Affordable Care Act (ACA) Strategies
New benefit plan year 2015 is rapidly approaching and employers with at
least 100 full-time employees (or full-time equivalents) during 2014 will become
subject to the shared responsibility (employer mandate) provisions of
the ACA. The employer mandate generally imposes penalties on such a
“large” employer if the employer fails to offer affordable, minimum-value
group health plan coverage to its “full-time employees,” generally defined under
the ACA as employees working 30 hours or more per week.
Keep in mind, employers with more than 50 but less than 100 employees in
2014 will not have to comply with the ACA until benefit plan year 2016.
These employers will have to start tracking their employee hours during calendar year 2015.
Due to the rising cost of employer-sponsored health plans, employers that must comply in 2015 will have
financial challenges. As a result, many budget-conscious employers are exploring low-cost coverage alternatives,
including sub-minimum-value health plans (called skinny plans) and employee-pay-all health plans,
which could be offered to all full-time employees or just to those full-time employees who were historically
ineligible for coverage. However, these strategies carry some risk, as discussed below.
Employer Mandate Penalties
To understand the low-cost coverage strategies, a brief overview of the employer mandate penalties is
required. A penalty under the employer mandate is triggered if at least one full-time employee receives a
premium tax credit or cost-sharing reduction to purchase coverage on the Health Insurance Marketplace
(the health insurance exchanges), and:
1. The employer fails to offer health coverage to all of its full-time employees and their dependents
(no-offer penalty); or
2. The employer offers health coverage to its full-time employees (and their dependents), but the
coverage is either unaffordable or does not provide minimum value (deficient-coverage penalty).
The no-offer penalty is $2,000 per year times all of the employer’s full-time employees (disregarding the
first 30 employees). The deficient-coverage penalty is $3,000 per year times each full-time employee who
receives a premium tax credit or cost-sharing reduction to purchase coverage on a health insurance exchange.
In most cases, the no-offer penalty will vastly exceed the deficient-coverage penalty because, despite the
deficient-coverage penalty being a greater dollar amount, the deficient-coverage penalty applies only to
each full-time employee who receives a subsidy to purchase coverage on a health insurance exchange. On
the other hand, the no-offer penalty is multiplied by the number of all of the employer’s full-time employees
(disregarding the first 30 employees).
Volume 8, Issue 9 Latest in HR news and alerts
Affordable Care Act (ACA) Strategies (cont’d)
Low-Cost Coverage Strategies
To avoid the potentially larger no-offer penalty, some employers are considering
a low-cost health coverage compliance strategy. Subject to satisfaction of any
applicable non-discrimination requirements, this strategy could be applied to all
full-time employees or just to those full-time employees who were historically
ineligible for coverage. There are two main ways to implement this strategy,
both of which involve intentional exposure to the deficient-coverage penalty.
1. Sub-Minimum-Value Coverage (Skinny Plan) Strategy
Generally, a group health plan provides minimum value if it is designed to pay for at least 60% of the cost of
claims for a standard population. Some employers are considering offering low-cost coverage that would
intentionally fail the minimum value test. These so-called “skinny” plans are low cost because they exclude
large categories of care. For example, they may only cover preventive care, like vaccines and cancer screenings,
without employee cost-sharing (as required by the ACA), but not hospitalization, surgery, x-ray, or
An employer offering a skinny plan would be exposed (intentionally) to the deficient-coverage penalty. Because
the skinny plan fails the minimum value test, each full-time employee who purchases subsidized coverage
on a health insurance exchange would trigger the deficient-coverage penalty. Employers electing this
strategy project that the premium/cost savings from offering the skinny plan will exceed the deficientcoverage
2. Unaffordable Coverage Strategy
Generally, a group health plan is unaffordable for ACA purposes if the employee’s required contribution for
self-only coverage exceeds 9.5% of the employee’s household income for the taxable year. Because an employer
typically will not know an employee’s household income, recently-issued final regulations offer safe
harbors that employers can use to determine affordability.
Some employers are considering offering coverage that, in most cases, would intentionally fail the affordability
test. These unaffordable plans are low-cost because employees would be required to pay most or all of
the premiums. In a plan that is designed to be unaffordable, the required employee premium would be set
at a level that is projected to readily exceed 9.5% of household income for most employees.
As with skinny plans, an employer offering unaffordable coverage would be exposed to the deficientcoverage
penalty. Each full-time employee for whom the coverage is unaffordable, and who purchases subsidized
coverage on a health insurance exchange, would trigger the deficient-coverage penalty. However, as
with skinny plans, employers pursuing this compliance strategy project that the cost savings from offering
unaffordable coverage will exceed the deficient-coverage penalties triggered.
Keep in mind – these strategies carry some risk. For example, although Federal officials have informally
indicated that skinny plans currently meet the ACA’s broad definition of “minimum essential coverage”, that
definition could be amended to require more robust coverage.
will continue to monitor strategies and regulatory activities of the ACA and work with clients
to make the best and financially sound decision as the implementation date steadily moves forward.
Wishing you a Happy & Safe Labor Day Weekend!
Latest in HR news and alerts September 2014
Complements Kathy Coughlin KathyC@HRServiceGroup.com
Affordable Care Act (ACA) Strategies