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

Q. Will every business with more than 50 employees pay a penalty if they don’t offer “affordable, comprehensive” insurance starting in 2016?

A. Businesses with 50 or more full-time equivalent (FTE) employees are required to offer health insurance coverage or they risk a penalty (the mandate went into effect – partially – in 2015 for businesses with at least 100 FTE employees, and goes into effect in 2016 for those with at least 50 FTE employees). But the penalty for not offering coverage is only be triggered if at least one of the employees obtains coverage in the exchange and receives a premium subsidy.

In that case, the penalty is $2,000 per full-time employee, 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 $70,000 penalty for the year (65-30) x 2,000 = 70,000.

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 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 (costs employees more than 9.66 percent of income in 2016 for employee-only coverage) or it doesn’t provide minimum value (cover at least 60 percent of average expected costs), the employer would face the lesser of two penalty options: $3,000 per employee receiving premium subsidies in the exchange, OR the $2,000 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 or doesn’t provide minimum value: If 70 employees get subsidies in the exchange, the employer would pay a penalty of $180,000 for the year (120-30) x 2,000 = 180,000, since that’s smaller than the alternative penalty calculation (70 x 3,000, which would be $210,000).

But if only 20 of the employees get subsidized coverage in the exchange, the employer would pay $60,000 for the year (20 x 3,000 = 60,000), since that’s smaller than the alternate calculation of (120-30) x 2,000, which would be $180,000.

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