The Affordable Care Act’s (ACA’s) shared-responsibility provision, commonly referred to as “play or pay,” has been delayed until 2015. Some “transitional relief” also will be available. But that doesn’t mean your nonprofit can afford to sit back on its heels. Do you know if play-or-pay covers your organization? Now’s the time to determine whether it does and, if so, what it will mean for your bottom line.
What is Play or Pay Compliance
First things first: The ACA doesn’t require any employer to provide health insurance coverage to its employees. But “applicable large employers” — generally those employers, private and nonprofit, with the equivalent of 50 or more full-time employees — may be subject to a penalty if they don’t offer their full-time employees “minimum essential health care coverage” — or if they offer coverage that isn’t “affordable” or doesn’t provide “minimum value.”
A full-time employee is any employee working on average at least 30 hours per week. But part-timers must also be factored in by calculating full-time equivalent employees (FTEs).
Test whether you’re a large employer
To compute the number of FTEs for a given calendar month, count the total hours of service (not more than 120 hours for any employee) for all part-time employees and divide that number by 120. For example, an employer with 40 part-timers who average 90 hours per month would have 30 FTEs (40 × 90 = 3,600 total hours; 3,600/120 = 30) who must be included when determining whether the 50-full-time-employee threshold is satisfied.
You must determine each year, based on your employees’ actual hours of service, whether your organization will be considered a large employer for the coming year. Under transitional relief, you generally won’t be at risk for penalties in 2015 if you have the equivalent of 50 to 99 full-time employees.
Determine Whether Coverage is Sufficient
If you are a large employer, you need to assess whether you’re offering minimum essential coverage to at least 95% of your full-time employees. Some transitional relief is also available here: For 2015 only, the 95% requirement drops down to 70%.
Minimum essential coverage is provided by “eligible employer-sponsored plans.” These include plans offered in a state’s small or large group market as well as self-funded plans. But they don’t include certain limited-coverage plans, such as dental- or vision-only plans.
Even if you do offer the minimum essential coverage, you could be subject to penalties if the coverage:
- Isn’t affordable, or
- Doesn’t provide minimum value.
Generally, coverage isn’t affordable if an employee’s share of the self-only premium would cost more than 9.5% of his or her annual household income. You can assume an employee’s Form W-2 wages represent annual household income.
Minimum value requires that a health plan cover at least 60% of the covered health care expenses provided under the plan. The Centers for Medicare and Medicaid Services offers an online calculator to help you determine whether your nonprofit’s plan provides minimum value (http://www.cms.gov/site-search/search-results.html?q=minimum%20value%20calculator).
Calculate Potential Penalties
Large employers that don’t offer minimum essential health coverage will be subject to a penalty of $2,000 per year (assessed on a monthly basis) for each full-time employee in excess of 30 if any of their full-timers receive a premium tax credit when buying insurance through a state or federal health insurance marketplace. So, if a nonprofit has 100 full-time employees, the penalty would be $140,000 ($2,000 × 70).
Large employers that offer minimum essential coverage, but it’s unaffordable or it doesn’t provide minimum value, must — if at least one full-time employee receives the tax credit — annually pay the lesser of $3,000 for each full-timer receiving the credit or $2,000 for each full-timer in excess of 30 full-timers. Like the penalty for failing to provide minimum essential coverage, the penalty payment is calculated separately for each month, taking 1/12 of the annual amount.
Figure it All Out
The regulations surrounding play-or-pay are complicated. Your financial advisor can help you determine now whether your nonprofit will be considered a large employer and, if so, how best to proceed.