This ACA provision took effect in 2015 and applies ONLY to employers with at least 50 full-time equivalent employees. The employer shared responsibility provision requires these large employers to offer affordable health insurance that provides minimum value to all full-time employees (working at least 30 hours per week). If they do not, and if at least one of the employees receives a subsidy to purchase health insurance in the exchange, the employer will be assessed a penalty.
The ACA provides for two different employer mandate penalty calculations: One applies if the employer simply doesn’t offer coverage to at least 95% of full-time (30+ hours per week) workers.
The other applies if the employer does offer coverage, but it’s either not considered affordable or it doesn’t provide minimum value.
Details about both penalty calculations are provided here by the IRS, and the indexing for the penalty amounts are detailed in Question 55 in this guidance.
As of 2023, the penalty for not offering coverage to at least 95% of full-time employees is $2,880 per full-time employee, after subtracting the first 30 full-time employees. And the penalty for an employer that offers coverage that isn’t affordable and/or doesn’t provide minimum value is $4,320 per full-time employee who obtains a premium tax credit in the marketplace. In both cases, the penalty is only triggered if at least one full-time employee obtains a premium tax credit in the marketplace.
So if an employer with 100 full-time employees does not provide health coverage at all and at least one full-time employee gets a premium tax credit in the marketplace, the employer will owe a penalty of $201,600 for 2023 (calculated as 70 x 2,880, with 70 being the number of full-time employees after subtracting 30). This penalty started out as $2,000 per employee in 2015, but has since grown to $2,880.
If an employer offers coverage that isn’t affordable and/or doesn’t provide minimum value, the employer’s penalty for 2023 will amount to $4,320 per full-time employee who obtains a premium tax credit in the marketplace (ie, the employee rejects the employer’s offer of coverage because it’s not affordable and/or does not provide minimum value, and gets subsidized individual/family coverage in the marketplace instead). This penalty amount is up from $3,000 when the penalty first took effect in 2015. And the penalty for offering sub-standard coverage can’t be larger than the penalty for not offering coverage at all, so the lesser of the two penalty amounts is used in this case.
Businesses with 50 or more full-time equivalent (FTE) employees are required to offer comprehensive, affordable health insurance coverage or they risk a penalty.