Affordable Care Act:

Glossary of Common Terms

August2014

Prepared for:

“A” Penalty / A nondeductible excise tax of $2000 multiplied by all Full-Time Employees (less 30) that is imposed on a Large Employer that does not offer Minimum Essential Coverage to at least 95% of its Full-Time Employees (and their Dependents) if at least one of its Full-Time Employees purchases health care coverage on an Exchange and is certified to receive a Premium Tax Credit. This is referred to as the “A” Penalty because it is imposed under Internal Revenue Code section 4980H(a).
“B” Penalty / A nondeductible excise tax of $3000 multiplied by the number of Full-Time Employees of a Large Employer who purchase health care coverage on an Exchange and are certified to receive a Premium Tax Credit generally because the employer failed to offer a Full-Time Employee coverage that was Affordable or that satisfied the Minimum Value requirement. This is referred to as the “B” Penalty because it is imposed under Internal Revenue Code section 4980H(b).
ACA / Acronym for the Patient Protection and Affordable Care Act, also known as the Affordable Care Act, which was enacted March 23, 2010. It is intended to expand health care coverage for all Americans and help lower the overall cost of health care in the US.
Administrative Period / If a Large Employer utilizes the Measurement Period, this is the optional period of no longer than 90 days beginning immediately following the Look-Back Measurement Period and ending immediately before the start of the Stability Period.
Affordable / An employer-sponsored health care plan is considered “Affordable” for an employee and related individuals if the employee’s portion of the premium (the employee’s contribution toward the purchase of) self-only coverage is no more than 9.5% of the employee’s Household Income. In 2015, coverage is considered “Affordable” if the employee’s portion of the premium is no more than 9.56% of Household Income.
Under the Individual Mandate, coverage is considered not Affordable if it exceeds 8% of Household Income.
Control Group / A group of two or more businesses that are under common control or the requisite level of common ownership and therefore will be considered a single employer under Internal Revenue Code section 414 for purposes of determining whether all of the businesses are Large Employers.
Control Group Member / A business or company that is within, or apart of, a Control Group. A business or company may be a Control Group member if it is owned by another business or company. For example, if company A owns 80% of company B, then Company A and Company B will be in a “Control Group.” Company A and Company B are Control Group Members.
Covered Lives / The number of actual participants (employees, spouses, dependents, etc.) that are entitled to benefits under a group health plan or insured under a health insurance contract. This term is used in the context of calculating the PCORI Fee or the Transitional Reinsurance Fee.
Dependent / A child (including a biological child, step-child, or foster child) of an employee who has not attained age 26.
DOL / The United States Department of Labor, which is the federal agency responsible for issuing rules and regulations and enforcing federal employment and employee benefit laws, including portions of the ACA.
DOL Notice / The notice that employers, including many small employers, must provide to each new employee no later than 14 days after date of hire (regardless of the employee’s health plan enrollment status or of part-time or full-time status) that provides specified information about the Exchanges, access to the Premium Tax Credit, and terms of the employer-provided health plan.
Employer / The business or entity that under Internal Revenue Service standards is the common-law employer that directs and controls the employment terms (including the authority to hire and fire) and typically is the party that issues Forms W-2.
Employer Mandate / Refers to the ACA provisions that give a Large Employer the choice to either provide Minimum Essential Coverage to Full-Time Employees or potentially pay the “A” Penalty or the “B” Penalty. Employer Mandate is also sometimes referred to as the “Shared Responsibility” provision or the “Pay or Play” rules.
Essential Health Benefits / The ten categories of benefits that must be covered by qualified health plans offered through the Exchanges and small group market plans, which are: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.
Exchange / A “marketplace” for the sale and purchase of private health insurance that is established for each state for its residents or established by the federal government if the state opts not to establish its own Exchange.
Federal Poverty Level or Federal Poverty Line / The annual dollar amount published by Health and Human Services. For 2014, the Federal Poverty Level in the lower 48 states and District of Columbia for a family of four is $23,850. See for the Federal Poverty Limit calculations.
Full-Time Employee / An employee who actually works (or is entitled to compensation) for an average of 30 hours of paid service per week over the course of a month or at least 130 hours per calendar month.
Full-Time Equivalents / For purposes of determining whether the Controlled Group is a Large Employer, the product of all Part-Time Employees’ Hours of Service per month divided by 120.
Health and Human Services or HHS / The federal agency with jurisdiction over public health laws (e.g., Medicare) including certain provisions of the ACA. For example, HHS is the agency responsible for establishing the rules for Exchanges.
Hours of Service / Generally, an hour for which an employee is paid, or entitled to payment, for the performance of service for an employer, which includes hours for which no duties are performed but the employee is entitled to pay (such as jury duty or paid time off). This does not, however, include services performed outside of the United States that would not be treated as “US-source income” under Internal Revenue Code standards.
Household Income / The total income of individuals in a household, which is used to measure eligibility for premium tax credits and the affordability of employer-provided health plan coverage for individuals in the household. Employers may use rate of pay, the annual W-2 wages, or the federal poverty limit as a “safe harbor” measure of household income when determining whether an offer of coverage is affordable.
Individual Mandate / The requirement that US persons (with certain exceptions) maintain health coverage that constitutes Minimum Essential Coverage for themselves and their family members or pay a “penalty” tax on their IRS Forms 1040 unless coverage is not Affordable.
IRS / The Internal Revenue Service, a bureau of the US Department of the Treasury, which is responsible for writing rules and regulations, collecting and enforcing US federal income, employment and excise taxes, including taxes and other fees under the ACA.
Large employer / Any group of businesses that are jointly owned and treated as a “controlled group” for tax purposes and that, in the aggregate, have 50 or more full time equivalent employees (100 in 2015).
Look-back Measurement Method
(also referred to as the Initial Measurement Period) / A period of no less than 3 and no more than 12 months that may be utilized by a Large Employer to calculate the average hours worked by new hires whose hours are not expected to exceed 30 hours per week in order to determine whether the new hires are to be treated as Full-Time Employees during a Stability Period.
Measurement Period / Period of no less than 3 and not more than 12 months in which an employee’s average hours of service are calculated for purposes of determining whether the employee is a Full-Time Employee for a Stability Period; there are two types of Measurement Periods: a Standard Measurement Period that applies to all Ongoing Employees and a Look-Back Measurement Period that applies to all new hires whose hours are not expected to exceed 30 hours per week (or whose hours are variable and uncertain).
MetallicLevel Plans / The designation of bronze, silver, gold, and platinum that is given to an insurance contract sold in an Exchange and that corresponds to the actuarial level of benefits provided by the contract, with the bronze being the lowest and platinum the highest.
Minimum Essential Coverage (MEC) / The type of health coverage that all individuals must maintain for themselves and their families under the Individual Mandate, which includes employer-provided health coverage, insurance purchased in an Exchange, Medicare, Medicaid and other governmental coverage.
Minimum Value / The level of benefits paid by a group health plan that satisfies an actuarial value of at least 60 percent measured based on the Essential Health Benefits and the anticipated spending of a standard population of employees; HHS has published standards for determining Minimum Value, including a calculator that determines Minimum Value for a group health plan provided by an employer.
Ongoing Employee / An individual who has been employed by a Large Employer for at least one Standard Measurement Period.
Part-Time Employee / An employee who averages less than 30 hoursper week or 130 hours per month.
Patient Protection and Affordable Care Act / The law enacted March 23, 2010, which is also known as the Affordable Care Act or the ACA, that is in intended to expand health care coverage for all Americans and help lower the overall cost of health care in the US.
Pay or Play / This phrase generically refers to a Large Employer’s obligation to either offer Minimum Essential Coverage to Full-Time Employees (and their children) or potentially pay an excise tax as described under the Shared Responsibility provisions and the “A” Penalty and the “B” Penalty.
PCORI Fee or Patient Centered Outcomes Research Institute Fee / A fee that is initially $1 and then increases to $2 per Covered Life in a group health plan or under an insurance contract that finances the Patient-Centered Outcomes Research Institute and is first payable on July 31, 2013 either by the health insurance issuer or Employer who sponsors the group health plan.
Premium Tax Credit or PTC / Thefederal tax credit through which the federal government pays premiums directly to an insurance company (or provides a tax refund to individuals) for individuals who have a Household Income that does not exceed 400% of the Federal Poverty Level and who purchase health insurance through an Exchange if they do not have access to Affordable and Minimum Value coverage from an Employer or access to other governmental coverage (e.g., Medicare and Medicaid).
Rate of Pay Safe Harbor / An IRS rule that allows a Large Employer to treat Minimum Essential Coverage as Affordable as long as the employee-only premium does not exceed 9.5% of an amount equal to 130 multiplied by the employee’s hourly rate of pay as of the first day of the employee’s coverage period. (For salaried employees monthly salary is used instead of hourly rate of pay.)
Seasonal Employee / An employee who, based on the facts and circumstances, has Hours of Service only on a seasonal basis, including retail workers employed exclusively during holiday seasons.
Shared Responsibility / A reference to the Employer Mandate or Pay or Play for Large Employers under which they may be obligated to either provided Minimum Essential Coverage to Full-Time Employees or potentially pay the “A” Penalty or the “B” Penalty.
SHOP Exchange / The Small Business Health Option Program Exchange through which certain small businesses may give their employees options to purchase insurance.
Stability Period / The period of time, which must be at least 6 months and cannot be shorter than a Measurement Period, during which an employee is treated as either a Full-Time Employee or a Part-Time Employee for purposes of determining a Large Employer’s liability for the “A” Penalty or the “B” Penalty.
Standard Measurement Period / A period of up to 12 months during which the Hours of Service of Ongoing Employees are averaged to determine if they are Full-Time Employees for the subsequent Stability Period.
Transitional Reinsurance Fee / A fee imposed on each Covered Life in an employer group health plan that provides “major medical coverage,” which is administered by HHS and used to fund “reinsurance” payments to Exchanges to stabilize insurance premiums nationally. The fee is $63 per Covered Life for 2014; $44 per Covered Life for 2015.
Variable-Hour Employee / An employee whose hours of service cannot be reasonably determined to be at least an average of 30 hours of service a week per month.
W-2 Safe Harbor / An IRS rule that allows a Large Employer to treat Minimum Essential Coverage as Affordable as long as the employee-only premium amount does not exceed 9.5% of an employee’s W-2 income.

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