There are a handful of terms and acronyms that relate to the ACA that health insurance brokers need to understand as readily as they understand texting’s LOL! In some respects, the ACA has caused brokers to learn a new language.
ALE Pronounced as each letter – A-L-E or like the beer – ale
An ALE is an “applicable large employer.” To be an ALE, an employer must have 50 or more full-time and full-time equivalent employees based on the prior calendar year.
FTE
FTE refers to full-time equivalents. This can be a catch all term that would include full-time and full-time equivalent employees or it can be referring solely to full-time equivalent employees. It is important to understand how the term is being used, particularly when determining ALE status. FTEs are calculated by adding the number of hours of service for each employee each employee who was not a full-time employee during a month, up to a maximum of 120 hours and dividing by 120.
MV
MV stands for minimum value. Minimum value is a plan’s share of the “total allowed costs of benefits provided under the plan” and includes co-pays deductibles and out-of-pocket limits. An employer plan must meet or exceed 60% of such costs to be MV.
“A” Penalty — the Sledgehammer Penalty
The A penalty refers to the section of the Internal Revenue Code, Section 4980H(a), that addresses the employer shared responsibility requirements. The A penalty applies to ALEs that do not offer minimum essential coverage to full-time employees and their dependents. Whether an employer offers coverage that meets minimum value and is affordable is not relevant to the A penalty.
The A penalty is also called the sledgehammer penalty because the penalty is $2,000 times the number of full-time employees if at least one full-time employee receives a premium assistance tax credit.IRS Notice 2015-87 announced an increase in the A penalty to $2,080 in 2015 and $2,160 in 2016.
An employer is considered to offer coverage if coverage is offered to 95% of full-time employees (70% in 2015). The penalty assessment allows an employer to subtract the first 30 workers when calculating their tax liability.
This is a broad overview of the penalty. The IRS FAQs on employer shared responsibility can be found at https://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Liability .
“B” Penalty — the Tack Hammer Penalty
The B penalty refers to the section of the Internal Revenue Code, Section 4980H(b), which addresses the employer shared responsibility requirements. This is the tax that is assessed at $3,000 times the number of full-time employees who receive a tax credit from the marketplace as a result of their employer not offering coverage that is unaffordable or does not provide minimum value. IRS Notice 2015-87 announced an increase in the B penalty to $3,120 in 2015 and $3,240 in 2016.
Because this tax is expected to apply in fewer instances for an employer, if at all, it is also called the tack hammer penalty. As importantly, the assessment for the B penalty is capped at an employer’s potential tax under the A penalty.
This is a broad overview of the penalty. The IRS FAQs on employer shared responsibility can be found at https://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Liability .
MEC – Minimum Essential Coverage
MEC is a term that has multiple meanings depending on different provisions in the law. In several cases, MEC does not refer to the content or comprehensiveness of coverage.
The individual mandate requires that a person have MEC or face a penalty unless they qualify for an exception to the individual mandate. This coverage may be that purchased in the individual market, coverage through an employer or other coverage, including government sponsored programs such as Medicare or Medicaid.
Employers are required to offer MEC to meet the employer shared responsibility requirements under Section 4980H (a).
MEC plans refer to products that have been developed in response to the ACA. A MEC plan is generally a preventive services only plan. These plans are often self-funded. A MEC plan is not typically designed to meet the minimum value requirement. These plans are generally offered as part of an employer’s strategy to avoid the A penalty.
Revised 12/18/2015
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