“Pay or Play” Employer Mandate and Penalties (brief summary)
Under the “Shared Responsibility of the Affordable Care Act (“ACA”), beginning January 1, 2015 employers with 100 or more full-time equivalent (“FTE”) working 30 hours or more per week (including the hours of the part-time workers added together to equal full-time equivalent workers) will be required to offer “affordable” health insurance coverage and must meet the minimum value, or they will face a penalty. Beginning January 1, 2016, employers with 50 or more FTE will be required to offer “affordable” health insurance coverage meeting the minimum value to their eligible employees, or they will be required to pay the penalty.
Large employers who do not offer coverage to their FTEs face a penalty of $2,000 time the total number of full-time employees, less the applicable exempt employees specified by law.
In addition, large employers who offer coverage to their full-time employees, but do not make the lowest cost plan “affordable” for the employee only premium or does not provide minimum value will face a penalty of $3,000 times the number of full-time employees receiving tax credits for exchange coverage (not to exceed $2,000 times the total number of full-time employees). This is merely a brief summary of some of the employer’s penalties under the Shared Responsibility provision of the Affordable Care Act, and does not include all penalties and provisions.
Some Considerations for Employers
Some employers, who currently offer benefits, have considered eliminating the health care coverage altogether and instead paying the penalty on their full-time employees. However, there are many reasons an employer should carefully consider all of their options before eliminating their group health care coverage.
Listed below are a few highlights for employers to consider in their final decision-making process. If an employer should eliminate health care, the following would apply:
- Lost tax advantages for the Employer and Employee, as employee’s portion of the premiums will no longer be deducted through payroll with pre-taxed dollars with a Section 125 Premium Only Plan.
- Employer will pay the penalty for not offering coverage and the penalty is non-deductible, whereas employer-paid premiums are tax deductible as a business expense.
- Penalties will increase in subsequent years.
- Employer will still have the annual reporting requirements under Section 6056, regardless if they offer coverage or not. There are additional penalties for non-compliance with the reporting requirements.
- Employer may face recruitment and retention challenges if they opt not to offer coverage.
- Other financial implications for Employers (i.e. how it may affect their Workers’ Compensation, payroll taxes, corporate bottom line, etc.).
- Individuals will have to purchase insurance on their own with AFTER tax dollars, or face an individual tax penalty.
- In most cases, employer group plans have a different and more comprehensive list of participating providers, than that of Individual plans.
- In most cases, employer group health plans provide a more comprehensive list of covered prescriptions.
As you can see, there are many things an employer needs to consider while evaluating the “Pay or Play” Employer Mandate. The above-list are some considerations and not limited to such.
If you would like to further discuss the “Pay or Play” employer mandate, penalties, and how it affects your company, please contact MNJ Insurance Solutions at (714) 716-4303.
This content is provided for informational purposes only. While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy and completeness. The information provided should not be construed as legal or tax advice or as a recommendation of any kind. External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.