Under the new employer mandate imposed by the Affordable Care Act (ACA), employers will pay about $130 billion in penalties over the next 10 years. The ACA employer mandate is highly complex and employers have many factors to consider.
The employer mandate – called “shared responsibility” in federal law and IRS rules – imposes penalties on employers if at least one of their full-time employees receives a federal premium subsidy through a Health Insurance Exchange (HIX). This means that some employers will be subject to the ACA penalties even if they offer health insurance coverage. The penalties will not apply to employers with fewer than 50 employees or if an employer’s full-time employees are eligible for Medicaid.
The Congressional Budget Office (CBO) projects that employers will pay $130 billion in penalty payments over the first ten years of ACA (2014-2023). CBO assumes that most employers will offer federally compliant employer-sponsored health coverage and few will drop coverage. If CBO’s projections turn out to be rosy, federal penalty collections would be much higher than $130 billion. The penalties will be paid to the IRS.
The Affordable Care Act creates a two-part calculation for determining:
- Which employers are subject to the penalty.
- Which employees in a firm are counted for purposes of the penalty.
The two parts of the calculation count part-time and seasonal workers differently, creating confusion for employers. While counter intuitive, to determine whether an employer has 50 or more “full-time” employees, part-time employees are counted. But the penalty, if applicable, is levied only on the basis of full-time employees (i.e., those working at least 30 hours a week on average). Even then, there are nuances in the rules regarding seasonal works, new employees, and so forth.
To avoid the penalty, employers must also offer full-time employees with health insurance coverage that is both adequate (coverage all services in the federally-mandated essential health benefit package) and affordable (the employee’s share of costs is less than 9.5 percent of their income).
Potential Employer Penalties Under the Affordable Care Act
The ACA employer mandate, the penalties, key definitions, and implementation issues are detailed in a helpful new report by the Congressional Research Service (CRS), which is part of the Library of Congress.
The CRS briefing paper, written for Members of Congress, House and Senate Committees, and Congressional staff, describes:
Employer penalty calculations, including:
- Employers subject to the penalty.
- Amount of ACA tax penalties for employers.
- Penalty for employers not offering health insurance coverage.
- Penalty for employers offering health insurance coverage.
Implementation issues regarding the ACA employer mandate, including:
- Coverage requirements for employers, including definitions of dependent coverage, affordable coverage, and adequate coverage.
- Determination and potential application of employer penalty for different categories of employees.
- Definition of key terms such as employer, full-time employee, part-time employee, seasonal worker, variable hour employee.
- Methodology to determine full-time status of an employee (i.e., time frames, on-going employees, new employees reasonably expected to work full-time, and variable hour and seasonal employees).
- Effective dates for the ACA employer penalty.
- Reporting and other requirements for employers under the Affordable Care Act.
It is, of course, very important for every employer to consult with their health benefits advisers, legal counsel, actuaries, and tax experts to understand the requirements, options, and implications for company finances; employee wellness, retention, and recruitment; and company public relations.
To read the 18-page briefing on the ACA employer mandate and associated penalty, click here (PDF).