Section 4980H ‘Pay or Play’ Employer Mandate

A major component of the Affordable Care Act (ACA) is the so-called ‘Employer mandate’, a penalty applicable to employers with at least 50 employees who fail to offer coverage to full time workers meeting certain requirements. Beginning January 1, 2015 the agencies began enforcement of this mandate, will full implementation effective in 2016. As 2017 fast approaches, the stakes are even higher as the applicable penalty figures increase.

Requirements under Section 4980H

1. Employer must offer minimum essential coverage to 95% of all full time employees that has a minimum actuarial value of 60%, AND

2. Coverage must be affordable; safe harbor indicates coverage is affordable if the employee share of premium for single coverage is 9.66% (2016); 9.69% (2017) or less of employee’s W-2 Box 1 wages or rate of pay

Grounds for employer penalty

1. (A) If Employer does not offer coverage to 95% of its full time employees, and one employee receives a subsidy to purchase insurance on the Health Exchange, the Employer is subject to a penalty equal to $2,160 x every full time employee in 2016 (minus 30), or $2,260 x every full time employee in 201 (minus 30)


2. (B) If employer offers coverage that is unaffordable (more than 9.66% (2016) or 9.69% (2017) of employee household income) or doesn’t offer minimum value, and any employees qualify for a subsidy to purchase insurance on the Health Exchange, the employer is subject to a penalty equal to $3,240 (in 2016) x the number of full time employees that receive a subsidy/ $3,390 (in 2017)

Depending on the size of the workforce, it is easy to see how these penalties can quickly become large. The IRS is only now beginning to collect penalties from the 2015 plan year, so employers who may be affected in 2016 will have over a year to wait anxiously for a dreaded notification. Presently, a good indication that a penalty will apply can be inferred if an employer received a marketplace notification, informing them that any full time employees were receiving subsidies to purchase their coverage for 2015. Employers receiving such notices should be careful to appeal any unwarranted subsidy allocation within 60 days of receipt of the notice. Doing this may prevent the IRS from imposing a penalty in the coming months.