NEWSROOM

The start of the new year brings renewed annual compliance responsibility for employers regarding their health plans, the Affordable Care Act (ACA), and COBRA. Staying informed and proactive in these areas is critical to avoid penalties and ensure compliance. Benefits advisors and insurance brokers play a vital role in helping employers navigate these annual complexities.
 
ACA Compliance: Determining “Applicable Large Employer” (ALE) Status
Near the start of each calendar year, employers must determine their status as an “Applicable Large Employer” (ALE) under the ACA. The employer’s ALE status affects obligations under the employer mandate and IRS reporting requirements.
 
ALE Responsibilities
ALEs are required to comply with the ACA’s employer mandate by offering full-time employees affordable Minimum Essential Coverage (MEC) that meets minimum value, covering at least 60% of expected costs. They are also required to extend MEC to the dependent children of full-time employees up to age 26 and complete annual IRS reporting to document compliance for each year they hold ALE status.
 
How to Determine ALE Status
ALE status is determined annually, typically on or around January 1, based on the average size of the employer’s workforce during all 12 months of the preceding calendar year. This process involves calculating both full-time employees and Full-Time Equivalents (FTEs), which represent the combined hours of part-time employees equating to one or more full-time employees.
 
Steps for Determining 2025 ALE Status

1. Count Full-Time Employees for Each Month of 2025

• ​Total the hours worked by part-time employees each month (up to a maximum of 120 hours per part-time employee, even if they worked more). Divide this total by 120 to determine the FTE count.

2. Calculate Full-Time Equivalents (FTEs) for Each Month of 2024

• Total the hours worked by part-time employees each month (up to a maximum of 120 hours per part-time employee, even if they worked more). Divide this total by 120 to determine the FTE count.

3. Average the Monthly Totals Across 2024

• Combine the counts of full-time employees and FTEs for each month, then calculate the average for all 12 months of the year.

If the average workforce equals or exceeds 50 full-time employees + FTEs, the employer qualifies as an ALE for all of 2025. If the average workforce is below this threshold, the employer is not an ALE and is exempt from the ACA’s federal employer mandate for 2025.

• Form 1095-C: Delivered to all full-time employees employed for at least one full calendar month of 2024 by March 3, 2025, this form:
  • Summarizes the health insurance coverage offered, including the type of coverage, months it was available, and the employee’s cost of the lowest-priced self-only premium.
  • For self-funded and level-funded plans, it includes additional details on coverage elected by employees and their family members. Fully insured plans are exempt from this reporting as carriers complete similar reporting separately.
• Forms 1094-C and 1095-C: Filed electronically with the IRS by March 31, 2025, these forms document the employer’s compliance:
  • Form 1094-C: Serves as a transmittal form summarizing the accompanying Forms 1095-C. It provides the IRS a high-level overview of the employer’s coverage offerings.
  • Form 1095-C: Filed for each full-time employee, this form includes detailed information about the health coverage provided throughout the reporting year.
• Important Caveat for Non-ALEs with Self-Funded or Level-Funded Plans
  • ​​While ALEs are the primary entities subject to the ACA’s employer mandate and related reporting, non-ALE employers with self-funded or level-funded benefits also have reporting obligations under ACA rules. These employers must file Forms 1094-B and 1095-B to report coverage details for enforcement of the ACA’s individual mandate.
• Individual Mandate Context: Although the federal penalty for failing to maintain minimum essential coverage under the ACA’s individual mandate has been reduced to $0, reporting remains required to track compliance with the mandate.
• Scope: This obligation applies only to non-ALEs with self-funded or level-funded plans. Fully insured plans are exempt, as carriers handle reporting responsibilities.
• Under COBRA, part-time employee hours are totaled and divided by the number of hours the employer defines as full time (e.g., 40 hours per week).
• In contrast, the ACA caps part-time hours at 120 per month and divides the total by 120 to calculate Full-Time Equivalents (FTEs).
• California: Employers with fewer than 20 employees based on this calculation must comply with Cal-COBRA, provided their California plans are fully insured. Self-funded and level-funded plans are exempt from Cal-COBRA.
• Nevada: Employers with fewer than 20 employees are not subject to federal COBRA or a state-level mini-COBRA law, as Nevada does not have one. Most states do not have mini-COBRA laws.
•  ALE status is fixed for the entire year, regardless of fluctuations in workforce size during the calendar year. Accurate calculations are essential, as errors can result in noncompliance penalties.
   
  Helpful Resources
  Word & Brown offers a range of tools to assist with ALE determination, including an ACA Group Size Calculator, Full-Time Equivalent (FTE) Calculator, and additional employee count resources available on the WBCompliance Wiki.

  
  ACA Employer Mandate Compliance: Reporting Obligations in 2025

  Employers classified as ALEs in 2024 are required to fulfill their reporting obligations for that year. This includes submitting reports to the IRS and providing detailed forms to full-time employees, documenting compliance with the ACA’s employer mandate. These reports cover the health insurance coverage offered, affordability calculations, and other required data.
   
  What’s Required? Stay Prepared
  Word & Brown will host its annual ACA Reporting Series in January and February 2025 to assist brokers and their ALE clients in navigating these requirements. This series will provide essential insights and perspective to help ALEs better understand their macro reporting obligations.

  
  COBRA Group Size Determination

  Employers sponsoring group health plans must annually evaluate their workforce size using a distinct calculation to determine COBRA compliance responsibilities. This determination is typically made on or around January 1.
   
  While the process for calculating COBRA group size is conceptually similar to the ACA’s ALE determination, there are important differences in how part-time employees are factored in: Federal COBRA
  Employers sponsoring health plans with 20 or more employees – this includes full-time employees and part-time employees as fractions – on at least 50% of working days in 2024 must comply with federal COBRA in 2025. Federal COBRA applies to both fully insured and self-funded plans.
   
  State-Specific Mini COBRA Accurate Calculations
  Employers must count both full-time and part-time employees when determining COBRA group size. For part-time employees, the total hours worked are divided by the employer’s definition of full time to calculate fractional employees.
   
  Notify Carriers and TPAs
  Any changes to an employer’s COBRA status must be promptly communicated to insurance carriers and third-party administrators to ensure accurate and compliant administration of continuation coverage.

  
  Controlled Groups and Compliance

  Employers with shared ownership structures may be part of a “controlled group” under IRS rules. This impacts both ACA and COBRA obligations by requiring the combined workforce of all related entities to be considered in calculations. Determining controlled group status involves complex tax regulations. Employers should work with tax professionals to ensure compliance.

  
  California’s Individual Mandate

  California’s individual mandate remains in effect for 2025. Residents must maintain qualifying coverage (MEC), claim an exemption, or face a penalty when filing state taxes.
   
  While other states like Nevada do not impose a similar mandate, California employers should educate their workforce about this requirement to avoid penalties.
   
  Health plans – including employers with self-funded arrangements – must report the coverage elected and maintained by Californians to the California Franchise Tax Board for enforcement of this California Individual Mandate. These are facilitated by IRS Forms 1094 and 1095.
   
  Most states do not have individual insurance mandates. Currently, the only individual mandates in the Unted States are in California, D.C., Massachusetts, New Jersey, Rhode Island, and Vermont.
  To help Californians understand potential non-compliance penalty exposure, the state has released a comprehensive online calculator.

  
  Word & Brown: Your Compliance Partner

  As the health insurance landscape continues to evolve, Word & Brown remains committed to supporting brokers and their employer clients with comprehensive tools, resources, and expertise. Together, we can help you achieve your employer clients’ compliance goals, while helping them obtain the highest-quality group health plans for their employees and experiencing best-in-class service.