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April 25, 2013

A Large Employer's Guide to the ACA Penalty

A provision to create state-based Health Benefit Exchanges will open up another option for health care coverage for employees. This new regulation will benefit some employees by providing them with tax credits for their insurance under a state Exchange. While this change will likely only apply to some employees, large employers should take note of the Exchange and its effects on their business.

The penalty effective starting in 2014, known as the Shared Responsibility Payment, includes a nondeductible excise tax assessed on large employers who do not provide minimal essential coverage or affordable coverage to their full-time employees. For instance, if a full-time employee goes to an Exchange and is granted tax credits for health insurance then consequently, their employer may be subject to a penalty.

Large employers*, with at least 50 full-time employees or equivalents, will be affected by the penalty. Full-time employees include employees who work at least 30 hours per week. Leased employees as defined in IRC § 414 (n)(2) are not treated as full-time employees.

Large employers that employed an average of 50 or more employees on business days for the preceding calendar year may be required to make a “shared responsibility” tax (“assessable payments”) for each month that the employer did the following:

  • Had at least one full-time employee certified as having enrolled in a qualified health plan for which a premium tax credit or cost-sharing reduction is allowed or paid [i.e. the employee goes to the Exchange and qualifies for the credit or subsidy]
  • Did not offer essential coverage for all its full-time employees, OR, offered coverage to its full-time employees that is unaffordable or is a plan that does not provide minimum value

The essential coverage plan components affect generally any employer-provided coverage which satisfies a host of various mandates. These mandates include having no pre-existing condition exclusions, waiting periods exceeding 90 days or annual dollar limits on the essential health benefits. It also includes those mandates that provide coverage for dependent children to age 26, have cost-sharing limits and provide clinical trial coverage. Generally, most large employer plans with 100 participants or more will meet these requirements.

*Aggregate the number of employees who are not full-time employees (aggregate number for hours/month worked by part time employees divided by 120) Note: This computation is only for purposes of determining large employers and has no other use under PPACA.

Before you determine how much the Affordable Care Act will cost you, it is in your best interest to reach out to someone who will go over the details surrounding the reform. CBIZ Memphis has a specialized team of individuals who have been trained in all facets of ACA. Schedule a meeting with one of our experts by contacting Megan Murdock, 901.685.5575.


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