After years of delays, the Affordable Care Act’s employer mandate to provide employee affordable health care coverage has kicked in. As of January 1, 2015, employers with 100+ full time* employees must be in compliance or they will be subject to penalties. For organizations with 50+ employees, these penalties will apply in 2016.
If you have been postponing complying with the ACA, now is the time. The Kaiser Family Foundation has put together a flow chart outlining the penalty structure. We have also provided an explanation below:
The penalties for ignoring the law are levied for each month you are out of compliance and are based on two situations:
Situation 1) Do you offer health insurance to your employees?** If not, and just one of them receives a subsidy (premium tax credit) within the marketplace, you will be subject to a penalty.
Situation 2) If you do offer health insurance, is it affordable? Your plan must meet the standards of affordability*** or you will be penalized.
If you are not complying under Situation #1, the formula to calculate penalty levels for each month you are not offering a plan is as follows:
|Situation #1: Not Offering Group Health Insurance Plan|
|Formula: $2,084 Divided by 12, times the # of full time employees – 80.|
|Example: 150 full time employees
($2,084 /12) * (150 -80) = 173.67 x 70= $12,157 per month
For Situation #2, the formula is as follows:
|Situation #2: Group Health Insurance Plan is Not Affordable|
Formula: $3,126 Divided by # of employees receiving credit
Example: 150 full-time employees, 50% receiving ACA subsidy (35)
For Situation 2, there is a set maximum penalty that increases is 2016.
In both examples, once you get the fixed cost of the penalty established, the formula is not going to fluctuate greatly. However next year the percentage increases in health care premiums will be applied to the penalty levels. Therefore, your penalties will grow as premium costs grow.
For employers with 100+ full time employees, the sooner you get into compliance, the lower your penalty costs. And if you employ 50+, it is smart to prepare for 2016, when your mandates will kick in. For more information on how to avoid the ACA penalties, send us an email, or give us a call at 317.663.4138.
*Under the ACA, a full-time employee is defined as working an average of 30 hours per week, or at least 130 hours in a month.
**You are not penalized for not offering spousal coverage, but you must offer coverage for your employee’s children under 26 years of age.
*** What does Affordable mean? Under the ACA, affordable health insurance plans must: a) cover at least 60% of covered health care expenses for a typical population; b) not require any employee to pay more than 9.56% of their family income for the employee-only portion of the employer coverage (or compared to one of the federal government’s safe harbor amounts: the worker’s wages, the employee’s rate of pay at the start of the coverage period, or the federal poverty level for a single individual).