Understanding Employer Shared Responsibility (per the ACA)
In my travels and presentations to various employer organizations around the country, I’m finding a great deal of misunderstanding concerning one of the more pressing aspects of the Affordable Care Act (or Obamacare) – the so called “employer shared responsibility” provision. Also referred to as the “employer mandate” and the “pay or play provision”, this aspect of the ACA poses two distinct types of penalty exposure to affected employers (generally those that employ at least 50 full time and full time equivalent employees). It’s extremely important to clarify that these penalties represent EXPOSURE, first and foremost; and only become actual payable penalties if specific action is taken by EMPLOYEE(s).
So let’s examine the 2 penalty exposures and more importantly how each is triggered.
1. The “pay” penalty, which I like to refer to as the “sledge hammer”. Employers that opt NOT to offer a qualifying health plan face a penalty, IF TRIGGERED, of $2,000 x the total number of full time employees (30 hrs. a week minimum, starting with the 31st employee). For example, a firm employing 100 full time employees that choose not to offer qualifying coverage (or in ACA terms, pay), would have penalty exposure equal to 100-30 = 70 x $2,000 = $140,000 or $11,667 per month. IMPORTANTLY – this penalty is ONLY triggered if at least 1 eligible employee does the following: 1. accesses the public health insurance exchange/marketplace; 2. is determined to be eligible for a subsidy/assistance; 3. purchases coverage on the public exchange/marketplace. IF ALL 3 OF THESE ACTIONS ARE NOT TAKEN BY ANY EMPLOYEE, THE EMPLOYER PAYS NO FINE.
2. The “play” penalty, which I like to refer to as the “tack hammer”. Employers that OPT TO OFFER a qualifying plan that fails to meet either of 2 ACA requirements – 1. affordability (employee’s share of the premium for employee only coverage cannot exceed 9.5% of their 2013 W-2 income); or 2. minimum coverage (the plan must provide at least a 60% level of coverage, which most plans will have no trouble meeting). If either or both of these “tests” fail, the employer would face a penalty, IF TRIGGERED, of $3,000 x the number of employees that do the following: 1. accesses the public health insurance exchange/marketplace; 2. is determined to be eligible for a subsidy/assistance; and 3. purchases coverage on the public exchange/marketplace. IF ALL 3 OF THESE ACTIONS ARE NOT TAKEN BY ANY EMPLOYEE, THE EMPLOYER PAYS NO FINE.
To access a 12 minute podcast in which I discuss the ACA employer shared responsibility provision in more depth, click on