Straightforward facts and actionable steps to
protect your business and comply with health care reform’s Employer
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”
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
»» 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
- 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.
- 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
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
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
- 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
- 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: aflac.com/healthcare_reform. To
learn more visit: healthcare.gov, sba.gov/healthcare, cciio.cms.gov 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
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 healthcare.gov (which may also be contacted at
1-800-318-2596) for additional information.