The Affordable Care Act encourages employers to provide health insurance to their employees. This encouragement comes in the form of mandated payments to the government when affordable insurance at a certain minimum level of coverage is not provided. This feature of the ACA is known as “Employer Shared Responsibility” or the “Employer Mandate.”
Employers with fewer than 50 employees are exempt from the shared responsibility requirement. Those with 50 or more, however, referred to in the law as Applicable Large Employers (ALE), are subject to the mandated payments. There are three requirements an ALE must meet to avoid a penalty under the shared responsibility provisions.
First, an ALE must offer health insurance to at least 95 percent of its workers and their dependent children. If it does not, it may be required to pay a penalty of $180 times the number of employees for each month that insurance is not offered. The penalty is assessed if at least one employee received a premium tax credit when purchasing insurance in the federal or a state Marketplace.
Simply offering insurance, however, does not get an ALE off the shared responsibility hook. The second requirement is that the offered insurance must provide a “minimum value.” If it does not, the employer is once again liable for a penalty if at least one employee receives a premium tax credit. To meet the minimum value standard, the health plan must pay for at least 60 percent of the total cost of medical services for a standard population and must include coverage for inpatient hospital and physician services.
The third requirement relates to the relative cost of insurance to employees; this is the “affordable” mandate. The cost of the lowest-priced plan (with minimum value) must not exceed 9.66 percent of an employee’s household income. Once again, if an employee seeks insurance through the federal or a state Marketplace because the employer plan exceeds the 9.66 percent threshold, and receives a tax credit, the employer is subject to a penalty.
The penalty in the second and third circumstances is $270 for each full-time employee who receives a tax credit, but it may not exceed $180 times the total number of full-time employees.
If an employee enrolls in a Marketplace plan and receives the tax credit, the employer will receive a notice from the Marketplace indicating this information and that the employee had stated one of the following:
- The employer did not offer insurance;
- The employer offered insurance that was not affordable or did not provide minimum coverage; or
- The employee was in a waiting period before being allowed to enroll in the plan.
An employer may appeal a decision that it failed to meet the ACA’s affordability and minimum value provisions. If, for example, an employee buys insurance in the Marketplace while erroneously asserting that her employer does not offer insurance or that it does not meet the affordability or minimum value requirements, the employer will not be held liable for a shared payment.
This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you determine your company’s responsibilities under the Affordable Care Act. We also offer a LIFT Start-Up Session,™ which includes employment structuring, financial, and tax systems you need for your business. Call us today to schedule a time to have a conversation!