Even though penalties for failure to comply with ACA coverage requirements have been in force since January 1, 2014 for employers with 100 or more full-time equivalent employees and January 1, 2015 for employers with 50-99 full-time equivalent employees, there is still a good deal of confusion surrounding the employer mandate.
Employer Coverage Requirements
Employers with 50 or more full-time equivalent employees, referred to as Applicable Large Employers (ALEs), are required to offer full-time employees and their dependents a minimum level of health insurance coverage at an affordable price. ACA contains special definitions of full-time and full-time equivalent employees as well as what satisfies minimum value coverage and how much an employee can be charged for coverage and still pass the affordability test. Qualifying coverage under ACA rules is called Minimum Essential Coverage.
What happens if an Applicable Large Employer does not meet ACA coverage and affordability requirements?
There are two penalties:
- If an employer does not offer Minimum Essential Coverage to at least 95% of its full-time employees, the penalty is $2,000 ($2,160 in 2016) per full-time employee. All full-time employees of the ALE are included in calculating the penalty.
- If an employer offers coverage which is either not affordable or does not provide minimum value, the penalty is $3,000 ($3,240 in 2016) for each full-time employee:
- who is not offered ACA-compliant coverage from the employer;
- who purchases a qualified health plan on the Marketplace, and
- who receives a premium tax credit (e.g., receives Marketplace coverage at a reduced cost). Premium subsidies are calculated based on individual household income under federal poverty guidelines which are updated each year.
Although the rules seem straightforward, there continues to be confusion on their application. For example, even if an employer offers Minimum Essential Coverage to 95% of its full-time employees, so that it is exempt from the $2,000 per full-time employee penalty, the employer still has exposure to the $3,000 penalty if one or more of the remaining 5% of its full-time workforce receives a premium tax credit for purchasing health insurance on the Marketplace. Some employers may assume this risk depending on the number, age and salary level of full-time employees who are not offered ACA coverage. In addition, a full-time employee who does not receive an offer of Minimum Essential Coverage must receive IRS Form 1095C, which is also filed with the IRS. IRS Form 1095C will indicate that the employee was full-time but did not receive an offer of ACA-compliant coverage. Employees who do receive an offer of ACA-compliant coverage are not eligible for a premium tax credit on the Health Insurance Marketplace.