The Affordable Care Act was originally signed into law in March 2010. While those in Massachusetts had previously experienced significant healthcare reform a few years before the ACA came into being, to the rest of the country, the ACA was huge!  

Since the ACA was such a broad sweeping act (providing a number of major benefits to individuals that weren’t previously available), it was implemented gradually to give states a reasonable amount of time to address its reforms and meet compliance.  

What the ACA Provides 

The ACA provides a number of important benefits, including: 

• Guaranteed insurance coverage for individuals with pre-existing conditions 
• Automatic coverage for children up to age 26, on a family health plan 
• Lactation breaks for nursing mothers 
• No lifetime coverage limits on a health insurance plan 
• Free preventative care screenings, annual physicals, etc., with no out-of-pocket costs 
• For group health plans, the waiting period for eligible new hires cannot exceed 90 days 

While Employees Benefit from the ACA, Employers Can Be Penalized 

While employees are reaping the benefits of the ACA, employers can face stiff penalties for not being in compliance with the ACA.  

An employer who does not offer coverage to an employee who was eligible must deal with a very expensive penalty known as the “Non-offer Penalty.” This Penalty is based on the employer’s full-time employee count (FTE), which includes full-time employee equivalents.  

There is also a second type of penalty is known as the “Affordability Penalty,” which we’ll also talk about. 

But first, let’s start with the Non-offer Penalty. 

You may wonder how the Federal Government would know if an employer didn’t offer coverage to an eligible employee. The penalty is triggered when an employee signs up for healthcare.gov Marketplace coverage and receives a subsidy for that coverage.  

On the other hand, if you’re not offering coverage to your employees and no one signs up for a Marketplace health plan, then no one will receive a subsidy from the healthcare.gov Marketplace and there is nothing that would trigger a penalty. 

Note: Because more and more employees are signing up for healthcare coverage through the Marketplace, and many of these employees are eligible for subsidies, the risk of an employer being fined for not offering eligible employees healthcare coverage is much higher than it was just five years ago.  

The Non-offer Penalty: Employers Can Pay Big 

For 2023, the penalty for not offering an eligible employee coverage is $2,880 per full-time employee or equivalent, minus the first 30 FTEs.  

For example: If you have 100 FTEs, and you violate the non-offer provisions of the ACA, the IRS will lop off the first 30 FTEs. This leaves you at 70 FTEs. 

In 2023, while the Federal Government is only penalizing you for 70 FTEs, you’re still going to be facing a non-offer penalty of $2,880 x 70 FTES, or a grand total of $201,600. (Yes, it’s a big penalty.) 

The Non-offer Penalty is Prorated and Increasing in 2024 

Note that the IRS prorates the Non-offer Penalty. Say you offered an employee coverage for six of 12 months. Your penalty would be half (1/2) of the yearly amount ($201,600), or approximately $100,000.  

Keep in mind that the 2024 penalty with be increasing to $2970. (Penalties are prorated at $240 monthly.)  

Which brings us to the Affordability Penalty. 

The Affordability Penalty (less than the non-offer penalty, but, hey, it’s still a penalty) 

If an employer offered coverage to its employees, but that offer did not meet the affordability safe harbor requirements for the lowest-cost employee, then the employer would be penalized.  

Here’s how it works:  

• If all employees sign up for coverage through the employer— even if the insurance is not “affordable”—the employer won’t be penalized. 
• The penalty is triggered if an employee declines coverage from the employer, and then purchases subsidized coverage on the healthcare.gov Marketplace. 
• When calculating the Affordability Penalty, the IRS does not base it on the full number of FTEs on staff. The IRS only counts the actual number of employees receiving subsidized coverage. 
• The penalty is $4,320 per FTE receiving a subsidy. 

For example: 

• A company has 100 FTEs.  
• Four FTEs receive an offer of coverage from the employer that is deemed “not affordable.”  
• These four FTEs all purchase subsidized coverage on the healthcare.gov Marketplace.  
• In this case, for 2023, the employer would pay a penalty of 4 x $4,320, or a grand total of $17,280. 

Note: For 2024, the penalty is increasing to $4,460.  

2024 Higher Penalties for Late Filing and Failure to File Forms 1094-C and 1095-C  

While not offering coverage to eligible employees, or offering coverage deemed “non-affordable” are certainly things about which you need to be aware, the Federal Government is also doling out higher penalties for the late filing of Form 1094-C and Form 1095-C, or not filing at all. 

Form 1094-C: This is the form employers with 50 or more full-time employees (including full-time equivalent employees) send to the IRS. Form 1094-C acts as a cover sheet containing summary information found on Form 1095-C.  

Form 1095-C: An employer will send IRS Form 1095-C to those employees who are eligible for healthcare coverage. Form 1095-C provides information about the coverage offered to the employee, the lowest-cost premium available to the employee, and the months of the year the coverage was available. 

Penalties for Late Filing of Forms 1094-C and 1095-C 

Penalties for the late filing of Forms 1094-C and 1095-C can be up to $290 per form—with a maximum late-filing penalty of up to $3 million dollars! 

With large employers, the late filing of 50 or more forms, with each of those forms carrying a potential penalty of $290 per form, would equal $14,500. 

Penalties for Non-filing of Forms 1094-C and 1095-C  

While fines for late filing can be high, fines for not filing are twice as much! If the Federal Government deems that an employer intentionally failed to file ACA forms, they reserve the right to penalize employers up to $580 per form, with no cap! 

The Takeaway 

• The Affordable Care Act offers affordable benefits to millions of individuals that previously didn’t have health insurance. 
• Employers with 50 more full-time employees, including full-time equivalent employees, (ALEs) must meet with compliance, or face stringent IRS and legal penalties (e.g.,   Non-offer Penalty, Affordability Penalty, and penalties for late-filed and non-filed Forms 1094-C and 1095-C). 
• It’s crucial to stay on top of ACA compliance. Do your research, consult with your trusted advisors and attorneys, if necessary.  
• It is easier to adjust your course in the planning stages of your Open Enrollment where you can mitigate any issues before they turn into large legal and financial headaches.  

• Make sure you file—and file on-time! 

We’ve just touched on a small part of the Affordable Care Act. Learn more about the ACA and how you can stay on top of compliance. 

We’ll continue to bring you essential information, valuable insights, and actionable steps to help you understand new regulations, processes, forms, and information to help you maintain compliance and enhance your recruitment strategies. 

Dealing with the ACA can be confusing and frustrating. Contact us today with any questions or concerns. 

Keep up with the latest recruiting trends and best practices! Sign up to be the first to read our latest blog posts, and learn about important upcoming webinars and MP and industry events.

MP-HR: Wired for HR

MP-HR connects the dots between business goals, HR strategy, and HR technology with a focus on results. We know that HR has a tremendous impact on your business—from employee engagement to performance optimization to risk mitigation—and ultimately your profitability. That’s why we offer more than just a comprehensive technology platform. We offer you the support and expertise of a team of dedicated HR experts to ensure that you are maximizing the value of your investment and focused on cultivating high performance.

Learn more about MP’s solution.