Employer requirements and guidelines

Pay or play employer mandate

Beginning in 2015, certain large employers may be subject to a penalty tax for failing to offer "minimum essential coverage" for all full-time employees (and dependents) or for offering eligible employer-sponsored coverage that is not "affordable" or does not offer "minimum value."

Pay or play employer mandate penalty calculator


The penalty tax would be assessed if any full-time employee receives a premium tax credit for health insurance through a health insurance exchange.
  • Applicability
    The pay or play mandate applies to "applicable large employers." For 2016 and after, an applicable employer is one who employed an average of at least 50 full-time and/or full-time equivalent (FTE) employees. For 2015, the number of employees is increased to 100 for most employers. For the purposes of the mandate, full-time is considered 30 or more hours of service per week and 130 hours of service per month.

    While part-time employees are considered in the calculation for determining the number of FTE employees, an employer would not be assessed a penalty for not offering coverage to part-time employees, and part-time employees would not be considered in the calculation of any assessed penalty.

    See additional information on handling part-time employees and how to convert your part-time employees to FTEs when trying to determine if the mandate applies. Dependents are defined as children younger than age 26 . Spouses are not included in the requirement to offer coverage to full-time employees and their dependents. Additionally, IRS rules and guidance indicate that the dependent requirement does not begin until 2016.

  • Affordability
    Employer-provided coverage is considered affordable if the employee's cost for self-only coverage is not more than 9.5 percent of the employee's annual household income. If an employer offers multiple coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement.

    Because employers generally will not know their employees' household incomes, employers can take advantage of one of the three affordability safe harbors set forth in the mandate regulations: the W-2 safe harbor, the rate-of-pay safe harbor and the federal poverty level safe harbor.

    An employer can avoid a payment if the cost of coverage to the employee would not exceed 9.5 percent of the employee's income or if the coverage satisfies one of the safe harbors.

    An applicable employer may use one or more of the safe harbors only if the employer offers its full-time employees the opportunity to enroll in minimum essential coverage and it provides minimum value for self-only coverage.

  • Minimum value
    In order to achieve what the ACA defines as minimum value, the plan's share of the total allowed costs of benefits provided under the plan must be at least 60 percent of those costs.

    Providence Health Plan will use the minimum value calculator issued by the U.S. Department of Health and Human Services to conduct minimum value assessments for both standard and customized benefit plans held by its clients.

  • Penalty
    When the mandate applies, an employer is subject to two separate penalties.

    The first penalty applies when the employer does not offer its full-time employees and dependents the opportunity to enroll in minimum essential coverage under an eligible employer sponsored plan and at least one full-time employee is certified as having received a premium tax credit for health insurance purchased through a health insurance exchange.

    • A penalty of $2,000 for each employee eligible for coverage would be assessed, allowing for an 80-employee reduction in 2015. For years after 2016, the reduction decreases to 30 employees.

      For example, in 2015 an employer with 90 full-time eligible employees would be assessed the penalty on only 10 of those employees (90-80=10). The tax is payable monthly, so in this example, it would be (10 x 2000)/12= $1,666.67 per month. Even if only one employee receives the tax credit, the penalty tax would be based on the total number of full-time employees, minus the allowed reduction.

    The second penalty applies when the employer offers its full-time employees the option to enroll in an employer-sponsored minimum essential coverage plan that is either unaffordable or that does not provide minimum value, and one or more employees is certified as having received a tax credit or cost-sharing reduction.

    • The penalty is $3,000 for each employee that receives a tax credit. It also is calculated monthly and there is no employee reduction. This penalty is capped, however, so that it cannot exceed the amount of the "no coverage" penalty described above. If an employer's plan meets both minimum value and affordability and an employee opts out of the employer's plan, the employee would not be eligible for a tax credit and the employer would not be liable for a penalty.

    Both penalties will increase each year by the growth in insurance premiums.

    Pay or play employer mandate penalty calculator 

    The IRS will contact employers to inform them of their potential liability and provide them with an opportunity to respond before any liability is assessed or notice and demand for payment is made. Penalties for the 2015 benefit year won't be assessed until 2016 (after individual tax returns and employer reporting are filed with the IRS). Employers will receive instructions on how to make payment, separate from any tax return filed.
Waiting Period
Eligibility waiting periods for group health coverage cannot exceed 90 calendar days. This provision took effect in 2014.

Employee Health Coverage Equality
Employers cannot provide more advantageous eligibility, health benefits, probationary periods or employer contributions to employees based on an employee's age, years of service or compensation. This mandate already is in effect.

Wellness Program Contribution
The maximum reward employers may offer under a wellness program offered in connection with a group health plan has been increased to 30 percent of the cost of coverage. An additional 20 percent will be allowed for programs designed to reduce or prevent tobacco use, for a total of 50 percent. This provision is already in effect.

Employee notification
Employers are required to notify or provide information to employees for the following:
  • A summary of benefits and coverage, or SBC, to all participants at the time of renewal, open enrollment or benefits change. The SBC provides basic health plan coverage information in a standardized format. It is designed to be a comparison tool for consumers while shopping for health insurance, and does not replace the plan benefit summary. Providence Health Plan creates group-specific SBCs and provides these to its employer customers. This requirement is already in effect.

  • A notice to employees of any material modification to the terms of the plan or coverage 60 days in advance of the implementation of those changes. This requirement already is in effect.

  • Employers must notify new employees of the possibility to receive subsidized insurance through the Exchange. This requirement is already in effect.

  • Employers filing 250 or more W-2 forms in the preceding calendar year are required to include the cost of employer-sponsored health coverage on employees' W-2s, including both employer and employee portions of the cost of health benefits. This requirement is already in effect.