ACA Employer Mandates




Businesses: What you need to know about the Affordable Care Act (ACA)


The Employer Mandate


IF your business is deemed a ‘large’ employer, then you are mandated to offer ‘affordable’ health insurance to your employees. For the specific purpose of the, a ‘large’ employer is based on 100 or more full-time employees (or FTEs) in 2015, and50 or more (but less than 100) full-time employees(or FTEs) in2016. Penalties are triggered if one or more full-time employee obtainssubsidized insurance through a Healthcare Exchange by qualifyingfor either a premium credit or a cost share reduction.This is referred to as the Employer Shared Responsibility (ESR) penalty, also known as Play or Pay.

The original ACA law stated the employer penalty would be enforceable in 2014, however, in July of 2013 the Obama administration opted to delay the employer mandate, but kept the January 1, 2014 deadline requiring individuals to obtain coverage.

IMPORTANT TO NOTE: Union members are counted to determine if you are a large employer. Only seasonal employees are excluded.

Affordability and Minimum Value Mandated Provisions

For businesses deemed large employers, the health plan you offer must be

    •   ‘affordable’- the cost cannot exceed 9.5 percent of the employee’s annual income. If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest option, individual (self-only) coverage available to the employee.
    •   ‘minimum value’-the health plan must cover at least 60% of medical expenses.

If an employer fails to meet these 2 requirements, or if the employer does not offer any medical coverage, you will be subject to the Employer Shared Responsibility penalty. Grandfathered plans are not subject to the affordability requirement.


What is Full-time Employment

Full-time employees are eligible for their employer’s health insurance who work an average of 30 hours or more a week, for more than 120 days in a year.

Part-time employees are those who work an average of less than 30 hours per week, but more than 120 days per year.

If a business employs many part-time employees working less than 30 hours per week, then you must calculate the number of FTEs or Full Time Equivalentsto determine if you are a large employer, and therefore subject to the penalty provision.


Calculation for Full Time Equivalent Employees (FTEs)

A large employer can ‘look-back’ to the preceding calendar year.

Both full-time, and part-time employees (as a group based on total hours) are included in the calculation;

Hours worked by part-time employees working less than 30 hours per week are calculated on a monthly basis, by dividing their total number of monthly hours worked by 120.

    •   For example, a firm has 35 full-time employees (30+ hours), and also 20 part-time employees who each work 24 hours per week or 96 hours per month.
    •   The part-time employees’ hours would be equivalent to 16 full-time employees, as follows:
    •   20 employees x 96 hours per month = 1920 ÷ 120 = the equivalent of 16 “full-time” employees.

In this example, the employer has a total is 51 full-time employees (35 working 30+ hours + 16 FTEs.)


What is an Hour of Service

Generally, an hour of service means each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and, each hour for which an employee is paid, or entitled to payment, for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.


Common Ownership- Single Employer

If two or more companies have a common owner or are otherwise related, they are combined for purposes of determining whether they employ enough employees to be subject to the Employer Shared Responsibility Provision (ESR.)

Section 4980H includes a long-standing provision that also applies for other tax and employee benefit purposes, under which companies that have a common owner or are otherwise related and generally are combined and treated as a single employer.They would be combined for the purposes of determining whether or not they collectively employ at least 50 full-time employees (including full-time equivalents). If the combined total meets the threshold, then each separate company is subject to the Employer Shared Responsibility Provision, even those companies that individually do not employ enough employees to meet the threshold. (Note: For purposes of determining whether a particular company owes an Employer Shared Responsibility payment or the amount of any payment- it is determined separately for each related company).


How Penalties are Calculated & Applied

Regardless of whether or not a large employer offers coverage, you will be potentially liable for a penalty beginning in 2015 only if one or more full-time employee obtains subsidized insurance through a Healthcare Exchange and qualifies for either a premium credit or a cost-share reduction (as explained above.) To qualify on an Exchange, the employee must meet certain eligibility requirements. The employee is not eligible for a credit or cost-share reduction if the employer offers an affordable (less than 9.5% of income) health plan that covers the minimum value (60% of expenses.)

Although part-time employees and their hours worked count toward the full-time employee threshold calculation, if they obtain health insurance through an Exchange, that will not trigger a penalty against their employer.

If an employer does not offer insurance, but a full-time employee obtains insurance through a Healthcare Exchange, the penalty calculation against the employer is $2,000 per year multiplied by the total number of full-time employees, excluding the first 80 (in 2015,) and the first 30 (in 2016.)

If an employer offers insurance, but full-time employees obtain insurance through the Exchange, and qualify for either a premium credit or a cost-share reduction as explained above, the penalty is the lesser of

$3,000 annually for each employee receiving subsidized insurance through the  Exchange, or

The penalty calculated for employers not offering insurance (see above.)


This is just a brief overview of this very complex issue, and does not address all factors involved in the calculation of the large employer threshold or the possible imposition of penalties.