Dissecting the ACA Employer Shared Responsibility Payments

September 4, 2015

Is your company compliant with the post-ACA Employer Shared Responsibility rules? If not, it’ll cost you.

As of January 1, 2015, applicable large employers (what we’ll call “large employers” in this post) are subject to the Employer Shared Responsibility rules. These rules (sometimes called the “Pay or Play rules”) require employers to either provide a minimum level of coverage to at least 95% of their full-time employees and their dependents or pay a penalty.

While “transition relief” is available for certain requirements through the rest of 2015, if large employers did not meet the requirements as of January 1, 2015, they’ll be subject to pay a stiff payment to the IRS. What exactly is this payment? We’ll explain.

Two Types of Employer Shared Responsibility Payments 

According to the Employer Shared Responsibility rules, large employers that do not qualify for relief must offer minimal essential coverage to 95% of their full-time employees that’s affordable and provides minimum value to both employees and their dependents under age 26 (for large employers with more than 100 FTEs this requirement was reduced to 70% of full-time employees for 2015). 

If a large employer did not meet the affordability or minimum essential coverage standards as of January 1, 2015, there are two different penalties that such large employer will be subject to.

  1. Failure to Offer Minimum Essential Coverage

The first type of penalty occurs when a large employer doesn’t offer affordable minimum essential coverage to at least 95% of its full-time employees (or 70% for employers with over 100 FTEs in 2015) and their dependents. In this case, employers will have to pay $2,084 per employee in 2015 (minus the first 30 full-time employees or minus 80 for employers with more than 100 employees). This penalty is triggered when at least one full-time employee gets a tax credit from the exchange. The penalty will increase each year.

  1. Failure to Offer Minimum Essential Coverage that is Affordable and Provides Minimum Value

The second type of penalty your business could potentially be subject to occurs when a large employer offers minimum essential coverage to the required number of full-time employees (to avoid the first payment described above), but the coverage isn’t deemed affordable or doesn’t provide the minimum value.

Generally, a full-time employee is eligible for a tax credit if his or her minimum essential coverage premium cost is more than 9.5% of his or her household income (making it unaffordable), or if the plan fails to cover at least 60% of the total allowed cost of benefits that are expected to be incurred (failing to provide minimum value).

If the coverage doesn’t meet these requirements, the employer will pay $3,126 for each full-time employee in 2015 (if any) that gets a tax credit from the exchange. The penalty will increase each year.

How Gravie Can Help

Though these penalties might seem scary, in most cases dropping group coverage and allowing your employees to shop for individual plans in the private market or through the exchange allows them to receive tax credits from the government and is often cheaper than a group plan that tries to meet the ACA requirements.

At Gravie, we calculate the penalties your company would potentially face, and provide options that are typically more favorable, even after accounting for the Employer Shared Responsibility payments. For large employers we usually recommend offering minimum essential coverage (MEC) plan in addition to sending employees to Gravie to sort through individual plan options.

In the end, our goal is to help you save money, help your employees find a plan that fits their needs, and allow you to focus more energy on your business. Everybody wins. 

To learn more about how Employer Shared Responsibility payments are calculated or how we couple Gravie’s MEC plan with Gravie’s individual offerings, call us at 844.540.8701, fill out our employer form, or tweet us @gogravie.

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