Demystifying ACA – FTEs & Penalties

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

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