As experts in ACA compliance, we understand the terms you need to know in order to comply with the ACA. Below we have curated the most important terms and definitions to help support your ACA compliance efforts under the ACA’s Employer Mandate. We’re here to help you navigate the ACA with confidence.

Applicable Large Employer (ALE): Applicable Large Employers are employers with 50 or more full-time employees and full-time equivalent employees. ALEs are required under the ACA to meet the requirements of the Employer Mandate.

 

Employer Mandate: The Employer Mandate is a component of the Affordable Care Act that requires Applicable Large Employers (ALEs), employers with 50 or more full-time employees and full-time equivalent employees, to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable or face IRS penalties under IRC Section 4980H.

 

Letter 226J: IRS Letter 226J is a penalty notice issued by the IRS to an Applicable Large Employer (ALE) that the IRS identifies as having failed to comply with the Employer Mandate and at least one of the ALE’s full-time employees received a Premium Tax Credit (PTC) from a state or federal health exchange.

 

Letter 5005A: Letter 5005A is a notice issued to an Applicable Large Employer (ALE) that the IRS identifies as having failed to file annual ACA forms 1094-C and 1095-C with the IRS and/or failed to furnish Form 1095-C to the applicable full-time employees under IRC Section 6056.

 

Notice CP220J: Notice CP220J is a letter from the IRS assessing an Employer Shared Responsibility Payment (ESRP). Notice CP220J is a notice an employer can’t turn back from, as this notice demands payment of the ESRP after evaluating the employer's response to an IRS Letter 226J and determining that the employer still owes the ESRP.

 

Letter 5699: This IRS notice is sent to employers as a precursor to ACA penalty assessments. Letter 5699 asks an employer to confirm the filing details specific to their operations, such as the Employer Identification Number and the date of filing. 

 

Premium Tax Credit (PTC): A Premium Tax Credit is a refundable tax credit designed to help individuals and their families with low or moderate income afford health insurance purchased through a state or federal health exchange. A Premium Tax Credit is also the trigger for the IRS issuing Letter 226J penalty assessments to employers.

 

Individual Mandate: The Federal Individual Mandate required every American citizen to be enrolled in coverage or be subject to a tax penalty. The penalty was zeroed out in January 2019, but several states have enacted their own state-level mandates requiring residents to obtain coverage or face a penalty, replacing the federal Individual Mandate.

 

Look-Back Measurement Method: The Look-Back Measurement Method is one of the two IRS-approved methods for determining ACA full-time status. The Look-Back Measurement Method allows employers to monitor and track their employees’ hours of service in a past period to determine whether they are full-time or not under the ACA for a later period. This informs employers on when to extend an offer of coverage to employees who are considered to be full-time under the ACA.

 

Monthly Measurement Method: The Monthly Measurement Method is the second of two IRS-approved methods for determining ACA full-time status.  Under this Method, for each month, an employee’s hours of service are tracked to determine the full-time status of that employee. This Method is commonly used for employers that have mainly salaried, full-time workforces. 

 

Minimum Essential Coverage (MEC): The term “Minimum Essential Coverage” is defined by examples to include certain government-sponsored programs, such as Medicare and Medicaid, eligible employer-sponsored plans, and plans in the federal and state exchanges.

 

Minimum Value: The IRS determines that a healthcare plan provides Minimum Value (MV) if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. Typically, the Summary of Benefits and Coverage will confirm whether a plan met MV or not.

 

Affordability: ACA affordability is calculated based on a cap of 9.5% of an individual’s annual household income. This 9.5% cap is adjusted annually. For 2020, the percentage rate is 9.78%.

 

1095-C: Form 1095-C summarizes the information regarding healthcare coverage offered to an ALE’s full-time employee and his/her dependents. These forms are filed with the IRS as well as furnished to full-time employees. 

 

1094-C: Form 1094-C summarizes an ALE’s 1095-C information returns as well as details pertaining to the organization such as EIN, address, point of contact, and certifications of eligibility regarding the health insurance offered for a particular year.

 

W-2 Safe Harbor: The W-2 Safe Harbor is a method for establishing ACA affordability that involves the use of an employee’s W-2 Box 1, gross income. The following formula is generally used: W-2 Box 1 Wages multiplied by the ceiling percentage for Affordability with an adjustment for partial year coverage.

 

Federal Poverty Level Safe Harbor (FPL): The Federal Poverty Line (FPL) Safe Harbor is a method for establishing ACA affordability that is based on annual household income, which is a function of the household size and is adjusted on an annual basis. In order to meet the FPL Safe Harbor for 2020, an employer must show that a full-time employee was offered self-only coverage that did not exceed the product of the FPL multiplied by 9.78% and then divided by 12 ($12,760 [for a household size of 1] x 9.78% / 12 = $103.99). 

 

Rate of Pay Safe Harbor: The Rate of Pay Safe Harbor is a method for establishing ACA affordability based on an employee’s hourly rate or monthly salaried rate or wages.

 

Penalty Risk Assessment (PRA): A Penalty Risk Assessment is a cost-free tool that reviews previous ACA submissions of Forms 1094-C and 1095-C to identify any potential ACA Employer Mandate penalty exposure. The Penalty Risk Assessment is an optimal place for employers who are new to complying with the ACA to start, as it can not only identify mistakes, but correct them moving forward.