This requirement is also known as the ACA employer mandate. If you don’t comply, and your workers wind up buying their own health insurance via the exchanges, and they get a subsidy, you may have to pay thousands of dollars per worker in penalties.
This could be a very expensive mistake.
And let’s face it: Your employees deserve the very best health plan you can provide them. If you don’t, your best workers will have other options and are not likely to stay long without quality health benefits.
Fortunately, there are ways to reduce your healthcare expenses, avoid the ACA shared responsibility penalties, and still provide your workers with a great healthcare plan that you and them together can actually afford.
In this article, we’ll explain the ACA employer mandate, help you sidestep the employer shared responsibility penalties, and show you a way to provide an extremely competitive health plan – at a vastly reduced cost.
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Penalty Types: Part A and Part B
While small employers with fewer than 50 full-time equivalent employees are exempt from these penalties, larger employers need to understand the details of the employer mandate under the Affordable Care Act.
Specifically, if you fail to provide a qualifying group health insurance plan to your employees, you may face two shared responsibility penalties: The “no coverage” penalty (Part A), and the “inadequate coverage penalty (Part B).
Here’s how they work:
1. Part A (“No Coverage) Penalty
This penalty applies to large employers that fail to offer minimum essential coverage to at least 95% of their full-time employees (and their dependents).
If any of your employees go to the Affordable Care Act marketplace or purchase an ACA-qualified health plan via an agent or from the carrier directly, and they receive a subsidy, the IRS will come looking for you, and your business will be required to pay a penalty.
As of 2024, the annual penalty is $2,970 per full-time employee.
But… you get 30 freebies. That is, the penalty doesn’t apply for the first 30 employees who decide not to join your plan and instead enroll in an ACA marketplace plan and get a subsidy.
But that 31st employee can be a doozy.
And so can every employee beyond that who gets an ACA subsidy.
For example, suppose you have 100 full-time employees, and you decide not to offer a formal ACA-qualified group health plan.
If at least one employee receives a premium tax credit, the penalty calculation would be as follows:
(100−30) × $2,970 =70 × $2,970 = $207,900
Obviously, a penalty like that could put a real crimp in your profitability!
2. Part B Penalty ( “Inadequate Coverage”)
You may face this penalty if you offer some type of coverage, but the coverage does not meet the ACA’s affordability and minimum value standards, and at least one full-time employee receives a premium tax credit for purchasing insurance through the Marketplace.
The annual Part B penalty for 2024 is $4,460 per employee who receives a premium tax credit. But the overall penalty is capped at whatever amount you would have paid had you been assessed the Part A penalty instead.
That is, the Part B penalty, in practice, cannot be greater than the Part A penalty.
Example: Suppose you offer coverage that either does not meet the ACA affordability standard or does not provide minimum value (pays for 60% of expected medical expenses after the deductible). Suppose further that ten employees receive a premium tax credit. Here’s how to calculate your Part B penalty.
10 employees × $4,460 = $44,600
This amount would be compared to the potential Part A penalty, and you would pay whichever is less.
But remember: Health insurance costs up to $25,572 per family as of the end of 2024, according to the Kaiser Family Foundation. That’s a lot more than either the $2,970 Part A penalty or the $4,460 Part B penalty.
The penalty costs just a fraction of the cost of providing a full-fledged group health insurance plan to an employee and his or her family.
To avoid both penalties, however, and still save a significant amount of money per worker, you can skip those overpriced ACA-qualified health insurance plans altogether.
Your Step-By-Step Strategy to Avoid the ACA Shared Responsibility Penalty
Here’s an increasingly popular strategy that small, medium, and even larger employers can employ to legally avoid the ACA shared responsibility penalties:
Step 1: Establish a level-funded health insurance plan
These are employer-sponsored health plans that combine features of traditional group health insurance and self-funded plans.
They offer more predictable costs compared to traditional group health insurance solutions. Properly designed, your plan will pay at least 60% of expected healthcare costs. It will cover basic preventive care services.
You’ll make it available for around 9% of your employees’ pay or less. This way, your plan will meet the ACA minimum value and affordability requirements, and you’ll avoid the Part B penalty.
TIP: All you need to do to avoid the penalty is offer the qualified plan. It doesn’t matter, for the purpose of applying the penalty, whether your employees enroll in it. As long as you make it available and at an affordable cost to workers, you won’t pay the minimum value or affordability penalties.
Switching from a traditional group insurance plan typically saves employers about 10-12% compared to paying premiums to an outside insurer.
Step 2: Create a combined health sharing + minimum essential coverage (MEC) plan to offer employees
Health sharing plans are non-profit, non-insurance alternatives to traditional group plans.
They offer more flexibility for your workers to choose their own doctors and hospitals (no narrow networks). They provide great protection against even catastrophic healthcare costs.
And they cost up to 50% less than a traditional group plan.
Your health sharing component is there to handle large and catastrophic medical expenses. The MEC component is there to handle routine preventive services, screenings, and regular doctor visits that the health sharing plan doesn’t pick up.
The disadvantage: There’s typically a waiting period before the plan will pay for costs related to pre-existing conditions. So they’re best for healthier employees and dependents.
Step 3: Offer employees a choice
Your workers can choose the level-funded plan, or they can choose the health sharing plan.
In practice, healthier employees will choose the health sharing option because of the vastly lower cost. Employees with pre-existing conditions will tend towards your self-funded plan.
Whichever plan your workers choose, it saves you money compared to traditional group health insurance premiums.
The more employees that choose the health sharing + MEC option, the greater your savings.
Some employers are saving hundreds of thousands of dollars, or even millions, by migrating workers out of overpriced traditional group health insurance and into one of these innovative, money-saving alternatives.
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Want to Learn More?
HSA for America works with both small and large employers to help them design more competitive and more cost-efficient benefits strategies for employees, executives, and owners.
We do this by combining multiple health benefits solutions tailored specifically for your workforce, industry, and budget.
Possible strategies include:
- Cost-saving health sharing plans
- Tax savings through health savings accounts and high-deductible health plans
- Consumer-directed healthcare (again, through HSAs)
- Flexible cafeteria plans
- Supplemental/voluntary benefits like hospital and accident insurance plans that help keep healthcare affordable, even with higher deductibles
- Health reimbursement arrangements that employer emoloyees with more choices while saving taxes
Our approach is highly individualized to your business and consultative. Getting started is very easy. To begin the process, just contact an HSA for America Personal Benefits Manager.
We’ll go over your census with you and help you put together a plan. And we’ll make sure your workers have the information and support they need to make the right decision and enroll.
Together, we’ll make sure your workers get the benefits they need––at a more affordable price.
For Further Reading:
Hi! I’m Misty Berryman, and I’m one of your Personal Benefits Managers. I like working with HSA for America because we’re creating solutions to healthcare problems. Our focus on money-saving alternatives like HSA plans and health sharing programs, and the variety of health share programs we offer, are what set us apart. Read more about me on my Bio page.
