The IRS has issued detailed guidance on the pay-or-play penalty under health care reform. Click here for our comprehensive article on the shared responsibility provisions of the Affordable Care Act applicable to large employers.
Many large employers (those with at least 50 full-time employees) want to know what penalty they will face if they don't "play."
- If a large employer does not offer health coverage, and at least one low-income full-time employee gets a premium credit to purchase health coverage through a state-based Exchange, the employer has to pay an annual penalty of $2,000 multiplied by all of the employer's full-time employees, not counting the first 30.
- If a large employer does offer health coverage, but that coverage is not affordable or does not provide minimum value, and at least one low-income full-time employee gets a premium credit and enrolls in health coverage thorough a state-based Exchange, the employer must pay an annual penalty of $3,000 for each such full-time employee. This penalty is capped at $2,000 multiplied by all of the employer's full-time employees, not counting the first 30.
If an employer offers health coverage to some, but not all, employees, the percentage of employees covered will determine which penalty applies. An employer that offers coverage to at least 95% of its full-time employees is considered to be offering health coverage for these shared responsibility purposes. Such an employer would potentially be subject to the $3,000 penalty if a full-time employee purchases subsidized coverage through an exchange.
Large employers that do not offer health coverage to at least 95% of their full-time employees might consider offering qualifying coverage in 2014, or they might have to pay the potential penalty assessment. A cost/benefit analysis can be conducted taking into account potential penalty costs and comparing them to the cost of offering qualifying health coverage.
