Not Following the Employer Mandate Can Mean Stiff Penalties
Penalties apply not only if coverage isn’t offered – but if the wrong coverage is offered.
Under the Affordable Care Act’s (ACA) employer mandate, applicable large employers (ALEs) must offer comprehensive health coverage to full-time employees. Employers who don’t comply will face penalties if any employees become eligible for premium credits in the healthcare marketplace.
ALEs, employers who have 50 or more full-time employees and full-time equivalent employees, must offer the following coverage or face either A or B penalties. The penalties for 2022 are still being determined but are expected to be as follows:
- Penalty A: $2,750 per employee annual assessment, not counting the first 30 employees, if minimum essential coverage (MEC*) is not offered to 95% or more of full-time employees and their dependents. Coverage must meet minimum value (MV**) standards.
- Penalty B: $4,120 per employee for every full-time employee who gets a premium tax credit to help pay for coverage under Marketplace Plan because the employer’s coverage did not meet MV* standards or was not affordable. The definition of what is considered affordable coverage is based on IR approved methods for calculating affordability. Although Penalty B is a higher penalty per employee, it applies only to employees receiving a tax credit for Marketplace coverage. If this assessment method is used, the total penalty cannot exceed what would have applied under Penalty A.
Essential Health Benefits
Essential health benefits is another term created by the ACA. It refers to a set of 10 coverage categories that must be included on all individual and small group health plans with effective dates of January 2014 or later. Large group health plans are not required to cover the essential health benefits (although most of them do) but are required to comply with the minimum value requirements.
Essential health benefits are minimum requirements and include:
- Ambulatory patient services (outpatient care without being admitted to a hospital)
- Emergency services
- Hospitalization (surgery and overnight stays)
- Pregnancy, maternity, and newborn care (both before and after birth)
- Mental health and substance use disorder services, including behavioral health treatment (this includes counselling and psychotherapy)
- Prescription drugs
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care (note that adult dental and vision coverage aren’t essential health benefits).
Plans also must include birth control and breastfeeding services. Plans may offer additional benefits, including dental and vision coverage and medical management programs for needs such as weight management, back pain and diabetes.
Minimum essential coverage is a term created by the ACA. All individual and small group health plans with effective dates of 2014 or later are considered MEC. Some MEC plans include essential health benefits. However, minimum essential coverage does not have to be ACA-compliant.
Minimum Value is met when a plan pays on average at least 60% of the actuarial value of allowed benefits under the plan. Even if the coverage offered by a large employer does not meet minimum value, it most likely will meet minimum essential coverage.
Plans that aren’t considered MEC, even though they seem like traditional health insurance, include plans that:
- Provide only discounts on health care services
- Cover only dental care or vision
- Provide care under workers’ compensation plans
- Provide care only for a specific condition, rather than general medical coverage
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