Avoiding Costly Employer ACA Penalties

Since the Affordable Care Act was signed in 2010, certain American employers have increased responsibility when it comes to offering health insurance to employees. If any of your clients have questions about their duties under the Act, you can fill them in on the basics--including potential penalties for failing to meet the requirements.

What is the employer mandate?

Beginning in 2016, all employers with 50 or more full-time employees are considered ALEs—Applicable Large Employers. ALEs are required to offer health insurance to at least 95 percent of its full-time employees, and must file an annual tax return to report whether they offered coverage, and what type. These employers must offer minimum essential coverage to full-time employees and their dependents that is both affordable and provides minimum value—or pay a penalty.

Those employers with under 50 employees can purchase health insurance on the SHOP (Small Business Health Options Program) Marketplace, and might be eligible for small business tax credits in certain circumstances. These smaller groups do not face penalties in connection with failure to offer insurance, as the ALEs would.

Employer ACA Penalties

Employers would pay a penalty under the following scenarios: 

1. The employer does not offer minimum essential coverage to at least 95 percent of full-time employees andat least one full-time employee qualifies for a premium tax credit which would help pay for exchange-based coverage.

Penalty: For each month the employer does not offer coverage--$2,160 divided by 12, times the number of full-time employees minus up to 30 employees

2. The employer does offer coverage to at least 95 percent of full-time employees, but it is unaffordable (employee pays more than 9.66 percent of household income) or doesn’t provide minimum value (60 percent of covered health care expenses) for particular employees. 

Penalty: For each month--$3,240 divided by 12 for each employee receiving a premium tax credit that month (up to a maximum of $2,160 divided by 12, times the number of full-time employees minus up to 30 employees.

Health Coverage Reporting

The IRS enforces both the mandate requiring individuals to have insurance and the employer shared responsibility mandate to offer coverage to full-time employees through required reporting.

Employers are required to file forms annually with the IRS to report health coverage information, namely Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) and Form 1094-C, which is, in essence, a transmittal page for Form 1095-C. Your clients should make it a priority to ensure that they have a system in place to collect, confirm and provide the data needed to report to the IRS.

For example, they’ll need a system that allows them to precisely track hours worked, categorize employees, verify benefits eligibility and document timelines for offers of coverage.

Verifying Full-Time Employee Status

It’s critical that your clients document the status of “full-time” employees. When coverage is not offered to an employee, your clients must be able to show that coverage was not offered because the employee is not classified as a full-time worker.

If your clients have questions about penalties under the Affordable Care Act, try to break it down for them step-by-step. Rules, applicability, if/then. You can make suggestions to help keep your clients organized and able to properly report.

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