Many companies have already filed their 2022 taxes. Still, the rising costs of the Affordable Care Act (ACA) noncompliance fines serve as an incentive for employers to examine their group health plan offerings to help ensure broad enough coverage for full-time employees with at least one self-only option that is affordable and provides minimum value benefits.
The Patient Protection and Affordable Care Act, known as the Affordable Care Act or ACA, became law in 2010. It was the most sweeping reform of the United States healthcare system since the 1965 passage of Medicare and Medicaid.
The Affordable Care Act gave Americans new rights and benefits by helping more children get health coverage, ending lifetime and most annual limits on care, allowing young adults under 26 to stay on their parents’ health insurance, and giving patients access to affordable recommended preventive services.
As with many laws, the specifics of the ACA adjust over time based on macroeconomic trends and societal shifts (i.e., the Covid pandemic and rising inflation). These changes impact the requirements of your employer-sponsored health plans.
Under the ACA, employers must offer affordable health insurance and minimum value to 95% of their full-time employees and their children up to the end of the month they turn age 26 or be subject to penalties. This mandate applies to applicable large employers (ALEs), any companies or organizations that have an average of at least 50 full-time employees or “full-time equivalents” or “FTE.” For the Affordable Care Act, a full-time employee works at least 30 hours weekly.
The affordability threshold is the cost of an employee’s coverage as a percentage of their household income. The rate is used to determine the amount eligible individuals can contribute toward the cost of coverage for coverage to be considered affordable. This amount affects how much employers can charge for health coverage and how much in penalties employers can be assessed through Employer Shared Responsibility Payments.
The requirement in 2022 was 9.61%, and the IRS reduced the amount to 9.12% for 2023. Therefore, if the premium for your employer-provided coverage costs the employee more than 9.12% of their income, the coverage is not considered affordable.
While you know your employee’s pay rate or salary, you may not know their household income. There are a few safe harbors to protect employers. The federal poverty level (FPL) is the most commonly used safe harbor method because it allows you to meet the IRS affordability requirements for all your employees by offering at least one plan with Medicare contributions at or below the current annual requirements.
A health plan meets the minimum value standard if the plan is designed to pay at least 60% of the total cost of medical services for a “standard” population. The benefits include substantial coverage of physician and inpatient hospital services.
Noncompliance rates for 2023:
Penalty A: Failure to offer coverage to 95% of full-time, benefits-eligible employees
- Fees: $2,880 ($240/month) per full-time employee
Penalty B: Failure to provide affordable, minimum-value coverage to a benefits-eligible employee
- Fees: $4,320 ($360/month) per full-time employee
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These regulations involve more details than I am summarizing in this blog. I haven’t even touched on the reporting requirements.
Contact PT Business Solutions today to avoid future fines, audit your employer-sponsored plans, integrate healthcare coverage with your payroll, or grow beyond 49 employees.