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A Primer: Definitions for understanding the Affordable Care Act

February 19, 2013

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ACTUARIAL VALUE: the percentage of total average costs for covered benefits (“Essential Health Benefits”) that a plan will cover.  The remainder, or “reciprocal” percentage, would be borne by the consumer.  A “quality” plan must have at least an Actuarial Value of 60% or higher (deemed “Minimal Value”).

AFFORDABLE: the contribution for an employee to participate in the lowest cost medical insurance plan option may not exceed 9.5% of an employee’s wages.  “Safe harbors” allow the use of employee income as opposed to “household” income and may be based on employee rate of pay or the Federal Poverty Level.

EXCHANGE: public exchanges, now called the “Marketplace”, are government run entities where individuals and employer groups of up to 99 employees may purchase quality and affordable health insurance plans from participating insurance companies.  For individuals, the Public Exchange is called the “American Health Benefits Exchange”, and, for small business, the “Small Business Health Options Program”, or, “SHOP”.  Each state has the option of establishing its own exchange, partnering with the federal government, or allowing for a fully federally facilitated exchange.  “Private” exchanges may also be created by various entities as an alternative source of insurance coverage.

ESSENTIAL HEALTH BENEFITS: health plans both in and out of the exchanges must provide “EHBs”, comprehensive medical and pharmacy coverage described in (at least) ten specific categories: 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).

FULL-TIME EMPLOYEE: employed, on average, 30 or more hours per week throughout a “measurement period”, most likely 12 consecutive calendar months.  Note: the measurement of a full-time employee is used to determine whether an employer is a “large group” and subject to potential penalties.  States such as Ohio and Kentucky have “small employer” eligibility provisions that require medical insurance to be offered to employees working, on average, at least 25 or more hours of service per week.

FULL-TIME EQUIVALENT EMPLOYEE: to determine a reportable count of employees for an employer, calculated by adding the total hours of service of those employees working less than 30 hours in a month and dividing by 120.  To be repeated each month for 12 consecutive months, with the aggregate sum divided by 12 for a monthly average.

HOURS OF SERVICE: used to calculate full-time employees and equivalents, each hour for which an employee is paid or entitled to payment, for work performed or not performed, which may include periods of vacation, holidays, illness, and jury duty.

LARGE GROUP EMPLOYER: an employer with 50 or more full-time and full-time equivalent employees, on average, during a “measurement period”.

MEASUREMENT PERIOD: or, “look back” for an employer, defined as not less than three but not more than 12 consecutive calendar months to determine if an employee worked, on average, 30 or more hours of service per week.  A “Standard” Measurement Period is defined similarly and is used to determine full-time status of an “Ongoing Employee”, as opposed to a “New Employee”.

SEASONAL WORKER: a worker that performs services on a seasonal basis, measured by no more than a four calendar month period.  A reasonable good faith interpretation of “seasonal” may be used by an employer.

SMALL GROUP EMPLOYER: an employer with less than 50 full-time and full-time equivalent employees, on average, during a measurement period.

STABILITY PERIOD: after an employee has been determined to be full-time, the period of time which an employee is to be offered coverage; generally, the same as the “measurement period”.  The “Administrative Period” will precede the stability period, thought of as the “waiting period” before which coverage becomes effective.  May not exceed 90 days under ACA.

VARIABLE HOUR EMPLOYEE: based on the facts and circumstances at an employee’s hire date, a new employee may be deemed a “variable hour employee” if it cannot be determined that the employee is reasonably expected to work, on average, 30 or more hours of service per week.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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