ACA laws by group size

Counting employees doesn't always add up

12 counting methods employers must know when sponsoring a health plan

MAY 06, 2016 | BY DAN BOND @ BENEFITS PRO

Employee counts are used to determine what laws, rules, fees and penalties apply to a health plan and/or the employer sponsor. But the methods for counting employees are as varied as the laws that affect them.This creates confusion and frustration among employers and can significantly hinder their compliance efforts.

To make sense out of all this, we have put together a synopsis of 12 counting methods that employers must utilize to properly administer their health plans. Read on to find out how to stay compliant as you move forward. 

Employers with at least 15 employees

Law or compliance requirement applied: 
Title VII of the Civil Rights Act, as amended by the Pregnancy Discrimination Act (PDA): Employers may not consider a person's race, color, sex (including sexual orientation), national origin, religion, or pregnancy in determining eligibility for, amount of, or charges for employee benefits. Denying coverage for a condition or treatment that disproportionately affects members of a protected group is also considered a violation of Title VII.

Americans with Disabilities Act (ADA): An employer may not deny an individual with a disability equal access to insurance, or require such an individual to have terms and conditions of insurance different than those of employees without disabilities. The ADA also applies to wellness and disease management programs.

Who to count: Employees working 20 or more calendar weeks in the current or preceding calendar year.

How to count: Count each full-time and part-time employee as one.

Consequences of noncompliance: The EEOC may bring an action in court, and individuals may file private lawsuits to correct violations and obtain appropriate legal or equitable relief (including attorney's fees and other costs).

Employers with at least 20 employees

Law or compliance requirement applied: 
Genetic Information Nondisclosure Act (GINA): Group health plans may not discriminate against individuals based on genetic information and may not use this information in underwriting or determining premiums or contributions. It also restricts questions that can be asked on a Health Risk Assessment (HRA) if an incentive is offered for its completion.

Age Discrimination in Employment Act (ADEA): Benefits provided to older workers (40 years and older) must be the same as those provided to younger workers in all respects, including payment options, types of benefits and amount of benefits (although certain exceptions may apply). 

Who to count: Employees working 20 or more calendar weeks in the current or preceding calendar year. 

How to count: Count each full-time and part-time employee as one. 

Consequences of noncompliance: The DOL may assess special penalties and the EEOC may bring an action in court against a plan sponsor for violations. Individuals may file private lawsuits to correct violations and obtain appropriate legal or equitable relief (including attorney's fees and other costs).


COBRA: COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates.  

Who to count: Employees (in all commonly-owned businesses) on more than 50 percent of the typical business days in the previous calendar year.

How to count: Count each full-time employee as one. Each part-time employee counts as a fraction, with the numerator equal to the number of hours worked by that employee and the denominator equal to the number of hours that must be worked on a typical business day in order to be considered full-time.

Consequences of noncompliance: COBRA compliance failures can result in excise taxes and statutory penalties. Qualified beneficiaries may also file private lawsuits to correct violations and obtain appropriate legal or equitable relief (including attorney's fees and other costs).

 
Medicare Secondary Payer (MSP) rules based on age: A group health plan is the primary payer and Medicare is the secondary payer for individuals age 65 or over if their group health coverage is by virtue of the individual's (or his/her spouse's) current employment status. 

Who to count: Employees on each working day in at least 20 weeks in either the current or the preceding calendar year. The 20-employee test must be run at the time the individual receives the services for which Medicare benefits are claimed.

How to count: Count each full-time and part-time employee as one.

Consequences of noncompliance: Medicare can collect any incorrect claim payments directly from the employer, regardless of whether the employer's plan is fully insured or self-insured.

Employers with at least 50 employees

Law or compliance requirement applied: 
Family and Medical Leave Act (FMLA): FMLA requires employers that sponsor group health plans to provide group health plan benefits to employees on an FMLA leave. Please note that public agencies and public and private schools are covered regardless of the number of employees.

Who to count: Employees working 20 or more weeks in the current or preceding calendar year within a 75 mile radius of the applicable work location.

How to count: Count each full-time and part-time employee as one.

Consequences of noncompliance: The EEOC may bring an action in court and individuals may file private lawsuits to correct violations and obtain appropriate legal or equitable relief (including attorney's fees and other costs).

Applicable Large Employers (ALEs)

Law or compliance requirement applied: 
Shared responsibility provisions of the Affordable Care Act (ACA): ALEs must offer minimum essential coverage that is "affordable and that provides "minimum value to their full-time employees, must report to the IRS information about the health care coverage, if any, they offered to full-time employees, and must provide a statement to employees.

Who to count: Full-time employees and full-time equivalent (FTE) employees in each month of the preceding year. Divide this number by 12, and if the result is 50 or greater, the employer is an ALE for the current year. 

How to count: Count full-time (30 or more hours per week determined on a monthly basis) and FTE employees as one. Aggregate part-time hours (no more than 120 hours per employee) and divide by 120 to determine FTEs. Special counting rules apply with respect to special situations, such as teachers, seasonal workers, etc.

Consequences of noncompliance: ALEs are subject to a penalty if one or more full-time employees are certified to the employer as having received an applicable premium tax credit or cost-sharing reduction, and either: 1) the employer fails to offer to its full-time employees (and their dependents) minimum essential coverage; or, 2) the employer's coverage is deemed to be unaffordable or does not provide minimum value (as defined by the ACA). Failure to file a return with the IRS or furnish a statement to employees can result in penalties up to $250 per return/statement, with a maximum penalty of $3 million.

Private employers with an average of at least 51 employees and nonfederal governmental employers with an average of at least 101 employees

Law or compliance requirement applied: 
Mental Health Parity and Addiction Equity Act (MHPAEA): Group health plans that provide mental health coverage must provide parity between medical/surgical benefits and mental health/substance use disorder benefits.

Who to count: Employees on business days during the preceding calendar year.

How to count: Count each full-time and part-time employee as one.

Consequences of noncompliance: Individuals and the DOL may use ERISA's civil enforcement provisions to file lawsuits to enforce the MHPAEA's requirements. In addition, noncompliance with the MHPAEA can trigger an IRS excise tax.

Employers with 100 or more employees

Law or compliance requirement applied: 
Medicare Secondary Payer (MSP) rules based on disability: A group health plan is the primary payer, and Medicare is the secondary payer for individuals under age 65 entitled to Medicare on the basis of a disability, if their group health coverage is by virtue of the individual's (or his/her spouse's) current employment status. 

Who to count: Employees on at least 50 percent of regular business days during the previous calendar year.

How to count: Count each full-time and part-time employee as one.

Consequences of noncompliance: Medicare can collect any incorrect claim payments directly from the employer, regardless of whether the employer's plan is fully insured or self-insured.

Welfare plans that cover at least 100 employees

Law or compliance requirement applied:
Form 5500: Employee benefit plans must file the Form 5500 reporting and disclosure document on an annual basis with the Department of Labor (DOL). Please note that the Form 5500 requirement applies to ERISA plans only.

Who to count: Employees enrolled in the plan at the beginning of the plan year.

How to count: Count each full-time and part-time employee as one.

Consequences of noncompliance: The penalty for failing to file a Form 5500 is $1,100 per day, which is cumulative from the filing deadline. Lesser penalties may be assessed for incomplete or otherwise deficient Form 5500s.

Employers that filed 250 or more W-2s 

Law or compliance requirement applied:
Reporting the cost of health benefits on W-2: The Affordable Care Act (ACA) requires employers to report the total cost of employer-provided health coverage on Form W-2.

What to count: W-2s filed with the IRS in the preceding calendar year.

How to count: W-2s for full-time and part-time employees count as one.

Consequences of noncompliance: Penalties for compliance failures range from $30 to $250 per form.

All self-insured medical plans

Law or compliance requirement applied:
Transitional reinsurance program fee: The ACA requires self-insured group health plans to make contributions to help stabilize premiums for coverage in the individual market during the years 2014 through 2016.

Who to count: Covered lives, which includes both employee and dependent lives.

How to count: The fee is calculated based on the average number of covered lives, which can be determined using one of the following four methods:

Actual Count: Add the total number of lives covered for each day of the first nine months of the calendar year and divide that total by the number of days in the first nine months.

Snapshot Count: Add the total number of lives covered on any date during the same corresponding month in each of the first three quarters of the calendar year, and divide that total by the number of dates on which a count was made.

Snapshot Factor: Use the Snapshot Count method, except the number of lives covered on a given date is calculated by adding the number of participants with self-only coverage to the product of the number of participants with coverage other than self-only coverage and a factor of 2.35. This method can be used to estimate the number of total lives included in coverage that is not self-only coverage.

Form 5500 Method: The number of participants as of the beginning and end of the plan year as reported on Form 5500 for the last applicable time period.

Consequences of noncompliance: As with any amount owed to the federal government, an unpaid/underpaid Reinsurance Program Fee will be subject to federal debt collection rules.


Patient-Centered Outcomes Research Institute (PCORI) fee: The PCORI fee supports the Patient-Centered Outcomes Research Trust Fund and will be imposed for each policy year ending on or after October 1, 2012 and before October 1, 2019.

Who to count: Covered lives, which includes both employee and dependent lives.

How to count: The fee is calculated based on the average number of covered lives, which can be determined using one of the following three methods:

Actual Count Method: Add the total lives covered for each day of the plan year and divide that total by the total number of days in the plan year.

Snapshot Method: Add the total number of lives covered on one date during the first, second or third month of each quarter, and divide that total by the number of dates on which a count was made.

Form 5500 Method: The number of participants as of the beginning and end of the plan year as reported on Form 5500 for the last applicable time period.

Consequences of noncompliance: As with any amount owed to the federal government, an unpaid/underpaid PCORI Fee will be subject to federal debt collection rules.

Want to know more about counting methods? You can learn more here