Employer and Individual Responsibility Requirements

The Affordable Care Act (ACA) includes employer and individual responsibility requirements for health coverage. Under ACA, a large employer will face penalties if it does not offer health coverage to substantially all full-time employees and their dependents (or if it offers health coverage that does not meet certain standards for affordability and minimum value) and one or more of its full-time employees receives a premium tax credit or cost-sharing reduction through an insurance Exchange (Exchange). ACA also requires individuals to obtain coverage for themselves and their family members to avoid paying a penalty.

The individual responsibility requirement becomes effective on Jan. 1, 2014.

Employer responsibility requirements

Employer Penalty – For Employers Not Offering CoverageIndividuals who are not offered employer-sponsored coverage and who are not eligible for Medicaid or other programs may be eligible for premium tax credits for coverage through an Exchange. Generally, these individuals will have income between 138 percent and 400 percent of the federal poverty level (FPL). Individuals who satisfy the requirements for receiving the premium tax credit may also qualify for cost-sharing reductions under Exchange plans.Large employers (those with at least 50 full-time employees, including full-time equivalents) that do not offer health coverage to substantially all full-time employees and their dependents will be subject to a penalty if any of their full-time employees receives a premium tax credit or cost-sharing reduction toward an Exchange plan.The monthly penalty assessed on employers that do not offer coverage will be equal to the number of full-time employees (minus 30), multiplied by 1/12 of $2,000 for any applicable month.

Employer Penalty – For Employers Offering Coverage

Individuals who are offered employer-sponsored health coverage can only obtain premium tax credits or cost-sharing reductions for Exchange coverage if, in addition to meeting FPL limits, they are not enrolled in their employer’s coverage and their employer’s coverage meets either of the following criteria:

• It is not “affordable;” or
• It does not provide “minimum value.”

The employer’s health coverage will not be affordable if the individual’s required contribution toward the plan premium for self-only coverage exceeds 9.5 percent of his or her household income. The employer’s health coverage will not provide minimum value if the plan pays for less than 60 percent, on average, of covered health expenses.Large employers that do offer coverage may be subject to penalties under ACA if at least one full-time employee obtains a premium tax credit or cost-sharing reduction under an insurance exchange, as described above.The monthly penalty assessed on an employer for each full-time employee who receives a premium tax credit or cost-sharing reduction will be 1/12 of $3,000 for any applicable month. However the total penalty for an employer would be limited to the total number of the company’s full-time employees (minus 30), multiplied by 1/12 of $2,000 for any applicable month.

Guidance on Employer Responsibility Requirements

On Jan. 2, 2013, the Internal Revenue Service (IRS) issued proposed regulations on ACA’s employer responsibility requirements. These regulations include guidance on:

• The method for determining if an employer is a large employer subject to ACA’s employer penalty provisions;
• Ways to  ascertain an individual’s full-time status for purposes of determining and calculating an employer’s liability for an ACA penalty;
• Safe harbor approaches for assessing whether an employer’s coverage is affordable;
• Transition relief for non-calendar year plans; and
• The application of the common ownership (that is, controlled group and affiliated service group) aggregation rules to ACA’s employer penalty provisions.

Also, on Nov. 26, 2012, the Department of Health and Human Services (HHS) issued proposed regulations that outline possible approaches for determining whether an employer’s health coverage provides minimum value.On May 3, 2013, the IRS issued more proposed regulations on ACA’s affordability and minimum value requirements for employer-sponsored health coverage. These proposed regulations outline special rules for determining how health reimbursement arrangements (HRAs), health savings accounts (HSAs) and wellness program incentives are counted in determining minimum value and affordability.

Flow Chart

The attached flow chart summarizes the criteria for determining whether an employer will be subject to a penalty under ACA’s employer shared responsibility requirement.

Individual Requirement and Penalties

Employees may satisfy the individual mandate by purchasing acceptable coverage through their workplace or an insurance Exchange. If coverage is not purchased, the individual penalty will be imposed. This penalty is the greater of 1.0 percent of AGI or $95 per person in 2014, 2.0 percent or $325 per person in 2015, and 2.5 percent or $695 per person in 2016. The family penalty cap is 300 percent of the individual penalty, or $2,100 by 2016. The penalty for dependent children without coverage is half the amounts listed above.Exemptions to mandatory coverage requirement apply if the premium for an employee’s employer-provided health coverage is more than eight percent of the employee’s modified household income. Exceptions also apply for financial hardship, individuals exempt from filing an income tax return, members of Indian tribes and those with short coverage gaps.

Determining If an Employer Will Pay a Penalty

Source: Congressional Research Service