As an employer, staying compliant with the Affordable Care Act (ACA) is not just a legal obligation—it’s essential to avoid potentially significant financial penalties. The ACA’s employer mandate, often referred to as the “employer shared responsibility” provision, continues to have far-reaching implications for businesses, particularly when it comes to maintaining affordable and valuable health coverage for employees.
Understanding the ACA Employer Mandate
The ACA employer mandate requires employers with 50 or more full-time employees (or full-time equivalents) to offer health insurance that meets two key criteria:
- Affordability: The employee’s share of the premium for self-only coverage must not exceed a certain percentage of their household income. For the 2024 tax year, this threshold is set at 9.86%. This means that if an employee’s contribution for self-only coverage surpasses this percentage, the coverage is deemed unaffordable under ACA standards.
- Minimum Value: The plan must cover at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. This ensures that the plan provides sufficient coverage for basic health services.
Failure to meet these requirements can result in substantial penalties for employers.
Penalties for Non-Compliance
The ACA imposes two types of penalties for non-compliance with the employer mandate:
- Penalty A: This penalty applies if an employer fails to offer minimum essential coverage to at least 95% of its full-time employees (and their dependents), and at least one full-time employee receives a premium tax credit for purchasing coverage through the Health Insurance Marketplace. For 2024, this penalty is calculated at $2,970 per full-time employee, excluding the first 30 employees.
- Penalty B: This penalty applies if an employer offers coverage, but that coverage is either unaffordable or does not provide minimum value, and at least one full-time employee receives a premium tax credit. The penalty is $4,460 per full-time employee receiving the credit, or the total penalty under Penalty A, whichever is less.
These penalties can add up quickly, making it crucial for employers to ensure compliance with the ACA’s mandates.
Strategies to Ensure Compliance
Maintaining compliance with the ACA’s employer mandate involves careful planning and regular reviews of your benefits offerings. Here are some strategies to help your business stay on track:
- Regularly Review Plan Affordability: Keep a close eye on the affordability threshold each year, as it may change. Ensure that your health plan contributions are structured to meet the affordability requirement, possibly by adjusting employee contributions or offering multiple plan options.
- Evaluate Plan Value: Conduct an annual review of your health plan to ensure it meets the minimum value standard. This might involve working with your benefits provider to analyze the plan’s coverage and cost-sharing features.
- Stay Informed About Regulatory Changes: The healthcare landscape is constantly evolving, with potential changes to ACA regulations or thresholds. Keeping informed about these changes will help you anticipate adjustments needed for your benefits offerings.
- Document Compliance Efforts: Maintain thorough documentation of your compliance efforts, including how you determine affordability, how you calculate contributions, and any communications with employees regarding their coverage. This can be crucial if you ever need to demonstrate compliance during an IRS audit.
The Importance of Ongoing Compliance
The financial penalties associated with ACA non-compliance can be substantial, but beyond the penalties, staying compliant with the ACA’s employer mandate is also about ensuring that your employees have access to valuable and affordable health coverage. This can not only help you avoid penalties but also contribute to employee satisfaction and retention.
By proactively managing your benefits offerings and staying up-to-date with ACA requirements, you can protect your business from unnecessary penalties while continuing to provide essential health coverage to your workforce.
If you need assistance navigating the complexities of ACA compliance, don’t hesitate to reach out. Our team is here to help ensure your benefits package meets all legal requirements and supports the well-being of your employees.
