- Monthly updates of codes and employee contribution of benefits to populate the 1095’c form
- Completing a 1095c for each employee and a 1094c for the employer and distributing that to the employee and IRS on the deadlines mandated (March 2nd for distribution of 1095c’s to employees and March 31st deadline for electronic filing to the IRS)
3. Applicable Large Employer (ALE)
– An employer who employees, on average, above 50 or more full time equivalent employees per month throughout the year.
4. Breaks in Service
– This term specifically refers to the time limit mandated by the ACA in which an employee does not have hours worked but remains an ongoing employee of the company. The limit to this “break in service” is 13 weeks. This was implemented due to bad business practices terming employees prematurely so that benefits would not have to be offered or, so they were never considered a full-time employee.
5. The Marketplace
– This is the general term that has become very popular to describe HealthCare.gov or the states’ individual site in which one can go to select health benefits that meet the ACA standards when those standards have not been met by their employer. Many states offer their own marketplaces while the federal government manages a Marketplace exchange for any resident in any state. Once an employee receives coverage from the Marketplace, this will signal penalties for the employer. Many believe that each site or provider is individually funded or privately subsidizes the insurance when in most cases, it is the federal government.
As you can see, we can go on and create a new glossary of ACA terms specific to how businesses describe functions post Affordable Care Act. This glossary in only a fraction of terms that an employer must know to stay compliant. It is best to find an ACA reporting software that will keep up to date with compliance and ultimately will also save organizations time and money by reporting swiftly and accurately. Otherwise, an employer can face large penalties and their business can be impacted greatly.
Have Questions or Need More Information?
SyncStream Solutions, LLC is thrilled to broaden their educational webinars to reach the SHRM audience. SyncStream Solutions, LLC is recognized by SHRM to offer Professional Development Credits (PDCs) for SHRM-CP® or SHRM-SCP® recertification activities effective March 6, 2024 through March 31, 2026.
We invite you to watch our on-demand webinar session where our experienced and highly trained ACA subject matter experts will discuss common mistakes that may result in an IRS penalty letter.
Are you grappling with ACA reporting complexities and seeking expert guidance to ensure compliance before the ACA deadline? Watch our insightful session where our tenured and highly trained ACA subject matter experts will address the most pressing questions leading up to the reporting deadline. We understand the challenges businesses face in navigating the intricacies of ACA compliance, and we are here to simplify the process. T opics include: Navigating the Year-End Process with Precision Important Deadlines Exploring the E-filing Correction Process
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