1 The “A” penalty applies when an ALE fails to offer coverage to at least 95% of its full-time employees (and their children up to age 26) and at least one full-time employee receives a premium credit for marketplace coverage. The requirement is only to offer coverage – no employer contribution or minimum plan design is necessary to avoid the penalty.
2 The “B” penalty applies when the ALE offers coverage to 95% of its full-time employees (and their children up to age 26), but the coverage is either not affordable or does not provide minimum value, and at least one full-time employee receives a premium credit.
Under the ACA, applicable large employers (ALEs) – generally those with 50 or more full-time equivalent employees on average in the prior calendar year – must offer affordable health insurance to full-time employees to avoid an employer shared responsibility payment. Coverage is “affordable” if the employee’s required contribution for self-only coverage under the employer’s lowest-cost minimum value plan does not exceed 9.5% (as indexed) of the employee’s household income for the year. In lieu of household income, employers may rely on one or more of the following safe harbor alternatives when assessing whether coverage is affordable: W-2, Rate of Pay, and Federal Poverty Level. Each of the three safe harbors refers back to the 9.86% figure in 2019.
Next Steps for Employers