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PPACA's Employer Mandate: Healthcare Coverage

03/08/2016

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Updated December 2016

At this time, organizations with 50 or more full-time or full-time equivalent employees are required to offer affordable, minimum essential health coverage to at least 95% of this group. If this is not met, employers have to pay a penalty. Individual mandate requires adults without insurance to apply for an ACA-compliant policy, and, if this isn’t met, will have to pay a tax penalty. Two things might happen: 

  1. The definition of a full-time employee could potentially change. Currently, it’s an employee who works 30 or more hours a week. The Republican Party has announced that it’s thinking about changing the definition to an employee who works 40 hours a week. This allows employers to decide how they want to cover the 30- to 40-hour working employees from a business standpoint.
  2. The Employer Mandate could be removed altogether, which allows employers to decide what they want to offer to their employees for health insurance. The Individual Mandate could be repealed altogether, too, which takes away the requirement of purchasing insurance at all. 

There are more changes for businesses with 50 to 100 employees. While they may be considered a small group employer for insurance purposes, they will be considered a large group employer for Employer Mandate penalty calculations. Employers are now required to offer affordable, minimum essential health coverage to at least 95 percent of their full-time employees, as well as their dependents (up to age 26), or pay a penalty. Previously, this mandate had only applied to businesses with over 100 employees but will now apply to employers who have between 50 and 100 full-time employees.

Under PPACA, some employers are required to first provide healthcare coverage to their employees, and second to ensure this coverage meets a certain standard. Thus, the “employer mandate” is really two separate mandates.

The driving force behind these mandates is the concept of “pay or play.” Employers must either pay excise taxes for violating one of the employer mandates or play by offering health coverage which complies with PPACA standards.

The employer mandates only apply to full-time employees. Employers are not obligated to provide health care coverage to part-time employees, seasonal employees, or unlawfully present individuals. Note that future healthcare non-discrimination rules may affect employer obligations towards these types of employees.

The first mandate is known as the opt-out penalty, or the "A" tax. This penalty applies to applicable large employers, not small employers. 

The second mandate is known as the qualified and affordable coverage penalty, or the "B" tax. This penalty applies to applicable large employers who elect to offer minimum essential coverage to at least 95% of their full-time employees.

Relevant Citations:

LBMC can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure. Learn about our ACA Compliance Consulting and Tracking services.

External PPACA Resources: