As we approach the new year, businesses and employers are reminded of the ongoing need to stay compliant with the Affordable Care Act (ACA). The landscape of ACA compliance is always evolving. As we end 2024 and look ahead to 2025, there are several significant updates that employers must prepare for in order to avoid costly mistakes and ensure they continue to meet their responsibilities under the law. 

In this blog, we’ll explore these key changes for ACA compliance in 2024 and 2025, including increased penalties, adjustments to affordability percentages, a shift away from paper filing, and new filing deadlines. We’ll also take a look at the latest developments in healthcare coverage and the growing number of people enrolling in ACA marketplace plans. 

Increased Penalties for Non-Offer and Affordability in 2024 

For employers offering health insurance to their employees, two primary areas of ACA compliance must be continually monitored: the “non-offer” penalty and the “affordability” penalty. Both of these penalties have been adjusted for 2024, with notable increases that businesses need to account for in their planning. 

The Non-Offer Penalty 

The non-offer penalty applies when an employer fails to offer health insurance coverage to full-time employees, as required by the ACA. For 2024, this penalty did rise, which means that businesses that do not provide health coverage to eligible employees will face steeper financial consequences. 

Under the ACA, full-time employees are defined as those working an average of 30 or more hours per week. The penalty for not offering coverage is assessed for each full-time employee who qualifies for a premium tax credit through the health insurance marketplace. The IRS calculates this penalty based on a set dollar amount per employee, and this amount was adjusted upward. 

The Affordability Penalty 

The affordability penalty applies when an employer does offer health coverage, but that coverage is deemed “unaffordable” according to ACA guidelines. The ACA defines affordability as the requirement that an employee’s premium for the lowest-cost, employee-only health plan must not exceed a specific percentage of their household income. 

For this year, the affordability threshold increased from 8.39% in 2023 to 9.02% in 2024. This is a significant shift and offers some relief to employers who are struggling to meet the affordability requirements. Essentially, this means that an employee’s contribution to their healthcare coverage can increase slightly without triggering the affordability penalty. 

• 2023: 9.12% 

• 2024: 8.39% 

• 2025: 9.02% 

However, businesses need to be cautious. While the increase in the affordability threshold may provide some breathing room, penalties for failing to offer affordable coverage are still rising. This dual increase in both the non-offer penalty and affordability penalty underscores the importance of making sure employees are both offered health insurance and that it meets the affordability standards. 

What’s Coming in 2025? 

Looking ahead to 2025, the penalty structure for both the non-offer and affordability penalties is set to decrease slightly. While these penalties will still be higher than in previous years, the reductions will provide some relief. This could be significant for businesses that are struggling to manage the increasing costs of offering health insurance.  

What Does This Mean for Employers? 

For employers, the shift to 9.02% in 2025 will have a few potential impacts. On one hand, it means that you can charge employees slightly more for their lowest-cost employee-only coverage without triggering an affordability penalty. For example, if the employee’s household income is $50,000, the maximum they could be asked to contribute toward their health coverage in 2025 would be around $4,510 annually (9.02% of $50,000). 

Employers with multiple health plan options must always base their affordability calculations on the lowest-cost, employee-only option available to each employee. This is important to note, as it’s not based on the plan the employee actually selects but the plan that is available to them. Additionally, the affordability threshold only applies to the lowest-cost single-coverage option, not to family coverage or coverage for a spouse. 

No More Paper Filing for Large Employers (10+ Employees) 

A significant administrative change coming in 2025 is the elimination of paper filing for large employers with 10 or more employees. In the past, large employers could file their 1095 forms on paper with the IRS. However, as part of the government’s ongoing efforts to streamline ACA reporting, electronic filing will now be required for all applicable employers. 

This means that starting in 2025, employers will no longer have the option to submit paper filings for 1095-C forms, which are used to report the coverage offered to employees under the ACA. Employers will need to submit these forms electronically by March 31, 2025, and they must ensure they have the proper systems in place to comply with this new requirement. 

“Good Faith” is Officially Dead: No More Penalty Relief 

In a move that will affect employers’ ability to avoid penalties, the “good faith” relief provision will officially be dead. Under this provision, employers were previously allowed to avoid penalties for certain mistakes or errors in their ACA reporting if they could demonstrate that they were making a good faith effort to comply with the law. 

However, the IRS has announced that this provision will no longer apply in 2024 and beyond. This means that employers will no longer have a “get out of jail free card” for minor errors or omissions. Employers must now ensure that their ACA reporting is accurate and complete, or they risk facing penalties. 

Changes to ACA Reporting Deadlines in 2025 

The filing deadlines for ACA forms have been adjusted for 2025, which employers will need to be aware of in order to stay compliant. These due dates are as follows: 

• Forms 1095-C to employees: Due by March 3, 2025. 

• Paper filing with the IRS: No longer allowed. 

• Electronic filing with the IRS: Due by March 31, 2025. 

If an employer needs more time, they can apply for an extension using Form 8809, which allows an additional 30 days to file. 

ACA Marketplace: Record-Breaking Enrollment in 2024 

One of the most significant trends in the healthcare industry over the past few years has been the increasing enrollment in ACA marketplace plans. In 2024, a record 20.5 million people are expected to enroll in marketplace health plans, and the Congressional Budget Office (CBO) estimates that over 22 million people will be enrolled in 2025. 

The ACA marketplace continues to be an important resource for individuals and families who do not have access to affordable employer-sponsored coverage. Additionally, 4 out of 5 Healthcare.gov shoppers will be able to find a plan for less than $10 per month after subsidies, making it easier for low-income individuals to access quality health coverage. 

Conclusion: Preparing for 2024 and 2025 ACA Compliance 

As we look toward the end of 2024 and beginning of 2025, ACA compliance remains an essential consideration for employers of all sizes. The increased penalties for non-offer and affordability violations mean that businesses must stay vigilant in offering affordable health insurance to their employees. The increase in the affordability threshold offers some relief, but employers still need to pay close attention to these changes in order to avoid penalties. 

Moreover, the shift away from paper filing for large employers and the removal of “good faith” relief means that accurate and timely reporting will be more important than ever. With the potential for further political changes in the coming years, businesses must remain adaptable and prepared for whatever comes next. 

Staying ahead of these changes, understanding the new requirements, and ensuring that your health coverage remains affordable for employees will be crucial for ACA compliance in the years to come. Here’s how MP can partner with your business to ensure you maintain compliance and employee satisfaction.  on-demand webinar from our team at MP, which will help you understand the latest updates and changes for ACA compliance. 

Make sure to subscribe to MP’s blog and stay on top of the most up-to-date news and trends in the business realm.