Health Care Reform

Financial Impacts

Let us help you understand the requirements of the Affordable Care Act and maintain a health care plan that avoids penalties. You’ll also be able to calculate the risk of penalties incurred due to required contribution costs.

The Shared Responsibility requirement mandates that all employers with 50 or more employees provide affordable group health benefits to their employees. This mandate went into effect for plan years beginning on or after January 1, 2015.

This is your guide to understand how to avoid these costly penalties and alleviate the financial impact of Health Care Reform.

No-Coverage Penalty

Employers that fail to offer health care coverage to at least 70% of their full-time workforce in 2015 are subject to penalties if at least one employee purchases coverage in the public exchange and qualifies for federal premium and cost-sharing subsidies. This will increase to 95% of their full-time workforce in future plan years. This penalty is also known as the sledgehammer penalty.

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If an employer fails to provide health care coverage, penalties equal $2,000 annually or $166.67 per month for each full-time employee after the first 80 without coverage in 2015, and after the first 30 beginning in 2016.

Here’s an example of the basic calculation for 2015. If your company offers no health coverage and employs 210 full-time employees for each month:

210 employees, minus the 80 employee credit = 130 full-time employees
130 employees, times $166.67 penalty per month, times 12 months = $260,005.20

Unaffordable Coverage Penalty

Under the ACA, an affordable health care plan for employees is defined as one that requires employees to contribute 9.5% or less of W-2 earnings to enroll in the lowest-cost single coverage option offered under the plan. This penalty is also known as the tackhammer penalty.

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If an employer’s plan is not considered to be affordable by the standards of the ACA, penalties are $250 per month or $3,000 annually. This penalty is incurred when:

  • an employee’s required contribution for the lowest-cost single coverage option is equal to or greater than 9.5% of W-2 wages, and
  • the employee elects to opt out of the employer’s plan, and
  • enrolls in health coverage in the public exchange, and
  • based on household income, the employee qualifies for a federal premium tax credit or cost-sharing subsidy

It also must meet “minimum value” criteria to avoid the unaffordability penalty. This threshold imposes penalties on plans that fail to pay at least 60% of all covered expenses after taking into account the employee’s deductible, coinsurance, and other out-of-pocket expenses.