How Will the Affordable Care Act Affect Employers?

In light of the recent United States Supreme Court decision upholding the individual mandate as a key component of the Affordable Care Act (ACA), all provisions of the ACA will continue to be implemented, with some limits on Medicaid expansion. In an effort to expand health care coverage, employers will now have to offer affordable coverage to their employees beginning in 2014, or else pay a penalty.

Small Employer Exception:
The requirement to offer affordable coverage is based on how many full-time equivalent employees the employer has. If there are less than 50 full-time equivalent employees, then the penalties do not apply. However, if an employer with 25 or fewer employees and an average wage of less than $50,000 decides to offer health coverage, the employer may be eligible for a health insurance tax credit.

No Employer Coverage:
If the employer has at least 50 full-time equivalent employees and does not offer coverage, then there will be a penalty assessed if the employer has one or more employees who are receiving a premium tax credit or cost sharing subsidy in an Exchange. The penalty is $2,000 annually times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.

Unaffordable Employer Coverage:
Even if an employer who has at least 50 full-time employees does offer some form of coverage, it needs to be “affordable.” The employer-sponsored insurance must pay for at least 60% of covered health care expenses for a typical population, and no employee should have to pay more than 9.5% of family income for the employer’s coverage. If either of these requirements are not satisfied, the employee may choose to buy coverage in an Exchange and receive a premium tax credit. If the employee receives a tax credit in an Exchange, the employer must pay a penalty for every employee who chooses the tax credit option. The penalty is $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.

What This Means For You:
The ACA will have a major impact on employers come 2014. It is imperative that employers properly determine whether they will be assessed penalties based on the number of employees they have. Employers should evaluate the type of insurance coverage offered to all employees, and make sure the cost of coverage meets the minimum requirements to be deemed affordable.