employer shared-responsibility provision
What is the employer shared-responsibility provision?
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.
Affordability and minimum value
Here’s an overview from the IRS in terms of the requirements the health coverage has to fulfill in order to be considered affordable and provide minimum value.
- A plan provides minimum value if it pays for at least 60 percent of overall medical costs for the group and also provides “substantial” coverage for inpatient and physician services.
- The specifics for affordability vary from one year to the next, as they are indexed. For 2021, an employer fulfills the affordability requirement if the employee’s cost (ie, the part that’s payroll deducted) for the cheapest plan the employer offers (that also provides minimum value) is no more than 9.83 percent of the employee’s household income. Note that the cost to add a spouse and/or dependents to the plan is not taken into consideration when determining whether an employer is offering affordable coverage.
Penalty amount differs for employers who don’t offer coverage, versus those who offer coverage that doesn’t meet minimum requirements
The ACA provides for two different employer mandate penalty calculations: One applies if the employer simply doesn’t offer coverage to at least 95 percent 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 2021, the penalty for not offering coverage is $2,700 per full-time employee, after subtracting the first 30 full-time employees. It does not matter whether any of the employees obtain a premium tax credit in the marketplace. So if an employer with 100 full-time employees does not provide health coverage at all, they will owe a penalty of $189,000 for 2021 (calculated as 70 x 2,700, with the 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 $2,700.
And as of 2021, for an employer that does offer coverage but it’s not affordable and/or doesn’t provide minimum essential coverage, the penalty amount is $4,060 per 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.
How does the IRS calculate premium tax credits for self-employed people when their AGI depends on their health insurance premium amount?
If an individual pays for an exchange plan, how do they pay for the premium pre-tax as would someone with an employer plan?
Does every business with 50 or more employees pay a penalty if it doesn’t offer ‘affordable, comprehensive’ insurance?
Businesses with 50 or more full-time equivalent (FTE) employees are required to offer comprehensive, affordable health insurance coverage or they risk a penalty.