PPACA calls for two possible penalties, one for not offering “minimum essential” coverage and a different penalty for offering coverage that is considered inadequate because it is not “affordable” and/or it does not provide “minimum value.”
(A) The “no offer” penalty applies if the large employer does not offer “minimum essential” coverage. While minimum essential coverage has not been clearly defined, it appears that very basic medical coverage will be enough to meet this requirement. The agencies have also said that they do not expect to apply the penalty to employers who offer coverage to the vast majority of their employees, but exclude a few for a legitimate business reason or because of an error, but as yet they have provided no details on how this limited exception might work. The “no-offer” penalty is $166.67 per month ($2,000 per year) for each full-time employee who is not offered basic medical coverage. The penalty does not apply to the first 30 employees. The penalty would not apply if the non-offering employer had no employees who qualified for a premium tax credit.
Example: Dave’s Donuts does not offer medical coverage to its employees. Dave has 60 full-time employees and 12 part-time employees. 2 employees purchase coverage through an exchange. Dave will owe a penalty of $5000.10/month [(60 full-time employees – 30 excludable employees; the part-time employees are not counted for purposes of the penalty) x $166.67].
(B) The “inadequate coverage” penalty applies if the large employer offers medical coverage, but it is not “affordable” and/or it does not provide “minimum value.” Under a safe harbor that will be good at least through 2014, coverage is “affordable” for purposes of the employer penalty if the cost of single coverage is less than 9.5 percent of the employee’s W-2 income. Coverage is “minimum value” if the coverage is expected to pay at least 60 percent of claims costs.
The penalty is $250 per month ($3,000 per year) for each full-time employee who:
Is not offered coverage that is both minimum value and affordable coverage, and
Purchases coverage through an exchange, and
Is eligible for a premium credit (so his household income must be below 400 percent of federal poverty level)
Example: Jones, Inc. has 55 full-time employees, eight part-time employees and three seasonal full-time employees. Jones offers coverage that is minimum value, but which is not affordable for 10 of the full-time employees (nine of whom buy coverage through the exchange), all of the part-time employees (all eight buy through the exchange) and two of the seasonal employees (one of whom buys through the exchange). Seven of the nine full-time employees, six of the part-time employees and the full-time seasonal employee who buy through the exchange qualify for a premium credit.
Jones owes a penalty on each full-time employee who enrolls in an exchange plan and receives a premium tax credit, so Jones owes $2,000 [8 (7 regular full-time + 1 seasonal full-time employee who receive a premium credit; the part-time employees are not counted) x $250].
Note that the first 30 employees do count under this “inadequate coverage” penalty. Also, if the first (“no offer”) penalty would be less expensive than the second (“inadequate coverage”) penalty, the employer would pay the first penalty.
For purposes of calculating the penalty, although part-time (less than 30 hour per week) employees count when deciding if the employer is “large,” no penalty will be due if coverage is not offered to these employees. A penalty would be due on seasonal employees while they are working full-time, if adequate coverage is not offered.
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