According to the Affordable Care Act (ACA), any applicable large employer is required to offer affordable, minimum value health care coverage options to all of their full-time employees and their dependents. In the case that these large employers fail to offer appropriate healthcare options to their qualifying staff, they face penalties under the employer shared responsibility or “pay or play” rules.
Let’s take a closer look at which companies qualify as applicable large employers and what penalties they can face when failing to provide the necessary healthcare coverage.
Applicable Large Employers
Employer-shared responsibility penalties only apply to those large employers whose businesses fall under their purview. Typically, these are ALEs, or Applicable Large Employers, that qualify as such because they employ at least fifty full-time and full-time equivalent employees working an average of thirty or more hours per week during their calendar years. All ALEs must abide by the rules set in “pay or play” including for-profit, non-profit, and any government employers.
There are a few different penalty types–two specifically–that can apply to ALEs under the employer shared responsibility rules: the 4980H(a) and the 4980H(b). However, only one of the two may apply to an ALE in a given situation. Both penalties can’t be applied to a single ALE at one time.
Let’s take a closer look at each of these penalties to better understand when they may be applied to an ALE.
The 4980H(a) Penalty
This penalty applies when ALEs don’t offer “substantially all” of their qualifying full-time employees’ healthcare coverage. This penalty does not apply to those ALEs that intend to offer all of their full-time employees coverage, but fail to hold up that promise to a few of them. It doesn’t matter if the oversight of coverage was intentional or not–if most of the ALE’s qualifying employees are receiving coverage under the business’ healthcare plan, the 4980H(a) penalty does not apply.
An ALE only has to satisfy coverage to what is deemed “substantially all” of their employees–not every single full-time employee. Instead, so long as 95% of employees and their dependents receive the coverage they may be legally okay. This margin of 5% is specially-designed to aid smaller ALEs.
Under the 4980H(a) penalty, there is a monthly penalty that may be assessed and applied to ALEs that do not offer the required coverage to their qualifying employees. This amount is equal to the ALE’s number of full-time employees (minus thirty) x 1/12 of $2,000 for every month that the penalty is applicable. ALEs are not required to include any of their employees who are classified as being in a limited non-assessment period. This is a period, or series of periods, where ALEs cannot be penalized for failing to provide coverage to all of their full-time employees and dependents. These periods can occur during a permitted waiting period, a new employee’s initial measurement period, during January through March of a company’s first year as an ALE, or other select periods.
The 4980H(b) Penalty
If an ALE failing to meet ACA compliance standards is not penalized with the 4980H(a) penalty, they may face its alternative, the 4980H(b). This penalty typically applies when an ALE offers coverage to substantially all of their full-time employees and dependents, but fails to meet compliance standards in one of two other areas. First, they will fail if they do not offer coverage to all or their full-time employees, or second, if their provided coverage is unaffordable or doesn’t meet minimum value standards.
For an employer-sponsored coverage plan to be deemed “unaffordable,” it must have a required employee contribution that exceeds 9.5% at its lowest threshold. Therefore, those that exceed this percentage are considered to be unaffordable. As for the minimum value provided, employer’s plans must provide costs of benefits at 60% or higher and provide coverage for in-patient hospitalization and physician services.
Offer of Coverage
Employees must be offered appropriate coverage at least once during the plan year and have ample time to accept or decline coverage if it is not affordable or provides enough value to them. However, if an employee who qualifies for coverage accepts that coverage, but fails to make appropriate payments within the allotted timeframe, the ALE is not required to provide them with coverage for the period in which the employee did not pay their dues. The employee who failed to pay will still be treated as one who was offered coverage.
Reduce Your HR Workload with Beckham Insurance Group
We hope this blog on pay or play-employer shared responsibilities helps guide you! If you have additional questions, Beckham Insurance Group is here to help. With progressive technology, game-changing financial solutions for employees, and high-level customer service, our team navigates the complicated world of employee benefits for you. Request your free quote today to get started!