On January 1, 2014, the shared responsibility provision will take effect. This section discusses who will be subject to the shared responsibility provision and how the payment will be calculated.
Are small employers that don’t offer health insurance required to pay a penalty?
Most small businesses are exempt. Employers with fewer than 50 FTEs are not subject to the shared responsibility (or “free rider”) provision that takes effect January 1, 2014. If you have at least 50 FTEs but no employee receives an individual premium tax credit or cost-sharing reductions (both based on income), there’s no penalty—whether or not you offer health insurance.
How are employees counted under the shared responsibility requirement?
A business is defined as “large” if it has at least 50 FTEs, not counting seasonal workers. Full-time employees are those who work 30 hours or more per week; part-time employees work less than 30 hours per week, figured on a monthly basis. This calculation involves taking the total number of hours worked divided by 120. Also, the first 30 employees are subtracted from the total when calculating the total amount of the assessment.
How is the shared responsibility payment calculated?
If you have at least one full-time employee who receives a premium tax credit or cost-sharing reductions under the health plan that he or she is enrolled in through the state insurance exchange, the payment assessed depends on whether or not you offer health coverage.
When an employer doesn’t offer health insurance
If the employer does not offer coverage, and at least one full-time employee receives a premium tax credit or cost-sharing reductions, the business must pay $2,000 for each full-time employee, not counting the first 30 employees.
An employer with 51 employees who doesn’t offer health insurance and has one employee who receives an individual tax credit or cost-sharing reductions will be assessed $42,000 ($2,000 multiplied by 21).
When an employer does offer health insurance
If the employer does offer coverage, and at least one full-time employee receives a premium tax credit or cost-sharing reductions, the employer will be required to pay $3,000 for each employee who receives assistance or $2,000 per full-time employee (not counting the first 30 employees), whichever is less. In this case, the coverage offered to an employee and his or her dependents must meet the criterion of having a minimum essential value (to be determined and defined by the secretary of Health and Human Services) and not be considered “inadequate” or “unaffordable.”
- Coverage is considered “inadequate” if it covers less than 60% of the total allowed costs of benefits.
- Coverage is considered “unaffordable” if the employee’s share of the premium is more than 9.5% of the employee’s household income.
An employer with 51 employees who offers coverage but has one employee who receives an individual tax credit or cost-sharing reductions will be assessed $3,000 ($3,000 x 1).