Although the Affordable Care Act (ACA) was passed in 2010, it was not until 2015 that the “employer mandate” or “play or pay” provisions became effective. The ACA “mandate” does not actually REQUIRE all employers to offer health coverage to its employees and their eligible dependents; however, the law is set up to penalize certain employers who do not “play.” The deadlines to “play or pay” are as follows:
- Jan. 1, 2015 – Employers with 100 or more Full-Time (FT) employees or Full-Time Equivalents (FTEs)
- Jan. 1, 2016 – Employers with 50 or more FT employees and/or FTEs
Employers with 50 or more FT employees or FTEs are considered “applicable large employers” or “ALEs.”
The ACA describes the “penalty” for failure to “play” as an “employer shared responsibility payment” (“ESR payment”). An “Applicable Large Employer” may owe an ESR payment under the following circumstances:
(1) If an (ALE) does not offer minimum essential coverage to at least 95 percent [1] of its full-time employees (and their dependents):
It will owe an ESR payment equal to the number of FT employees the employer employed for the year (minus up to 30) multiplied by $2,000, if at least one full-time employee receives the premium tax credit. (Note that for purposes of this calculation, an FT employee does not include an FTE). For an employer that offers compliant coverage for some months but not others during the calendar year, the payment is computed separately for each month for which coverage was not offered. The amount of the payment for the month equals the number of full-time employees the employer employed for the month (minus up to 30) multiplied by 1/12 of $2,000.
(2) If an ALE offers minimum essential coverage to all (or at least 95 percent) of its full-time employees (and their dependents) – so it is not liable for the ESR payment described in (1) – BUT at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace (which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or it did not provide minimum value):
The ALE will generally still owe the second type of ESR payment (computed on a monthly basis) equal to the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,000. The amount of the payment for any calendar month is capped at the number of the employer’s full-time employees for the month (minus up to 30) multiplied by 1/12 of $2,000. (The cap ensures that the payment for an employer that offers coverage can never exceed the payment that an employer would owe if it did not offer coverage at all.)
Many employers ask how a full-time employee could receive the premium tax credit, and generally speaking, this may happen if: (1) the minimum essential coverage the employer offers to the employee is not affordable; (2) the minimum essential coverage the employer offers to the employee does not provide minimum value; or (3) the employee is not one of the at least 95 percent of employees offered minimum essential coverage.
[1] In 2015, it was 70 percent.
Prepared by Jamie M. Brabston, senior counsel with Lehr Middlebrooks Vreeland & Thompson, P.C.
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