Does every business with 50 or more employees pay a penalty if it doesn’t offer ‘affordable, comprehensive’ insurance?

Q. Does every business with 50 or more employees pay a penalty if they don’t offer “affordable, comprehensive” health insurance?

A. Businesses with 50 or more full-time equivalent (FTE) employees are required to offer health insurance coverage to their full-time employees (30+ hours per wek) or they risk a penalty. The employer mandate went into effect – partially – in 2015 for businesses with at least 100 FTE employees, and took effect in 2016 for those with at least 50 FTE employees.

But the penalty for not offering affordable, comprehensive coverage is only triggered if at least one of the employees obtains coverage in the exchange and receives a premium subsidy. The penalty varies depending on whether the employer doesn’t offer coverage at all, or offers coverage but it doesn’t provide minimum value and/or it isn’t affordable.

Employer doesn’t offer coverage at all

If an employer with 50 or more FTE employees doesn’t offer coverage to at least 95 percent of FTE employees, the potential penalty is $2,320 per full-time employee in 2018 (that amount started at $2,000, but it’s indexed for inflation), although the first 30 employees aren’t counted in the calculation. So if an employer has 65 FTE employees, doesn’t offer coverage, and at least one employee gets coverage in the exchange with a premium subsidy, the employer would owe a $74,240 penalty for 2018. The calculation is: (65-30) x 2,320 = 74,240.

But if a business pays its workers wages that are high enough to ensure every employee’s household income exceeds 400 percent of the poverty level, there would be no penalty, since none of the workers would qualify for subsidies in the exchange. Of course, that’s rare, since large, high-wage employers almost always offer health insurance coverage.

And similarly, if none of the employees obtain coverage in the exchange despite being eligible for subsidies, the penalty would not be triggered. But that’s probably also very unlikely, given how much publicity the ACA has received for the last several years.

Coverage unaffordable, or too skimpy

If an employer does offer coverage but it’s not affordable and/or doesn’t offer minimum value, the employer would face a penalty if any full-time employees end up getting a subsidy in the exchange.

  • An employer-sponsored plan is considered unaffordable if the employee contribution for premiums is more than 9.56 percent of household income in 2018 for employee-only coverage (note that employers generally use affordability safe harbors, since they typically don’t know what their employees’ household income is).
  • To provide minimum value, an employer’s plan has to cover at least 60 percent of average expected medical costs, and provide “substantial coverage” for inpatient care and physician services.

If an employer’s plan is unaffordable and/or doesn’t provide minimum value, the employer would face the lesser of two penalty options: $3,480 per employee receiving premium subsidies in the exchange (this started at $3,000, but has also been indexed for inflation), OR the $2,320 per full-time employee (minus the first 30) penalty described above.

Consider a business that has 120 full time employees and offers coverage, but it’s either not affordable and/or doesn’t provide minimum value: If 70 employees get subsidies in the exchange in 2018, the employer would pay a penalty of $208,800 for the year (120-30) x 2,320 = 208,800, since that’s smaller than the alternative penalty calculation (70 x 3,480, which would be $243,600).

But if only 20 of the employees get subsidized coverage in the exchange, the employer would pay $69,600 for the year (20 x 3,480 = 69,600), since that’s smaller than the alternate calculation of (120-30) x 2,320, which would be $208,800.

GOP tax bill doesn’t change the employer mandate

Although the GOP tax bill repeals the individual mandate starting in 2019, it did not make any changes to the employer mandate. Large employers that don’t offer coverage, or that offer coverage that doesn’t provide minimum value and/or isn’t affordable, will continue to face penalties if their employees obtain subsidized coverage in the exchange.

Read answers to other questions about health reform, and penalties, and small business.