In 2015, Affordable Care Act (ACA) transition relief allows applicable large employers (ALE) to avoid one of the ACA penalties (the one that could cost employers $2,000 per full-time employee per year), as long as the employer offers coverage to at least 70% of its full-time employees. When the transition relief expires in 2016, this percentage will increase to 95%.
So, what happens if an applicable large employer offers health coverage to at least 70% of its full-time employees in 2015 (or 95% in 2016), but one of the employees who is not offered coverage obtains subsidized health insurance on the public exchange? Would the employer be penalized?
Answer: Yes. There are two types of penalties under the ACA employer shared responsibility provisions.
While ALEs covering at least 70% of full-time employees in 2015 would not be subject to the penalty of $2,000 per year for every full-time employee, they wouldbe subject to the $3,000 per year penalty for each full-time employee who was not offered affordable, minimum value coverage and who received coverage on the public exchange, subsidized by a premium tax credit or cost-sharing reduction.
[Related: Case Studies in Using Private Exchanges]
So, the employer in the question above would face a $3,000 total penalty if one employee obtained subsidized health coverage on the public exchange for 12 months. If there were two employees who obtained 12 months of subsidized health coverage, the penalty would total $6,000 because the $3,000 penalty is applied for each full-time employee who receives subsidized coverage. The $3,000 penalty is prorated by month. If an employee receives subsidized coverage for only one month, the employer’s penalty would be $250 ($3000/12).
Beginning in 2016, an ALE must offer coverage to at least 95% of its full-time employees (vs. 70% in 2015) to avoid the $2,000 per year per full-time employee penalty. As in 2015, however, if one of the employees who is not offered employer-sponsored coverage obtains subsidized coverage on the public exchange, the employer would be penalized up to $3,000 for that employee, depending how many months of subsidized coverage the employee received on the public exchange.
With each new year, we’ll meet new ACA rules. The International Foundation will be there to help you stay on top of the changing requirements, each step of the way.
Resources:
ACA FAQ, ACA University Resource Center (Registration required.)
Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, Internal Revenue Service (See Q&A 37)
IRS Issues final regulations on employer shared responsibility requirements, Buck Consultants/Xerox, April 17, 2014 (See page the “Buck comment” on page 13)
Shared Responsibility for Employers Regarding Health Coverage; Final Rule, Department of the Treasury, Federal Register, February 12, 2014
