If your business employs more than 50 employees, you may need to provide health insurance coverage or pay a penalty. This article explores the basics of the ACA employer mandate.
The ACA requires employers to offer their full-time employees and dependents coverage that meets minimum value and affordability standards or face a penalty. The penalties are called Employer Shared Responsibility Provisions.
What Is The ACA?
On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (ACA), Obamacare. It is a comprehensive health insurance reform program. The ACA establishes state- or federally-run marketplaces to assist individuals and small businesses in purchasing private health insurance, expands Medicaid, lowers Medicare cost-sharing, prohibits lifetime benefit caps, and encourages innovation and new healthcare methods, among other things.
To comply with the ACA employer mandate, many of the nation’s largest employers must maintain accurate employee data and provide timely reports to their employees and the IRS. These reports require detailed information regarding census data, time and attendance, employee classifications, wage and benefit structures, contributions, and more. This data is often spread across multiple systems that need to be reconciled to achieve compliance with the ACA.
The ACA also introduces requirements related to what are known as “metal levels.” These metals refer to the percent of medical costs an insurance plan must cover based on actuarial calculations and are rated as bronze, silver, gold, or platinum. The ACA also mandates that all health plans include certain essential health benefits. These include doctor visits, emergency services, maternity and newborn care, prescription drugs, rehabilitation services, devices, mental health, and preventative care.
Who Is Subject to The ACA?
The “play or pay” regulations of the ACA’s employer mandate demand that major firms provide their workers with reasonably priced health insurance or face a fine. An employer is deemed an “applicable large employer” (ALE) for the ACA if it employs 50 full-time employees who put in at least 30 hours per week or their equivalents when part-time hours are included.
The ACA requires employers’ health coverage to meet certain minimum standards, including affordability and comprehensiveness. It must also be available to an employee’s dependents up through age 26. Dependents include biological children, stepchildren, adopted children, and foster children. Spouses do not count as dependents.
Those who work for companies that do not provide adequate health insurance are eligible to receive subsidies through the ACA’s marketplace/exchange to purchase individual coverage. The ACA also includes penalties for individuals not maintaining coverage throughout the year.
What Is The Penalty?
The ACA includes an employer mandate that requires large businesses to offer health coverage or pay a penalty. These requirements are sometimes called the “pay or play provisions” and can be costly for employers that don’t comply.
Generally, ALEs must provide minimum essential coverage (MEC) to at least 95% of their full-time employees and their dependents. If a business doesn’t offer health insurance, or if it offers only very expensive coverage, it can face penalties from the IRS. These penalties are based on how many full-time employees are enrolled in the marketplace/exchange and whether they receive premium tax credits (PTCs).
In addition to offering MEC, ALEs must ensure that their coverage is affordable and provides minimum value. Generally, this means that the employee’s share of the premium can be at most 9.12% of their income. The calculation is based on an employee’s lowest hourly rate multiplied by 130 hours (the number of hours required to be considered a full-time employee under the ACA).
For 2023, the section 4980H(a) penalty for ALEs that don’t offer coverage, do so with a plan that isn’t reasonable or doesn’t offer minimal value, and one or more of their employees sign up in exchange for subsidized coverage is $2,880 per full-time employee (less the first 30 employees). The precise fine, however, will vary depending on each organization’s unique circumstances.
How Does The Penalty Work?
The employer mandate, officially called the Employer Shared Responsibility Provision (ESRP) of the ACA, requires large businesses to offer affordable and comprehensive health insurance coverage to their full-time employees or face federal financial penalties. Generally, an employer is considered an ALE if it had 50 or more full-time equivalent (FTE) employees on any business day during the prior calendar year or is reasonably expected to have 50 or more FTEs in the current year.
An ALE must provide minimum essential coverage (MEC) with minimum value to at least 95% of its full-time employees and their families to avoid paying a fine. The MEC must also be affordable for most employees, which means that the employee’s share of the insurance cost must not be more than a certain portion of their family income.
While the ACA may seem complicated, help is available for business owners trying to stay compliant. Working with financial and legal professionals is a good way to understand the rules and regulations that apply to your situation. Also, using a software solution that helps track and report compliance data is an effective tool for keeping your records in order. This is especially important when monitoring census information, time and attendance, employment type, wage and rate information, and contribution structures.
