Pay or Play Penalties

Posted by BAS - 11 December, 2014

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Employers may be subject to two types of penalties under the employer shared responsibility (pay or play) requirements of health care reform. The first penalty under section 4980H(a) is a $2,000 penalty for failing to offer appropriate health coverage. The second penalty under section 4980H(b) is a $3,000 penalty if an employee gets subsidized coverage through the Exchange and the employer did not offer affordable health coverage.

  1. Offer of Coverage.  An employer that does not offer health coverage to its full-time employees and their dependents may be subject to a penalty. The amount of the penalty is $166.67 per month ($2,000 per year) for each calendar month in which the employer fails to offer minimum essential coverage to at least 70% of its full time employees and their dependents. For plan years beginning on and after January 1, 2016, the penalty applies to an employer that fails to offer coverage to at least 95% of its full time employees and their dependents.The penalty is assessed on a monthly basis, and will be assessed based on all of the large employer’s full-time employees, minus 30 (minus 80 for 2015).
  1. Minimum Value/Affordable Coverage.  If the employer’s coverage is deemed unaffordable or does not provide minimum value, the employer will be subject to a pay or play penalty for each full-time employee who enrolls in coverage through the Exchange and receives a tax credit for the Exchange coverage. The pay or play penalty is $250 per month ($3,000 per year) for each month in which a full-time employee who is not offered minimum value affordable coverage receives subsidized coverage on the Exchange.

Even if an employer offers coverage to 70% (95%) of full time employees, it still has the potential for the $3,000 penalty for every FTE who isn’t offered coverage (the 30%/5%) if that employee receives a subsidy and purchases coverage though the Exchange

Penalties could be imposed in 2015 for employers with 100 or more employees. There is an additional year delay on the penalty (until 2016) for employers who have between 50 and 100 employees. 

Employers should review the structure of their health plan operations to make sure that benefits and costs do not subject them to the pay or play penalties.

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