When Anything Less than 95% is a Failing Grade: An Update on the Employer Shared Responsibility Penalties

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As a reminder, effective January 1, 2016, employers must offer minimum essential coverage to 95% or more (up from 70% or more for 2015) of their full-time employees and their dependents each month or pay a very steep penalty.  Missing the mark even slightly, for example coming in at 94%, will require the employer to pay a $2,000 annual penalty for each full-time employee (minus the first 30 full-time employees).

The rules are explained in more detail in our Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers, which I have updated to reflect certain recent guidance.  Most importantly the revised Checklist:

  •  now reflects how the penalties are adjusted each year (see footnote 7 of the Checklist for more information);
    • the $2,000 subsection (a) penalty is $2,080 for 2015 and $2,160 for 2016.
    • the $3,000 subsection (b) penalty is $3,120 for 2015 and $3,240 for 2016
  • explains how the 9.5% affordability threshold under the safe harbors  is adjusted each year;
    •  the 9.5% threshold under the safe harbors is 9.56% for plan years beginning in 2015, 9.66% for plan years beginning in 2016, and 9.69% for plan years beginning in 2017
  • includes a reminder that in determining affordability, employers must consider employer contributions such as HRA contributions and flex and opt-out credits under cafeteria plans (see footnote 9 of the Checklist for more information);
  • refers to additional guidance in Notice 2015-87 on how hours of service are counted; and
  • includes a reminder that the Cadillac tax, which is now set to take effect in 2020, may impact coverage that may be offered in 2020 and later years.

The Checklist does not deal with the related reporting requirements, but for more information on reporting, see our other blogs: Late Or Incorrect Forms 1095-C: The IRS Provides Relief, But Only For Employers Acting In Good Faith To Comply Or Who Missed The Deadline Due To Reasonable Cause  and IRS Delivers Belated Christmas Gift – Extends ACA Reporting Deadlines.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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