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Avoid ACA Penalties When Reaching Applicable Large Employer Status


What does it mean to be an “ALE” (applicable large employer) as it relates to the ACA?  I am getting close to having 50 employees and am wondering what new rules I must comply with.


Since 2014, major provisions of the Affordable Care Act (ACA) have been in effect.  For impacted employers, requirements of the ACA may seem old hat.  But, small employers approaching 50 full-time employees for the first time may need a refresher on how being an applicable large employer (ALE) impacts their organization (see our previous blog post: Time to Reassess Applicable Large Employer (ALE) Status).

What does being an ALE mean?  As an ALE, certain provisions of the ACA now apply to your organization.  Notably, the ACA provision that employers make an offer of health coverage meeting minimum requirements to at least 95 percent of their full-time employees and their dependents, or pay a penalty tax (also known as the employer mandate) applies to ALEs.  This also includes its corresponding reporting obligations.

How to Avoid the Penalties: Employer Shared Responsibility

As an ALE, employers must choose whether or not to comply with the employer mandate (by offering affordable, minimum value coverage to full-time employees) or face penalties.  Per the employer mandate, employers with 50 or more full-time employees (including full-time equivalents) must provide an offer of medical coverage to full-time employees that minimum essential coverage, and:

  • Is affordable (costs less than 9.56% of employee’s household income) and
  • Provides minimum value (expected to cover at least 60% of the expected claims costs).

The penalty for failing to offer minimum essential coverage to full-time employees is $2,320 for each full-time employee, excluding the first 30 employees (if any full-time employee receives a premium credit through a Marketplace program).  Coverage failing to provide minimum value or that is not affordable, results in a penalty of $3,480 for each employee enrolled in the Marketplace if that employee also receives a premium tax credit.  Note that these penalty amounts apply to calendar year 2018 and are adjusted annually for inflation.   

Employer Reporting Implications

Another signification ACA requirement for ALEs includes reporting via Forms 1094-C and 1095-C annually (for the latest on ACA reporting, see our blog post IRS Releases 2018 Health FSA Contribution Maximum, ACA 2017 Forms, and Updated PCORI Fees).  Such reporting provides both the IRS and employees information about offers of coverage made in the preceding year.  The information is used to determine whether an employer is potentially liable for a payment under the employer shared responsibility provisions and the amount of the payment, if any.  It is also used by the IRS to verify employees’ and family members’ enrollment in minimum essential coverage for purposes of individual shared responsibility provisions.  

With the ACA remaining the law of the land, employers must continue to comply with its provisions, or pay penalties.  Understanding these requirements will help small employers transitioning to ALE status for the first time best prepare for compliance under the ACA.  Note this is a brief overview of some major provisions of the ACA applicable to ALEs and is not exhaustive of all requirements that may apply.  For additional information, contact your HORAN representative.

THANK YOU to HORAN for providing the content for this Question of the Week. HORAN assists clients in wellness programs and incentive design. Please contact your Benefits Account Manager or HORAN for additional information.

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