9.2 Qualified Health Plans and the ACA

9.2 Qualified Health Plans and the ACA

The AICPA REG blueprint (Area II, Group D) asks candidates to summarize the federal laws and regulations for qualified health care plans, including required business mandates and premium tax credits, and to identify compliance issues in a given scenario. The named Blueprint reference is the Patient Protection and Affordable Care Act (ACA). Employment-tax mechanics sit in /study-guides/cpa-reg/employment-and-classification/employment-taxes; worker classification, which can change who is a full-time employee for the 50-employee test, is in /study-guides/cpa-reg/employment-and-classification/worker-classification. This section is the health-coverage overlay.

REG-typical questions do not turn on a memorized federal-poverty-line percentage or an indexed employer-penalty dollar. Those figures move by statute and inflation adjustments. Teach the structure: who is an ALE, what the employer must offer, who can claim a premium tax credit, and which Form 1095 reports which fact.

Qualified health plans

A qualified health plan (QHP) is a health plan that is certified by a Health Insurance Exchange (Marketplace), provides essential health benefits, and complies with ACA market reforms — guaranteed issue, no preexisting-condition exclusions, and the other individual- and small-group rules the Act imposes. Individuals and families who want the premium tax credit must enroll in a QHP through the Marketplace. An employer-sponsored group plan can be minimum essential coverage without being a Marketplace QHP. Mixing those labels is a common REG miss: the credit is a Marketplace device; the employer mandate is an ALE device.

Minimum essential coverage (MEC) is the Code's umbrella: eligible employer-sponsored coverage, Medicare, Medicaid, CHIP, TRICARE, certain VA coverage, and individual coverage including a QHP. Minimum value is a narrower employer-plan test: the plan's share of allowed costs of benefits provided is at least the statutory 60 percent. Affordability, for employer-mandate and premium-tax-credit purposes, compares the employee's required contribution for the lowest-cost self-only coverage that provides minimum value with an IRS-published percentage of household income. That percentage is indexed. Remember the comparison (employee share of self-only MV coverage versus household income), not this year's percentage.

Applicable large employer and the shared-responsibility rules

An applicable large employer (ALE) is an employer that employed an average of 50 or more full-time employees, including full-time equivalent employees (FTEs), during the preceding calendar year. Related employers under the controlled-group and affiliated-service-group rules are aggregated, so a cluster of small entities with a common owner can be an ALE even if no single EIN has 50 people.

• Full-time for this statute means an employee who averages at least 30 hours of service per week, or 130 hours in a calendar month.
• FTEs convert non-full-time hours: for each month, add the hours of service of employees who were not full-time (generally capped at 120 hours per person) and divide by 120. Average those monthly FTE figures over the year and add them to the full-time count. Fractions count; there is no rounding away from 50.

Preceding year controls current-year status. Crossing 50 during this year does not make the employer an ALE this year. It sets up ALE status for next year if the annual average holds. A seasonal-worker exception can keep some employers under the line; REG will give you the facts if that exception is in play. Do not invent it.

IRC §4980H is the employer shared-responsibility regime. It applies to ALEs, not to every employer that offers health insurance.

• §4980H(a) (no-offer / "sledgehammer"). If the ALE fails to offer MEC to at least 95 percent of its full-time employees (and their dependents) and at least one full-time employee obtains a Marketplace QHP with a premium tax credit, an assessable payment can apply, computed from the full-time count (minus a statutory reduction in the headcount used for that formula).
• §4980H(b) (offer that is unaffordable or lacks minimum value / "tackhammer"). If the ALE offers MEC but the offer is not affordable or does not provide minimum value, and a particular full-time employee obtains a Marketplace QHP with a premium tax credit, a smaller per-employee payment can apply for that employee.

The payment amounts are indexed. REG will not require last year's Federal Register figure. It will require you to know which failure you are in (no offer versus unaffordable / no-MV offer), who is counted (full-time employees, not part-time FTEs, for the penalty base), and that a credit-eligible Marketplace enrollment by a full-time employee is the usual trigger. Dependents for the offer rule means children under 26 in the ACA sense; spousal coverage is not what the 95 percent offer test is built on.

An employer that is not an ALE has no §4980H assessable payment. It may still have employment-tax and ERISA duties, and its employees may still claim a premium tax credit if they buy through the Marketplace and the other tests are met.

Premium tax credit — the individual side

The premium tax credit (IRC §36B) is a refundable credit that subsidizes QHP premiums purchased through a Marketplace. It is not a credit the employer claims on Form 941. Eligibility, at a REG-typical level, has a structure:

1. The taxpayer enrolls in a qualified health plan through an Exchange for the months at issue.
2. Household income falls in the statute's income band measured against the federal poverty line. Historically that band ran from 100 percent of FPL to 400 percent of FPL; later legislation has adjusted the applicable-percentage table and the upper cliff. Do not invent a current poverty-line percentage. The tested idea is: income is compared with FPL, the applicable percentage of income is the expected family contribution, and the credit is the premium for the benchmark (second-lowest-cost silver) plan minus that contribution.
3. The taxpayer is not eligible for other MEC that bars the credit — in particular, an offer of affordable employer-sponsored coverage that provides minimum value (the employer-coverage firewall), Medicare, Medicaid, or similar coverage.
4. Filing-status and lawful-presence rules apply (for example, a taxpayer who can be claimed as a dependent does not claim the credit).

Advance payments of the credit go to the insurer based on Exchange estimates; Form 8962 on the Form 1040 reconciles the advance against the actual credit. Excess advances are repaid, subject to statutory caps that themselves can change. REG cares that reconciliation exists, not about this year's repayment cap.

The federal individual shared-responsibility payment (the old individual-mandate penalty) is $0 for months after 2018 under the Tax Cuts and Jobs Act. Some states impose their own individual-coverage requirements. Do not treat a federal dollar penalty on the individual as if it were still the REG hook; the live individual-side item is the premium tax credit, and the live employer-side item is §4980H.

Distinguishing the two regimes

An employee of a non-ALE who buys a Marketplace plan may still qualify for the credit if the income-band and other-MEC tests are met. An employee of an ALE who is offered affordable MV coverage generally cannot take the credit even if the employee declines the employer plan and goes to the Marketplace. That firewall is why ALE offer reporting on Form 1095-C matters to the individual's Form 8962.

Form 1095 reporting at a high level

Three information returns, three jobs:

• Form 1095-A, Health Insurance Marketplace Statement. Issued by the Exchange to a person who enrolled in a Marketplace QHP. It reports enrollment months, premiums, the benchmark premium, and advance credit payments. The individual uses it to complete Form 8962. Employers do not file 1095-A.
• Form 1095-B, Health Coverage. Filed by insurers and some coverage providers to report actual MEC. Self-insured non-ALEs and some governmental and insurer filers still use this series when required.
• Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, with transmittal Form 1094-C. Filed by ALEs for each full-time employee. It reports, month by month, whether MEC was offered, to whom (employee, spouse, dependents), and using indicator codes, whether the offer was affordable / provided minimum value, and whether a safe harbor applies. A self-insured ALE also reports actual coverage on 1095-C.

Furnishing and filing deadlines are set in the Code and IRS guidance and have used automatic extensions in recent years. REG will not make the score turn on a particular March transmittal date. It will make the score turn on which form matches which actor.

Worked scenario: 48 FTE company adding two full-time hires

Facts. Northshore Staffing's preceding calendar year looks like this: 40 employees averaged at least 30 hours per week (full-time). Non-full-time employees' hours converted to 8 FTEs under the monthly hours-divided-by-120 method. Combined average: 48 full-time plus FTE. In January of the current year Northshore hires two additional full-time employees and, for every remaining month, employs 42 full-time workers plus the same 8 FTE from part-time hours. Northshore has never offered health coverage. One of the new hires, Riley, enrolls in a Marketplace silver QHP and, based on household income, would otherwise qualify for a premium tax credit. Northshore asks whether it is an ALE this year, whether §4980H can apply this year, and what happens next year.

Analysis.

1. ALE status this year uses last year. Last year's average was 48, which is below 50. Northshore is not an ALE for the current calendar year. Section 4980H does not apply this year, even though January headcount already looks like 50.
2. This year's average. Forty-two full-time plus 8 FTE is 50. If that average holds for the current year, Northshore becomes an ALE for the following calendar year. The two January full-time hires are what pushed the combined count to the line.
3. Riley's premium tax credit this year. Because Northshore is not an ALE this year and offers no coverage, there is no employer-coverage firewall from a §4980H offer. Riley's credit turns on Marketplace enrollment, the income-band test, and other MEC — not on Northshore's current-year headcount.
4. Next year. If Northshore is an ALE, it must offer MEC that is affordable and provides minimum value to full-time employees (and dependents), or face a potential §4980H assessable payment if a full-time employee obtains a Marketplace QHP and a premium tax credit. It must also file Forms 1094-C and 1095-C. Part-time FTEs count toward the 50-employee status test; they are not the employees to whom the 95 percent offer must be made.
5. Trap. Do not treat "we now have 50 people in January" as instant ALE status, and do not invent a penalty dollar. Status is a preceding-year average; the payment, if any, is an indexed amount applied to the correct (a) or (b) formula.

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