Affordable Care Act FAQ's

What does ACA stand for?

ACA stands for the Affordable Care Act. This landmark healthcare reform legislation, informally referred to as 'Obamacare,' was implemented by President Barack Obama during his tenure in office. The ACA aims to make affordable health insurance accessible to more Americans, expand the Medicaid program, and support innovative medical care delivery methods to lower the overall costs of healthcare. The act includes numerous provisions to ensure that health insurance is comprehensive and affordable, emphasizing preventive care, patient protections, and ensuring that individuals with pre-existing conditions cannot be denied coverage.

What is the ACA Employer Shared Responsibility?

Under the ACA guidelines, starting January 1, 2015, Applicable Large Employers (ALE's) are required to offer their full-time employees and their dependents a qualified medical insurance plan that is affordable and meets Minimum Essential Coverage (MEC) and Minimum Value (MV) requirements. Additionally, ALE's are subject to Year-End Reporting requirements for Forms 1094-C and 1095-C. Failure to provide medical coverage or complete the year-end reporting requirements can result in penalties levied by the IRS.

Who is considered an Applicable Large Employer (ALE)?

An Applicable Large Employer (ALE) under the Affordable Care Act is defined as an employer with 50 or more full-time employees, including full-time equivalents (FTE's). This determination of being an ALE is based on the average number of employees during the previous calendar year. 

What is an Aggregated Applicable Large Employer (ALE) Group?

In general, organizations with multiple companies that share the same ownership are required to combine their collective employee count to determine whether they surpass the threshold of 50 full-time employees/full-time equivalents. For example, two companies with 30 full-time employees each that share the same ownership would need to comply with the ACA requirements because collectively they have 60 full-time employees, exceeding the threshold. There are, however, some special circumstances that can impact this rule, such as the percentage of ownership between the affiliated companies and whether there are multiple owners. Empeon recommends consulting with a CPA or a qualified tax professional to help determine whether you are considered an Aggregated ALE Group. This can also be referred to as a “Controlled Group” or “Controlled Ownership”.

What is the definition of a Full-Time (FT) Employee?

Under the ACA guidelines, an employee who averages 30+ hours per week or 130+ hours per month is considered a FT employee. Otherwise, the employee is a Part-Time (PT) employee.

What is the definition of a Full-Time Equivalent (FTE)?

Full-Time Equivalents (FTE's) represent a combination of part-time employees whose total hours worked are equivalent to those of a full-time employee. This calculation is used to determine whether an employer exceeds the 50 FTE threshold for this mandate. It does not mean that health insurance needs to be offered to the part-time staff included in the full-time equivalent calculation.

Simple Example: An employer has 45 full-time employees and 20 part-time employees, all of whom average 15 hours per week. In this example, two part-time employees combine to 30 hours per week, creating a full-time equivalent. Therefore, this employer has 45 full-time employees and 10 full-time equivalents, totaling 55 full-time employees and full-time equivalents.

What is a Variable Hour Employee?

An employee who, upon hiring, the employer is unable to determine whether or not the employee will regularly work 30 or more hours a week or 130 or more hours per month.

Do Union Employees count?

The simple answer is yes. While employers may not need to provide union employees with medical coverage (as it is most often provided by the union), they do count toward an employer's overall FTE count. 

What is ACA Measurement?

To determine the ACA status for variable hour employees, the IRS requires employers to measure their employees' hours. There are two measurement methods for determining whether an employee is a full-time employee: Monthly Measurement Method & Look-Back Measurement Method. Both methods offer flexibility based on the employment type of the workforce. In general, the Monthly Measurement Method is more suitable for employers with all full-time or salaried employees, whereas the Look-Back Measurement Method is more optimal for employees with variable hour employees.

For a more in-depth breakdown on these two methods, please refer to Empeon's article Affordable Care Act Measurement Methods.

What is the definition of Hours of Service?

Per the IRS, “An hour of service is each hour for which an employee is paid, or entitled to payment, for the performance of duties or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.”

What is the definition of an Affordable medical plan?

A medical insurance plan where the employee’s yearly contribution towards the lowest cost of Employee Only Coverage, doesn’t exceed 8.39% (adjusted from 9.5% as of 2024) of the employee’s yearly household income. Given that most employers don’t know the employee’s total yearly household income, the IRS introduced three Safe Harbor methods for calculating the affordability listed below:

1. The employee yearly contribution doesn’t exceed 8.39% of the employee yearly W2 wages.
2. The employee yearly contribution doesn’t exceed 8.39% of the employee yearly income based on their hourly rate of pay (the employee’s lowest rate of pay times 130 monthly hours).
3. The employee yearly contribution doesn’t exceed 8.39% of the yearly federal poverty line for a single individual for the applicable calendar year.

What is the definition of Minimum Essential Coverage (MEC)?

Minimum Essential Coverage (MEC) refers to the minimum level of health insurance coverage that satisfies the requirements under the Affordable Care Act (ACA).

What is the definition of Minimum Value (MV) of Coverage?

Minimum Value (MV) of Coverage is a standard under the Affordable Care Act (ACA) that requires a health insurance plan to cover at least 60% of the total allowed costs of benefits provided under the plan. This means that the plan must pay for a significant portion of medical expenses, including hospitalizations, doctor visits, and other essential health benefits, with the remaining costs being the responsibility of the insured individual through copayments, deductibles, and coinsurance.

There are many variations of health plans, so it is recommended to confirm with a broker or insurance company that your company’s plans meet MEC, MV and affordability.

What is the Employer Shared Responsibility Assessable Payment?

This refers to the penalties that may occur if an ALE doesn’t offer a medical insurance plan which meets the ACA guidelines AND at least one FT employee receives a premium tax credit for purchasing a medical insurance plan through one of the Affordable Insurance Exchanges.

What is the Information Reporting Penalty?

This refers to the penalties that may occur if an ALE fails to file the required 1094-C and 1095-C forms with the IRS or provides incorrect or incomplete information on these forms, with penalties calculated per form and potentially accumulating based on the number of errors or omissions.