ACA Compliance: What Employers Must Do to Meet ACA Requirements
To comply with Affordable Care Act (ACA) requirements, employers with 50 or more full-time or full-time equivalent (FTE) employees must offer affordable health insurance that provides minimum essential coverage to at least 95% of their full-time workforce, track employee eligibility on an ongoing basis and file annual reports with the IRS using Forms 1094-C and 1095-C. Failure to meet these obligations can result in significant financial penalties. Four particularly challenging areas of ACA compliance are determining employee eligibility, confirming affordability, reporting data and responding to penalty notices.
Key takeaways
Employers with 50 or more full-time or FTE employees — known as applicable large employers (ALEs) — must offer health coverage that meets ACA affordability and minimum value standards.
ALEs must file IRS Forms 1094-C and 1095-C annually, reporting coverage offers and employee eligibility, even when employees decline coverage.
The employer mandate remains in full effect despite the elimination of the federal individual mandate penalty; some states impose additional reporting requirements.
Nontraditional workers, including seasonal employees and visa holders, must be evaluated against the ACA's 30-hour-per-week or 130-hour-per-month full-time threshold, independent of internal classifications.
Wellness and tobacco-cessation programs must be evaluated for their impact on ACA affordability calculations, with compliance also required under the Americans with Disabilities Act (ADA), Genetic Information Nondiscrimination Act (GINA), Consolidated Omnibus Budget Reconciliation Act (COBRA) and Health Insurance Portability and Accountability Act (HIPAA).
Navigating the complexities of the ACA can be a daunting task for any organization. Understanding its provisions, compliance requirements and the impact on both employers and employees is crucial in today's ever-evolving healthcare landscape.
To shed light on these intricate topics, we've compiled a comprehensive guide that addresses the most pressing ACA compliance questions facing businesses and HR professionals. This article draws upon the expertise of Mitch Geiger, senior counsel, ADP, who has provided valuable insights in previous SPARK articles. His knowledge and practical advice form the backbone of our discussion, providing accurate, actionable information to guide your ACA compliance strategies. One misunderstanding addressed in Geiger’s guidance is that an employee’s decision to waive coverage relieves the employer of its ACA obligations. It does not: The employer must still make a qualifying offer to eligible full-time employees and accurately document that offer on Forms 1094-C and 1095-C.
Whether you're grappling with the nuances of ACA plans, the differences between the ACA and Obamacare or the specific requirements for various types of employees, this article aims to provide real answers to these pressing questions, empowering you to navigate ACA compliance confidently.
What does ACA stand for?
ACA stands for the Affordable Care Act, a comprehensive healthcare reform law enacted in March 2010. Commonly referred to as Obamacare, the ACA represents a significant overhaul of the United States healthcare system, aiming to increase health insurance quality and affordability, lower the uninsured rate and reduce the costs of healthcare.
What is ACA compliance?
ACA compliance refers to an employer’s obligation to comply with the requirements and regulations set forth by the ACA. This involves ensuring that health insurance plans meet the standards of coverage and affordability as defined by the ACA. For employers, compliance also includes offering health insurance to full-time employees, reporting health coverage information to the IRS and adhering to specific employee classification guidelines. The data burden is substantial: ADP estimates that employers may manage approximately 170 employee data points from as many as six sources, including payroll, HR, leave and health coverage systems, to address ACA requirements.
Who must comply with ACA?
The ACA mandates compliance from several groups:
Employers: Specifically, organizations with 50 or more full-time or FTE employees are required to offer health insurance that meets ACA standards of affordability and coverage.
Individuals: While the individual mandate requiring all individuals to have health insurance or face a penalty has been eliminated at the federal level, some states still have their own individual mandates.
Insurance providers: Health insurance companies must adhere to ACA guidelines related to coverage benefits, pre-existing conditions and cost-sharing limits.
Explore the infographic: Why Should You Care About the ACA?
What are the major provisions of the ACA?
The ACA includes several key provisions:
Expansion of Medicaid: The ACA allowed states to expand their Medicaid programs to cover more low-income adults.
Health insurance marketplaces: These online marketplaces were established for individuals to shop for and enroll in health insurance plans.
Employer mandate: Large employers (with 50 or more full-time employees) must offer health insurance that meets ACA standards.
Protection for pre-existing conditions: Insurers cannot deny coverage or charge higher premiums based on pre-existing health conditions.
Young adult coverage: Young adults can stay on their parent's health insurance plan until age 26.
Essential health benefits: ACA-compliant plans must cover a set of essential health benefits, including emergency services, maternity care and prescription drugs.
Preventive care: Health plans are required to cover preventive services without charging a copayment or coinsurance.
What is the health insurance marketplace?
The Health Insurance Marketplace, often referred to as the Marketplace or the Exchange, is a service available in every state, allowing individuals, families and small businesses to shop for and enroll in affordable health insurance plans.
The Marketplace provides plan options with varying levels of coverage and cost and offers information to help consumers understand their insurance options. Importantly, the Marketplace is the only place where individuals can qualify for cost assistance through tax credits or subsidies based on their income, which can significantly reduce the cost of insurance premiums and out-of-pocket expenses.
How does the ACA work?
The ACA works by providing a framework for increasing health insurance coverage to more Americans while controlling healthcare costs. The key mechanisms include:
Insurance marketplaces: These online platforms offer a range of health insurance plans to individuals and small businesses, often with subsidies for eligible low- and middle-income people.
Employer mandate: Large employers are required to provide health insurance to full-time employees or face penalties.
Medicaid expansion: States have the option to expand Medicaid eligibility to cover more low-income individuals and families.
Regulations on insurance companies: Insurers are prohibited from denying coverage for pre-existing conditions, must provide coverage for essential health benefits and are subject to rate reviews and rebates if they spend too much on administrative costs.
Individual mandate: Originally, most Americans were required to have health insurance or pay a penalty, but the federal penalty was eliminated in 2019. Some states have implemented their own individual mandates.
What is an ACA plan?
An ACA plan refers to a health insurance policy that complies with the regulations set forth by the ACA. These plans are available through the Health Insurance Marketplace and must cover a standard set of essential health benefits, including emergency services, maternity care, mental health services and prescription drugs.
ACA plans are categorized into different metal levels — Bronze, Silver, Gold and Platinum — based on the percentage of healthcare expenses the plan covers relative to the average enrollee's expenses. ACA plans also cannot deny coverage or charge higher premiums based on pre-existing conditions and must offer preventive care services at no additional cost to the insured.
ACA vs. Obamacare
“ACA” and “Obamacare” refer to the same legislation: the Affordable Care Act. The ACA is the official name of the law, while Obamacare is a colloquial term derived from the name of former President Barack Obama, who signed the Act into law. There is no difference between the two in terms of the law or its provisions. The use of “Obamacare” often reflects a more informal or political context, whereas "ACA" is used in more formal or legal contexts.
What triggers an ACA penalty?
An ACA penalty is triggered when an employer or individual fails to comply with the requirements of the ACA. For employers, penalties are generally triggered under two scenarios:
1. Employer mandate penalty: This applies to employers with 50 or more full-time employees (or equivalents) who either do not offer health insurance coverage or offer coverage that does not meet the minimum standards of affordability and minimum value set by the ACA. If any full-time employee receives a premium tax credit for purchasing insurance through the Health Insurance Marketplace, the employer may be subject to a penalty. For calendar year 2026, the indexed annual penalty is $3,340 per full-time employee under Section 4980H(a), generally calculated after the applicable 30-employee reduction, and $5,010 for each full-time employee who receives a premium tax credit under Section 4980H(b), subject to the statutory cap. The IRS assesses these amounts monthly.
2. Reporting penalties: Employers are required to report to the IRS certain information about the health coverage they offer. Failure to provide accurate and timely reporting can result in penalties.
For individuals, the federal individual mandate penalty for not having health insurance was eliminated in 2019; however, some states have implemented their own individual mandates, and failing to have health insurance in these states can trigger a state-level penalty.
Does an employee's waiver of coverage affect ACA compliance for employers?
Geiger: Despite employees opting out of health insurance coverage, employers are still obligated to adhere to ACA compliance and reporting requirements. This includes offering eligible full-time employees qualifying health insurance and documenting this offer through IRS forms 1095-C and 1094-C. The responsibility to comply with the ACA's employer mandate and associated reporting duties remains, regardless of an employee's decision to decline the offered coverage.
Is the employer mandate still in effect despite the elimination of the individual mandate penalty?
Geiger: The abolition of the federal individual mandate penalty does not affect the employer mandate under the ACA. Employers with 50 or more full-time or equivalent employees must continue to provide affordable health insurance coverage.
This requirement persists despite the removal of the individual mandate penalty, and failure to comply can result in significant penalties. Accurate tracking and reporting of employee work hours, health coverage offers and plan details are crucial for maintaining compliance.
What is the impact of employee coverage waiver on employer reporting?
Geiger: Even if employees waive the offered health insurance coverage, employers must still fulfill the ACA employer mandate and its reporting requirements. Critical to this process is the provision of Form 1095-C to each full-time employee and the submission of these forms, along with Form 1094-C, to the IRS.
This reporting demonstrates the employer's compliance with health coverage obligations under the ACA. Maintaining accurate records and ensuring timely submission of these forms are essential aspects of ACA compliance, regardless of whether employees accept or decline the offered health insurance.
Are there employer requirements for state-level individual health insurance mandates?
Geiger: Yes. Employers must comply with specific state-level reporting requirements in states with individual health insurance mandates, such as New Jersey, the District of Columbia and Massachusetts.
The complexity of health coverage reporting is heightened for multistate employers. As of 2026, California, the District of Columbia, Massachusetts, New Jersey and Rhode Island have active individual coverage mandates with state-specific employer or coverage-provider reporting and furnishing requirements. Vermont also has an individual mandate, but it does not require additional employer reporting while federal Form 1095-C distribution requirements remain in effect. Because responsibility can vary by jurisdiction and by whether a plan is fully insured or self-insured, employers should verify each state’s rules and confirm whether the employer, carrier or another plan sponsor will file.
How do long-term leaves affect the employer mandate's W-2 safe harbor rules?
Geiger: There are no specific exceptions in the W-2 safe harbor rules for employees on long-term leave. Employees on paid disability leave are considered to have "hours of service" for ACA full-time determination. Employers must continue offering these employees affordable health coverage if they are deemed full-time under the ACA.
Compliance with employee leave laws and ACA requirements, such as calculating average hours of service, can be complex, highlighting the need for ongoing ACA expertise and compliance management.
Is health insurance coverage required for nontraditional workers under the ACA?
Geiger: Under the ACA, employers with 50 or more full-time or equivalent employees must offer health coverage to all employees who average 30 or more hours per week or 130 or more hours per month. This requirement includes nontraditional workers, such as seasonal employees and F-1 visa holders.
Employers should measure and compare an individual's hours of service against the ACA's full-time employee criteria, independent of their internal definitions of full-time and part-time status.
What considerations are important for ACA-compliant wellness and tobacco-cessation programs?
Geiger: With respect to the employer mandate, without question, it's all about affordability. Employers need to consider how these programs could impact the affordability calculations for healthcare under the ACA.
For example, for plan years beginning in 2026, a healthcare plan is deemed affordable if the lowest-cost self-only option is below 9.96% of an employee’s income. Additionally, employers must navigate and comply with federal rules regarding the conditions for offering these programs, ensuring they don't adversely affect the affordability criteria set forth by the ACA.
Compliance with other relevant laws like the ADA, GINA, COBRA and HIPAA is also crucial. Given the complexity and evolving nature of these regulations, employers are advised to have HR and benefits staff who are well-informed about compliance requirements for these types of programs.
FAQs
Does an employee's waiver of coverage affect ACA compliance for employers?
No. Even when employees decline health insurance, employers must still offer eligible full-time employees qualifying coverage and document the offer through IRS Forms 1095-C and 1094-C. The obligation to comply with the ACA employer mandate and reporting duties remains, regardless of an employee's decision to waive coverage.
Is the employer mandate still in effect after the individual mandate penalty was eliminated?
Yes. The elimination of the federal individual mandate penalty does not affect the employer mandate. Employers with 50 or more full-time or equivalent employees must continue to provide affordable health insurance coverage that meets ACA standards, and failure to comply can result in significant penalties.
What triggers an ACA penalty for employers?
Employer ACA penalties are triggered in two main scenarios: failing to offer minimum essential coverage to at least 95% of full-time employees (or offering coverage that does not meet affordability and minimum value standards) and failing to provide accurate and timely IRS reporting via Forms 1094-C and 1095-C.
Master ACA compliance with confidence
Understanding and adhering to the ACA is vital for every organization. This guide is designed to empower you with the knowledge needed to navigate ACA compliance confidently. We've tackled crucial questions and provided straightforward answers, helping you ensure that your organization meets ACA standards and optimizes healthcare offerings for your employees.
As you continue to explore the intricacies of the ACA and its impact on your organization, don't miss the chance to deepen your understanding.
