As an applicable large employer (ALE) with at least 50 full-time and full-time equivalent employees, the Affordable Care Act requires employers to offer health coverage to their employees. If they do not, they are subject to certain penalties. Employers should ask themselves a series of questions to understand these penalties.
If the employer did not offer health coverage which is called “minimum essential coverage” to at least 70% of full-time employees and their families for 2015, and at least one eligible employee obtained a subsidy, either as a premium tax credit (PTC) or cost-sharing reduction through the Health Insurance Marketplace, a penalty can be imposed. This percentage increases to 95% for 2016. For 2016, this penalty is $2,160 per employee for the year, broken down to $180 per month, per employee.
Additionally, even if the employer offers minimum essential coverage, the employer may still be subject to other penalties. Such other penalties may be imposed for failing to offer coverage that does not meet “minimum value” and/or is not “affordable.” Minimum value means coverage that covers at least 60% of health care expenses. Affordable means that the employee pays no more than 9.66% of his/her household income ($95.63/month on average per the Federal Poverty Level for mainland USA). If an employer fails to offer coverage that meets both minimum value and affordability, for every eligible full-time employee who obtains a subsidy, the employer may be subject to a penalty. For 2016, this penalty is $3,240 per employee for the year, broken down to $270 per month per employee.
Of course, if the employer has less than 50 full-time or full-time equivalent employees, that employer is not subject to these penalties. It’s important to understand these figures as employers review their taxes for 2015 and prepare for the year ahead.