applicable large employer

What is an Applicable Large Employer under the ACA?

According to a study done by Statista, the number of Americans without health insurance was 48.6 million, an all-time high, in 2010. The Affordable Care Act, ACA, was enacted in 2010 for the purpose of providing affordable health insurance to more people. The ACA puts this responsibility on individuals, employers, and governments. Certain sized employers, referred to as Applicable Large Employers by the ACA, are required to offer health insurance to their employees. Let’s take a closer look at what an Applicable Large Employer is, and their responsibility, according to the ACA.

What is the employer responsibility under the ACA?

The Affordable Care Act, ACA, puts responsibility on Applicable Large Employers (ALEs) to help make health insurance accessible to more individuals. ALEs must offer at least 95% of their full-time employees and their dependents coverage to affordable healthcare that provides minimum value. Should an employer fail to follow this mandate, the employer could be subject to penalties.

Healthcare coverage qualifies as “affordable” if the employee’s share of the premium is less than 9.61 percent, for the year 2022, of that employee’s annual household income. To provide “minimum value” a plan must pay at least 60% of the cost of covered services (deductibles, copays and coinsurance). 

What is considered an Applicable Large Employer?

An Applicable Large Employer under the ACA is a business with 50 or more full-time equivalent (FTE) employees. For ACA purposes, a full-time employee is someone who works more than 30 hours in a week. Additionally, a full-time equivalent is any combination of two or more employees whose total hours are more than 30 hours in a week.

For example:

Two employees, each working 20 hours in a week, would add up to equal one FTE.

Three employees, each working 10 hours a week, would add up to one FTE.

Furthermore, an ALE does not need to have 50 or more FTEs at all times throughout the year. If the average number of FTEs in a year is 50 or more, then the company is considered an ALE.

What are the penalties for not offering healthcare?

Should a business that is considered an Applicable Large Employer fail to offer affordable, minimum value healthcare coverage to at least 95% of their full-time employees, and an employee obtains healthcare through the Marketplace, that business may be subject to penalties.

The penalty for not complying with the “affordable” requirement in 2022 is $2,750 per employee minus the first 30 employees.

The penalty for not complying with the “minimum value” requirement in 2022 is the lesser of:

  • $3,860 per full-time employee receiving a federal subsidy for coverage purchased on the Marketplace
  • $2,750 per full-time employee minus the first 30.

For example:

A business with 100 FTE employees that does not offer affordable healthcare would be subject to a fine of $192,500 (100 employees – 30 employees x $2,750 per employee).

What to do as an employer

First, to maintain ACA compliance as an employer, count your FTE employees to see if you have 50 or more. Should your business have 50 or more FTEs, you must comply with this ACA requirement.

Next, research your healthcare options with a trusted healthcare provider. Choose a plan that works best for you and your employees. Make sure the plan is considered affordable and of minimum value under the ACA guidelines to avoid potential penalties.

Finally, provide plan information to your full-time employees and have interested employees sign up for healthcare coverage! Additionally, be sure to comply with ACA payroll tracking and reporting requirements. ALEs are required to send each full-time employee a copy of IRS Form 1095-C. This form provides information about the health coverage including the cost and the months for which coverage was available. Equally important, employers must also transmit all Form 1095-C information to the IRS.

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