Under the Affordable Care Act, applicable large employers (ALE) are required to provide minimum essential coverage to 95% of their full-time or full-time equivalent employees. If you fail to do so, your company will be subject to various penalties that could cost you! If you do a cost-benefit analysis, investing in MEC for your employees can save you millions, while also increasing employee engagement.
Penalty A under the ACA
Penalty A will come into effect when employers fail to offer minimum essential coverage to 95% of their full-time employees and dependents. In order to avoid this penalty, you must determine who is considered a full-time employee, or full-time equivalent employee, and should be receiving benefits.
How do you determine which employees are full-time employees?
Full-time employees are employees who average 30 or more hours of service per week, or 130 hours per month. If employees are reasonably expected to work over 30 hours a week, they must be offered coverage within 90 days of their hiring date.
If an employer is unable to determine if an employee will work over 30 hours a week, the employee should be classified as a variable hour employee. In order to measure their full-time status, employers can use a monthly calculation or a look-back measurement.
What’s the cost of Penalty A?
If an employer fails to offer their full-time employees benefits, they will be subject to a violation of $2,750 per employee. Penalties are assessed each month an eligible employee is not offered coverage, which amounts to $214.17 per employee per month. If you are a large employer with 5,000 employees and you fail to provide proper benefits for your employees, you could be subject to a $12,7772,900 fine annually.
Penalty B under the ACA
Penalty B occurs when employers that offer coverage to their full-time employees, offer coverage that does not provide minimum value or is considered a qualified health plan and at least one full-time employee receives a premium tax credit through the Health Insurance Marketplace.
What is the minimum value?
The minimum value is that standard for minimum coverage that applies to job-based health plans. In order for a health plan to meet minimum value, it must be designed to pay at least 60% of the total cost of medical services for a standard population, and its benefits must include substantial coverage of physician and inpatient hospital services.
What’s the cost of Penalty B
Penalty B is calculated for every full-time employee who was not offered minimum value coverage by their employer, who went to the Health Insurance Marketplace and qualified for a premium tax credit. The annual penalty per employee comes out to $3,860. Penalty B is calculated on a monthly basis which comes out to $321.67 per employee per month.
For an employer with 5,000 employees, if 100 ACA full-time eligible employees were not offered minimum value coverage, or the coverage was not affordable and they receive a premium tax credit or subsidy on the exchange, employers would be liable for $386,000 annually.
Calculate how much you can save by investing in minimum essential coverage by using the MEC calculator below.
