Determining Whether You Are an ALE Under ACA
Answering whether your organization is an ALE (applicable large employer) under the ACA (Affordable Care Act) is not as obvious as it may sound. While it may be secondhand to some, others may have been avoiding this determination with the hope that the ACA would eventually be eliminated.
Regardless of the potential pending changes to the ACA, determining if your organization is an ALE for purposes of the ACA is extremely significant. Not complying with the many facets of the ACA requirements for large employers could not only cause an enormous administrative burden to rectify, but could also hurt your organization’s bank account with potential IRS financial penalties.
The ACA defines an ALE as one with 50 or more full time employees (including full time equivalent employees), on average, during the prior calendar year (i.e. An employer with an average of 54 full time employees in 2016 would be an ALE in 2017.) A full time employee by ACA rules is an employee who has, on average, at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month. A full time equivalent employee is a combination of employees, each of whom individually are not a full time employee, but in combination, are equivalent to a full time employee.
As an employer’s size can fluctuate from year to year, so can the ALE status and resulting requirements under the ACA. It’s important to note that companies with common ownership, also referred to as aggregated employers, could be combined for purposes of determining ALE status if certain criteria are met.
Ultimately, it is the employer’s responsibility to determine ALE status. However, the IRS has provided a website resource in order to assist with the determination, including information surrounding employer aggregation rules. In particular, they offer a tool through the Taxpayer Advocate Service whereby you can populate data on your organization including your number of full time employees, their hours of service, whether you are part of an aggregated group, etc., to decipher employer size under the ACA.
ALEs have to abide by a myriad of items under the ACA in order to stay in compliance, some of which include:
- Offer of Health Coverage –
- ALEs who fail to offer minimum essential coverage to substantially all full time employees and dependent children could be subject to the 4980H(a) penalty.
- ALEs who offer coverage which does not provide minimum value or is not considered affordable by ACA guidelines, could be subject to the 4980H(b) penalty. The ACA affordability percentage changes from year to year and will actually be decreasing from 9.69% in 2017 down to 9.56% in 2018.
- ACA Reporting (Sections 6055/6056) – ALEs must provide information to the IRS and their employees about the health plan coverage they do or do not offer. While this applies to ALEs, even small employers who offer level or self-funded medical coverage must comply with some aspects of this reporting requirement.
- Employee Tracking – Under ACA guidelines, eligibility becomes more complex as the measurement periods an employer has set forth come into play to determine when an offer of coverage can be made to an employee. Variable hour employees, for example, whose work hours may not be definitive upon hire, will need to have their hours tracked over a predetermined time period in order to conclude medical eligibility status. Employers are required to determine the length of their employee measurement periods, while abiding by the IRS guidelines, and track accordingly.
Small employers also have obligations under the ACA, albeit much less complex. A small employer under the ACA has fewer than 50 full time and full time equivalent employees, on average, during the prior calendar year.
Some of the similarities to ALEs include the requirement of the new hire waiting period for medical benefits not exceeding 90 days , as well as the obligation for employers to provide the Health Insurance Exchange Notice to new hires.
While there are exceptions to the rule given insurance carrier and state guidelines, small employer health coverage options generally differ from ALEs, with medical plans falling into metallic tiers: Platinum, Gold, Silver and Bronze. These plans must cover a set of core services, referred to as Essential Health Benefits. Although, arguably more significant of a difference, is how the rating works for small employers in comparison to ALEs. Again, while it can vary, small employers generally have age banded medical rates rather than composite/tiered rates. With age banded rates, the rates are based on the age of the employee plus adding the applicable rate for the ages of any covered dependents. The older the individual, the more expensive the premium. Conversely, many employers with young staff benefited from the change of composite/tiered rates to age banded rates. Depending on the carrier, the rates can also be higher for tobacco users versus non-tobacco users.
Overall, as overwhelming as the ACA may seem, it is essential that an organization understand whether they are a small or large employer in order to effectively navigate the complex world of the ACA.