Five things to know—and do—to guard against health care reform penalties

    By | AFLAC


    Straightforward facts and actionable steps to protect your business and comply with health care reform’s Employer Shared-Responsibility Requirement

    Is your company ready for potential penalties due to health care reform? We’ve outlined five actionable steps to help your business understand the details of the law, assess the risk and severity of potential penalties and develop a strategy to meet compliance standards.

    1. Know: Whether your company is accountable for the Employer Shared-Responsibility Requirement.

    First things first: Does your company need to comply? Only employers with 50 or more full-time equivalent (FTE) employees are responsible for the Shared-Responsibility Requirement. Additionally, while larger employers with 100 or more FTEs must comply by 2015, employers with 50 to 99 FTEs are given a grace period until 2016. Employers with 50 or more FTEs are also referred to as “Applicable Large Employers” (ALEs).

    Do: Calculate the number of FTEs your company has. It’s easy to confuse “full-time equivalent” (FTE) with “full-time,” but these terms are distinctly different. Full-time employees are those working at least 30 hours a week, while the number of FTEs a company has is based on an equation including both the number of full-time employees and all part-time employee hours. Use this equation to accurately establish your FTE count:

     »» Total collective hours worked in a month by all part-time employees working fewer than 30 hours per week divided by 120, plus the total number of full-time employees working at least 30 hours per week.

    FTE = (part-time hours total) ÷ 120 + (number of full-time employees)

    2. Know: The type of coverage that meets compliance standards. Health care reform requires insurance coverage under the Shared-Responsibility Requirement to meet two criteria:

    1. Coverage must be considered affordable: The cost of the coverage to employees can’t exceed 9.5 percent of employees’ household income. Since employers can’t know for certain an employee’s household income, employers may use the employee’s W-2 income to calculate this percentage.
    2. Coverage must offer minimum value: The coverage must have at least a 60 percent actuarial value (AV). This means it pays on average 60 percent of the cost of Essential Health Benefits and is equivalent to a “bronze” plan in the individual market.

    Do: Determine if your employee benefits options meet the requirements. You’ll need to know your employees’ W-2 incomes, the cost of the health care plan to each employee, and the actuarial value of the plan. Check with your benefits consultant or broker if you have specific questions about whether or not your plan meets these requirements.

    3. Know: Whom your company is required to cover. ALEs are only required to extend compliant coverage to full-time employees working at least 30 hours of service each week and their dependent children under the age of 26. Hours of service include hours worked and hours that an employee is paid but does not work, such as vacation, holiday, illness or disability, jury duty and military duty. Health care reform doesn’t require employers to offer coverage to spouses of employees or part-time employees.

    To help businesses gradually phase in compliance with the law, they’re permitted to offer compliant coverage to at least 70 percent of their full-time employees and dependent children in 2015. In 2016, coverage must be extended to 95 percent of full-time employees and their dependent children.

    Additionally, employers who didn’t offer dependent coverage previously in 2013 or 2014 are given an additional grace period and won’t be penalized in 2015 for failing to offer dependent coverage as long as the companies can show they’re working to make this coverage available in 2016.

    Do: Keep track. Though your company may not be required to offer compliant coverage to part-time employees, you’re still responsible for keeping detailed records of employment status and hours worked. Tracking involves important details issued by the federal government, including measurement periods and reassessment. To learn more visit the IRS Q&A.

    4. Know: The likelihood your company will be penalized. Penalties aren’t automatically activated if a company doesn’t offer compliant health care coverage. In actuality, penalties under the Employer-Shared Responsibility Requirement are triggered when ALEs don’t meet the compliance standards and at least one of their full-time employees qualifies for and receives a premium subsidy in the individual insurance market through a federal or state exchange. Though it may be less likely your company will trigger penalties if you offer compliant coverage to substantially all full-time employees or employees don’t qualify for and receive premium subsidies, it’s important not to roll the dice when it comes to protecting your workforce. If your company feels it can’t afford compliant coverage, it’s important to consider lower-cost health care options and voluntary insurance which can help with out-of-pocket costs.

    Do: Determine if your company could trigger penalties. To activate a penalty both triggers must occur:

    Trigger 1: (at least one of these is true for your company):

    • Your company doesn’t offer health care coverage to 70 percent of all full-time employees and their dependent children in 2015 and 95 percent in 2016.
    • Your company offers coverage that isn’t considered affordable.
    • Your company offers coverage that doesn’t meet minimum value standards.

    Trigger 2: At least one employee or their dependent child receives a subsidy through a federal or state insurance exchange to help offset the cost of purchasing health care coverage. To learn more about tax subsidies and which employees qualify.

    5. Know: The severity of potential penalties. If your company doesn’t offer compliant health care coverage which meets the affordable and minimum value standards to substantially all full-time employees and their dependent children under the age of 26, it’s important to prepare for the potential amount your company could be fined. Your business may be penalized in one of two ways based on whether your company chooses not to offer health care coverage at all or offers non-compliant coverage. The penalty for not offering health coverage at all is sometimes considered more severe. The penalty for offering coverage that isn’t compliant may be less so; however, it can be substantial nonetheless.

    Do: Consider the impact of potential penalties, as well as indirect costs. Calculate potential penalties your company could encounter under the law to weigh whether the fine will be more than the cost of offering compliant coverage. Keep in mind intangible factors such as the benefits of offering employees health care coverage, including improved job satisfaction, loyalty and morale.

    Workplace factors to consider:*

    • The majority of employees (80 percent) believe their overall benefits packages influence their engagement on the job and with their organizations.
    • 80 percent agree a well-communicated benefits package would make them less likely to leave their jobs.
    • 57 percent of employees are likely to accept jobs with slightly lower compensation but better benefits.
    Potential penalties are as follows:
    • $2,000 penalty per full-time employee.  Think of this as the sledgehammer penalty: If an employer doesn’t offer any type of health care coverage to substantially all of its full-time employees and their dependents, the employer is penalized a fee of $2,000 for each of its full-time employees, excluding the first 30, if at least one of their full-time employees qualifies for and receives a premium subsidy in the individual insurance market through a federal or state exchange.
    • $3,000 penalty per full-time employee or dependent receiving a subsidy. Think of this as the tack hammer penalty: If an employer offers coverage that is either unaffordable or doesn’t meet minimum value requirements, the employer is penalized $3,000 for each full-time employee or dependent that purchases health care coverage in the individual market through a federal or state exchange and receives a premium subsidy.

    As you continue to navigate health care reform, you can rely on Aflac to provide updates and helpful information at: To learn more visit:,, and

    Get a pdf version of this article.


    * 2014 Aflac WorkForces Report, conducted by Research Now on behalf of Aflac, January 7, 2014 to January 27, 2014. The full methodology can be found at

    This material is intended to provide general information about an evolving topic and does not constitute legal, tax or accounting advice regarding any specific situation. Aflac cannot anticipate all the facts that a particular employer or individual will have to consider in their benefits decision-making process. We strongly encourage readers to discuss their HCR situations with their advisors to determine the actions they need to take or to visit (which may also be contacted at 1-800-318-2596) for additional information.

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