Will Your Business Owe Penalties Under the Affordable Care Act?

The Affordable Care Act (ACA) is now subjecting large employers to the shared responsibility payments for not complying with the ACA. Under the law, employers with at least 100 full-time employees, or the part-time equivalent, must offer health insurance that meets the minimum value standards to their eligible employees, or be subject to penalties. Employers with 50 or more employees are subject to penalties beginning January 1, 2016.

Large employers will be penalized under the shared responsibility provisions if one of the following occurs:

1. An employer with 100 or more full-time employees does not offer affordable coverage to at least 70% of their full-time employees and dependents. According to the relevant guidelines, coverage under an employer-sponsored plan is deemed affordable if the employee’s required contribution for self-only coverage under the lowest-cost option does not exceed 9.5% of the employee’s household income.

Since employers generally do not know an employee’s total household income, the IRS has developed three “safe harbors” allowing employers to calculate the 9.5% threshold based upon an employee’s W-2 wages, an employee’s rate of pay, or the federal poverty line. Employers can use one of the safe harbors only if they offer minimum value coverage to employees.

2. An employer does not offer “adequate” coverage that meets the minimum value standards. An employer-sponsored plan provides minimum value if the plan’s share of the total allowed cost of benefits provided to an employee (the minimum value percentage) is at least 60%. This level of plan is generally referred to as a bronze level plan, and we recommend asking your health plan broker or carrier if your health plan is a bronze level or better.

3. One or more full-time employees receives a Premium Tax Credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called the Health Insurance Marketplace (Marketplace).

An applicable large employer will not be subject to a shared responsibility payment solely because one, some, or all of its employees purchase health insurance coverage through a Marketplace or enroll in Medicare or Medicaid. Rather, they will be subject to a fine if one or more employee obtains a Premium Tax Credit. In general, an employee will not be eligible for a Premium Tax Credit if the employer has offered that employee affordable health coverage that meets the minimum value standards.

What are the fines imposed on employers who fail to comply with the Affordability and Minimum Value Standards provisions?

If a large employer provides coverage to their applicable employees but the coverage fails to meet the minimum value requirements, the employer will be subject to a $3,000 penalty for each employee that obtains a Premium Tax Credit for health insurance in the Marketplace. A large employer will be subject to pay $2,000 for each applicable employee if they fail to offer any health insurance.

Employers should be prepared to:

  • Track hours of service of their employees
  • Determine whether they are large employers subject to the law
  • Identify which full-time employees can trigger a penalty
  • Understand the consequences of not offering basic overage to full-time employees
  • Consider whether to offer affordable, minimum value coverage
  • Evaluate eligibility for transition relief
  • Report required information to the IRS

The scope of these activities will likely require the engagement of a multi-disciplinary team drawing on internal and external resources. Do you have the proper team assembled to answer these questions for your company and effectively determine your approach to the Affordable Care Act? Contact the Professionals at James Moore, CPAs to initiate the consultation process for your company.

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 James Moore professional. James Moore 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.