Welcome to the fifth post in our series: "ACA Essentials: Does ACA Compliance for Small Businesses Apply to Me?"

The ACA generally requires all Americans to have health insurance and for certain employers to offer group health insurance to their employees. These are known as the Individual Mandate and the Employer Mandate (or Employer Shared Responsibility), respectively. Those that do not comply with these mandates may be subject to a penalty. Before we dive into the Employer Mandate, let's briefly address what the Individual Mandate means.

Individual Mandate:

The ACA requires most individuals to be enrolled in a health insurance plan. These individuals are required to maintain insurance that qualifies as "minimum essential coverage" for themselves and their dependents (including children under 26). Individuals may choose to purchase coverage through their employer, if available, or through Health Insurance Marketplaces.

image 6If individuals are not enrolled in minimum essential coverage, they may be required to pay a tax. Exemptions from the Individual Mandate are available in a few limited circumstances, , such as for those with very low income or who experience certain hardships.

Employer Mandate ("Shared Responsibility"):

Employers with 50 or more full-time and full-time equivalent (FTE) employees must offer full-time employees (as defined by the ACA) minimum essential coverage that is deemed affordable and provide minimal actuarial value (the plan is designed to pay at least 60% of covered expenses), or may face a penalty.

Employer Mandate Transition Relief in 2015:

Pursuant to IRS regulations issued on February 10, 2014, transition relief was generally available through 2015 for employers with 50-99 full-time and FTE employees. Beginning in 2016, these employers are subject to the Employer Mandate.

Employer Penalties:

If a covered employer fails to offer minimum essential coverage that is affordable and the following conditions are met, then the employer will be subject to a penalty:

  • At least one full-time employee purchases coverage through the Health Insurance Marketplace; and
  • That employee is eligible for, and receives, a Federal premium tax credit in order to subsidize the cost of their coverage.

Penalties differ depending on what part of the shared responsibility provision the employer fails to meet:

Penalty 1:

If the employer fails to offer coverage to 95% or more of its full-time employees (and their dependents) AND the two conditions noted above are met, the employer may face an annual assessment of up to $2,000 for each full-time employee, excluding the first 30 full-time employees.

Penalty 2:

If the employer offers coverage to 95% or more of its full-time employees (and their dependents), but such coverage fails the minimum value or affordability test AND the two conditions noted above are met, the employer may face an annual assessment that is equal to the lesser of:

  • $3,000 for each full-time employee that receives subsidized coverage through the Health Insurance Marketplace; or
  • $2,000 for each full-time employee, excluding the first 30 full-time employees.

For more information on the Employer Mandate visit our Health Care Reform page. This Full-time Equivalent (FTE) Employee Calculator may also be helpful.

Read the rest of the series:

Introduction: ACA Essentials: Does ACA Compliance for Small Businesses Apply to Me?

Part 1: ACA Essentials: Aspects of the ACA for Small Businesses to Be Aware Of

Part 2: ACA Essentials: Do I Qualify for Any Health Care Tax Credits for Small Businesses?

Part 3: ACA Essentials: The Small Business Health Options Program (SHOP) Marketplace

Part 4: ACA Essentials: Understanding IRS Reporting Requirements

Part 6: ACA Essentials: Clarifying the Health Care Exchange Notices Process

Tags: Compliance aca Benefits Health Care Reform