I think it’s fair to say that many of us don’t have a full command for all aspects of the Affordable Care Act. I’m certainly not going to clear it all up in one blog post, yet, perhaps the most common question I am asked is “How are penalties determined?”
One of my partners recently attended a seminar hosted by Scirocco – who presented a clear explanation to this question.
A key determinant is your number of Full Time Equivalent (FTE) employees . The calculation to determine FTE is as follows:
The straightforward – if you have less than 50 FTE there is no penalty.
If you have 50 or more FTE you are potentially at risk if:
- You do not provide health insurance to your employees.
- You provide health insurance but do not cover at least 60% of the plan cost.
- If any employee’s expense of coverage exceeds 9.5% of their household income.
The formula to asses your penalty is as follows:
What triggers a penalty is if one or more of your employees goes to state health insurance exchange (HIX) and receives either a tax credit or a cost-sharing subsidy.
Example for a company with 75 FTE and 10 employees go to HIX:
- If No Insurance provided your penalty would be $90,000 ((75-30) x $2,000).
- If you do not cover 60% of the cost OR the cost to any employee exceeds 9.5% of their household income your penalty would be $30,000 (10 x $3,000).
I didn’t write the rules … I just try to explain them as simply as I possibly can.
Related article: Fewer Americans Getting Health Insurance From Employer