The Patient Protection and Affordable Care Act, also known as PPACA, healthcare reform, Obamacare, Affordable Care Act or the ACA, is a law enacted on March 23, 2010, which issued new rules and guidelines on the offering, administration, and acceptance of healthcare coverage in the United States. PPACA directly regulates healthcare providers, insurance companies, individuals, and employers. The law was amended by the Health Care and Education Reconciliation Act on March 30, 2010.
The law is quite broad, affecting insurance companies, hospitals, individuals, and employers. Many of the law’s sections have different effective dates. For instance, the individual mandate, the piece of PPACA which requires individuals to obtain a level of health coverage known as “minimum essential coverage” or face a tax penalty, went into effect in 2014. While the federal tax penalty for failing to obtain coverage was reduced to $0 beginning in 2019, certain states have since implemented their own individual mandate requirements. The employer mandates, or rules in PPACA, which require employers to provide certain levels of coverage to certain employees, went into effect in 2015 and remain in force today.
Since PPACA regulates a number of different areas regarding healthcare coverage, it naturally contains a number of separate provisions. Many of these provisions also have associated regulations which offer further guidance. Guidance is offered by the three main departments which regulate PPACA:
- Internal Revenue Service (IRS)
- Department of Labor (DOL)
- Department of Health and Human Services (HHS)
LBMC Employment Partners, LLC, is well-versed in all things ACA. We offer services that include Affordable Care Act Recordkeeping and can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure.
History of ACA
Comprehending the ACA and every change it has gone through can be tough. Here’s a brief timeline:
- 2010: President Obama signed the ACA into law.
- 2012: The Supreme Court upheld the constitutionality of the ACA in National Federation of Independent Business v. Sebelius.
- 2014: ACA policies went into effect, including provisions prohibiting coverage denial for pre-existing conditions.
- 2015: Employer shared responsibility provisions became enforceable for applicable large employers.
- 2019: The federal individual shared responsibility payment was reduced to $0, though the employer mandate remained fully intact.
- 2020–Present: The ACA continues to evolve through annual IRS adjustments to affordability percentages and employer shared responsibility penalties, as well as expanded premium subsidy provisions under subsequent federal legislation.
Goals and Methods of PPACA
The balance of PPACA is the expansion of the number of individuals who receive healthcare coverage in the United States, alongside tighter rules governing the type of coverage that may be offered.
This balance was achieved by first enacting a number of regulations on insurance companies. These regulations, including guaranteed issue requirements and prohibitions on pre-existing condition exclusions, were designed to improve access to coverage and enhance consumer protections. While increased regulation can influence pricing and plan structure, these standards now serve as the foundation of today’s health insurance market.
Second, the individual mandate was designed to broaden participation in the health insurance market. Although the federal tax penalty associated with the individual mandate was reduced to $0 beginning in 2019, the broader framework of coverage expansion and subsidy eligibility remains intact.
Debate continues regarding the long-term economic impact of the ACA on healthcare pricing and market competition. However, the core structure of the law, expanded access, employer shared responsibility, and regulated insurance standards, remains firmly in place.
Challenges of PPACA
Since its enactment, PPACA has faced legal, political, and operational challenges. While many of the most significant constitutional and statutory questions have been resolved, the law continues to evolve through regulatory guidance and annual IRS adjustments.
Individual Mandate
The constitutionality of the individual mandate was challenged in National Federation of Independent Business v. Sebelius. In 2012, the U.S. Supreme Court upheld the mandate as constitutional under Congress’s taxing authority.
Subsequent legal challenges addressed the availability of premium tax credits in federally facilitated exchanges. The Supreme Court ultimately upheld the government’s authority to issue subsidies in those exchanges, preserving the national structure of Marketplace coverage.
Other provisions, including contraceptive coverage requirements under HHS regulations, have also been the subject of litigation, with outcomes shaping implementation details over time.
Compliance and Enforcement
Compliance obligations under PPACA remain significant for employers. In addition to employer shared responsibility penalties under IRC §4980H, the law includes documentation and reporting requirements such as the Summary of Benefits and Coverage and annual Forms 1094-C and 1095-C filings.
PPACA also includes excise tax penalties for certain plan design failures. For example, IRC §4980D may impose a penalty of $100 per affected employee per day for noncompliance with specific group health plan requirements. While this penalty is often less discussed than the employer mandate penalties, it can create substantial exposure if not properly managed.
How a PEO Helps Employers Manage ACA Compliance
Healthcare reform continues to affect businesses in practical ways, from workforce classification and eligibility tracking to affordability testing and reporting obligations.
For many small and mid-sized businesses, these responsibilities place added strain on internal HR, payroll, and finance teams. ACA compliance is not a one-time exercise. Penalty amounts and affordability percentages change annually, workforce classifications fluctuate, and reporting requirements remain detailed and time-sensitive.
A Professional Employer Organization (PEO) like LBMC Employment Partners, LLC, can help employers:
- Monitor full-time employee and FTE thresholds
- Administer measurement and stability periods
- Conduct annual affordability testing
- Manage ACA reporting requirements
- Respond to Marketplace subsidy notices
- Design compliant and cost-effective health plans
- Develop proactive strategies to reduce penalty exposure
Rather than reacting to penalties or government notices, employers who partner with a PEO can take a proactive, structured approach to compliance — aligning healthcare strategy with workforce planning, financial management, and long-term growth.
For growing organizations, this partnership can transform ACA compliance from a reactive burden into a managed process supported by experienced professionals.
PPACA’s Employer Mandate: Healthcare Coverage
Organizations with 50 or more full-time or full-time equivalent employees, known as Applicable Large Employers (ALEs), are required to offer affordable, minimum essential health coverage to at least 95% of their full-time employees and their dependents (up to age 26), or potentially pay a penalty.
Under current law, a full-time employee is defined as one who averages at least 30 hours of service per week or 130 hours per month. This definition has remained consistent since the law’s implementation.
What Is a Full-Time Employee Under PPACA?
A full-time employee is defined differently by PPACA than by many other state and federal laws.
Under PPACA, a full-time employee is one who works an average of 30 hours per week. For monthly measurement purposes, this equates to 130 hours of service in a calendar month.
Project-based and variable-hour employees require careful scrutiny because their classification may change depending on hours worked. Employers must use a measurement period, also known as a look-back period, typically ranging from three to 12 months, to determine whether such employees average 30 hours per week.
Calculating Full-Time Equivalent Employees (FTEs)
The full-time employee equivalent calculation determines whether an employer meets the 50-employee threshold for ALE status.
The formula is:
Number of full-time employees
(Total part-time and seasonal employee hours worked in a month ÷ 120)
The result is rounded down to the nearest whole number.
If the total equals 50 or more, the employer is considered an Applicable Large Employer and is subject to employer mandate provisions.
The “A” and “B” Tax
The employer mandate is enforced by two penalties under IRC §4980H:
“A” Tax – Failure to Offer Coverage
The “A” tax applies when an ALE fails to offer minimum essential coverage to at least 95% of its full-time employees.
Penalty amounts are indexed annually for inflation. For 2026, the §4980H(a) penalty is approximately $3,340 per full-time employee per year (minus the first 30 full-time employees), calculated on a monthly basis.
This penalty is assessed if at least one full-time employee receives a premium tax credit through the Marketplace.
“B” Tax – Unaffordable or Non-Minimum Value Coverage
The “B” tax applies when an ALE offers coverage, but the coverage is either unaffordable or does not provide minimum value, and at least one full-time employee qualifies for a premium tax credit.
For 2026, the §4980H(b) penalty is approximately $5,010 per full-time employee who receives a premium tax credit.
The total “B” tax liability is capped at the amount the employer would have owed under the “A” tax.
Affordability and Minimum Value
Affordability and minimum value are critical compliance concepts under PPACA.
Affordability thresholds are adjusted annually by the IRS. For 2026, coverage is considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.96% of household income. Employers may rely on IRS affordability safe harbors, including the W-2, Rate of Pay, and Federal Poverty Line safe harbors.
Minimum value generally means that the plan pays at least 60% of the total allowed cost of benefits.
Mechanics of the “B” Tax
The “B” tax is triggered when:
- An ALE offers minimum essential coverage to at least 95% of full-time employees;
- The coverage fails affordability or minimum value standards; and
- A full-time employee enrolls in Marketplace coverage and qualifies for a premium tax credit.
Premium tax credits are granted based on the employee’s application. If an employee is pre-qualified for a subsidy, the employer will receive a notice and has an opportunity to respond or appeal.
Because subsidy determinations are made based on employee-submitted information, employers must maintain accurate documentation and respond promptly to IRS or Marketplace notices to mitigate penalty exposure.
Calculating the Penalty
Penalties are calculated on a month-by-month basis and reported annually.
Example 1: “A” Tax (Failure to Offer Coverage)
Example 2: “B” Tax (Unaffordable / Non–Minimum‑Value Coverage)
If that same employer offers coverage but 10 full‑time employees receive premium tax credits through the Marketplace, the “B” tax (4980H(b)) is calculated as:
10 × $5,010 = $50,100 annually
Preparing for ACA Compliance
To prevent excise taxes and unnecessary exposure, employers typically focus on two strategies:
- Deny – Structuring eligibility and properly administering look-back and stability periods.
- Design – Structuring plan offerings to meet minimum essential coverage, affordability, and minimum value standards in a cost-effective manner.
Ongoing compliance also includes annual affordability testing, monitoring workforce hours to determine ALE status, managing variable-hour classifications, and preparing Forms 1094-C and 1095-C.
Relevant Citations:
- The Patient Protection and Affordable Care Act
- Healthcare.gov
- IRC § 5000A
- PHSA § 2701-2719A
- IRC § 4980H (PPACA § 1513)
- IRC § 5000A (PPACA § 1501)
- IRC § 36B (PPACA § 1401)
- IRS Notice 2013-54
External PPACA Resources:
- Detailed Summary: PPACA
- Full Text of the Affordable Care Act (PDF)
- Wikipedia: Patient Protection and Affordable Care Act
LBMC Employment Partners, LLC, is well-versed in all things ACA. We can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure.
Revised: 2026; (Original post: 06/01/2016)