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The Affordable Care Act’s (ACA) Employer Mandate is critical, imposing significant responsibilities, and possible penalties, on large employers who do not understand the nuances of the mandate. Understanding and navigating the mandate is not just about legal compliance — it’s a strategic imperative that impacts organizational health, employee satisfaction, and the bottom line.

What is the Employer Mandate

The Employer Mandate requires businesses with 50 or more full-time or full-time equivalent (FTE) employees to offer health insurance that meets specific standards of affordability and coverage. FTEs are those who work 30 or more hours per week. The health insurance offered must be affordable and provide minimum value to 95% of their full-time employees and their children up to the end of the month in which they turn 26. Failure to comply can result in substantial penalties, making it crucial for business leaders to fully grasp the details of the mandate.

The final step to adhering to the mandate is by filing an annual report that ensures compliance with the employer mandate. This includes information on employees who were offered and accepted the coverage, and the cost of that coverage, broken out monthly.

Who Counts as a Full-Time Employee (FTE)?

One of the first challenges in complying with the Employer Mandate is determining who in your workforce qualifies as a full-time employee. Any employee who works 30 hours per week or 130 hours per month is considered a full-time employee. The other caveat that needs to be considered is full-time equivalent employees. This is calculated by an employee’s scheduled hours divided by the employer’s hours for a full week.

Navigating the Employer Mandate

Compliance with the Employer Mandate rests on three critical elements: offering minimum essential coverage, ensuring the coverage provides minimum value, and making the coverage affordable for employees. Here’s what that means and what you should know.

Minimum Essential Coverage (MEC)

Offering minimum essential coverage means the health insurance being offered satisfies the ACA’s individual mandate. This differs from minimum value, as minimum value must cover a certain amount of costs across a specific population of employees. Most group plans and all plans sold on the Marketplace meet the minimum essential coverage requirement.

Affordable Coverage

For coverage to be considered affordable, an employee’s contributions for employee-only coverage should not exceed their household income. For 2024, that rate is 8.39%*. Simply put, the employees portion of their monthly premium, must be less than 8.39%* of their household income, when compared to the lowest cost plan offered by the employer. Employees who are offered affordable coverage will not qualify for premium tax credits when purchasing plans on the exchange.

Minimum Value

For plan options to meet the minimum value requirement, they must cover at least 60% of the cost of allowed services (deductibles, copays, coinsurance, etc.) offered under the plan. These coverage options must also include an adequate amount of physician and inpatient hospital services.

Large employers who do not offer health plans that are affordable and meet the minimum value coverage will be subject to financial penalties. Working with an expert to build your health plan offerings will ensure you do not fall into this situation.

The High Stakes of Non-Compliance

Failing to meet the Employer Mandate can lead to two types of penalties, often referred to as the “A” and “B” penalties. Understanding these penalties and their triggers is essential for strategic planning and risk management.

  • The “A” penalty applies when an employer fails to offer MEC to at least 95% of full-time employees. The penalty amount is $2,970* per full-time employee.
  • The “B” penalty concerns offering coverage that fails the MV or affordability tests. The penalty amount is $4,460* per full-time employee.

Strategic Considerations When Tackling the Mandate

Navigating the Employer Mandate can be more than just a compliance exercise as some strategic planning is required to ensure all rules are met accordingly. For business leaders, here are some considerations to keep in mind:

  • Risk Management: Assessing the potential financial impact of ACA penalties and developing strategies to mitigate these risks.
  • Employee Satisfaction: Understanding how compliance with the mandate not only avoids penalties but also enhances employee satisfaction and retention through quality health benefits.
  • Operational Planning: Integrating ACA compliance into broader operational and financial planning, ensuring that benefits strategies align with organizational goals and employee needs.

How ICHRA Satisfies the Employer Mandate

Individual Coverage Health Reimbursement Arrangements (ICHRAs) provide a flexible and cost-efficient way for employers to meet the Employer Mandate requirements. Here’s how ICHRA satisfies the mandate:

  • Minimum Essential Coverage (MEC): ICHRAs can be structured to ensure that employees purchase individual health insurance that meets MEC standards. By offering an ICHRA, employers can ensure their contributions help employees obtain qualifying health coverage.
  • Affordable Coverage: Employers can design ICHRAs to offer sufficient reimbursement amounts, making health coverage affordable for employees under the ACA guidelines. The affordability of an ICHRA is calculated based on the lowest-cost silver plan available in the employee’s area, minus the ICHRA contribution, ensuring compliance with affordability requirements.
  • Minimum Value: ICHRAs indirectly meet the minimum value requirement by facilitating the purchase of individual market plans, many of which meet or exceed the 60% coverage threshold required by the ACA.

By utilizing an ICHRA, employers can provide their employees with greater choice and flexibility in their healthcare options, while simultaneously satisfying the Employer Mandate. This approach not only helps in compliance but can also improve employee satisfaction by offering personalized health benefits.

Looking Ahead with W3LL

The landscape of health benefits and regulatory compliance will continue to evolve. Staying informed, agile, and strategic in your approach to the ACA Employer Mandate will be key to not just surviving but thriving in this dynamic environment.

This mandate represents an opportunity to reaffirm an organization’s commitment to their workforce’s health and well-being, while also safeguarding against financial risks. Working with an expert who can help you build a benefits package that meets all compliance requirements is key. Let W3LL keep track of the constant regulatory changes so you can focus on taking care of your employees. Reach out today to get started.

 

*Affordability and penalty rates are subject to change at any time. Check with the IRS for the most up to date rates.