November 08, 2015

Beginning January 1, 2015, unless the employer qualifies for transition relief (as described below) all employers considered to be a “large employer” will be required to offer health insurance coverage to their “full-time” employees and their dependents that is “affordable” and which provides “minimum value,” or face one of two significant IRS penalties.24  The first penalty will apply to those employers that are large employers and fail to offer health insurance to “substantially all” (defined below) full-time employees and their dependents.25  The first penalty is sometimes referred to as the “Eligibility Penalty.”  The second penalty will apply to employers that are a “large employer” and that offer health insurance to substantially all of their full-time employees and their dependents, but whose health insurance is determined to be either “unaffordable” or low value under the IRS rules.26  This second penalty is sometimes referred to as the “Affordability Penalty."

These “Shared Responsibility” penalties are meant to offset the federal government’s cost of providing subsidized health insurance on the health insurance exchange to individuals who are not offered affordable health insurance through their employer.  Effective January 1, 2014, employees who are not offered coverage by their employers, or who are offered coverage that is unaffordable or does not provided minimum value, can purchase health insurance through Maine’s health insurance exchange.  Also, for these employees, there will be federal subsidies available to offset the cost of coverage purchased on the exchange if the employees’ household incomes are within 100% and 400% of the federal poverty line.  The federal subsidies will insure that any such employees with household incomes between 100% and 400% of the federal poverty will have to pay no more than 9.5% of their household income for health insurance purchased on the exchange.27

In order to avoid possibly triggering either the Affordability Penalty or the Eligibility Penalty, employers must consider the following:  

• Is my employer a “large employer” that is subject to the Shared Responsibility penalties?  
• If so, which employees are considered “full-time” employees subject to the Eligibility Penalty and Affordability Penalty?  
• Have these full-time employees been offered the requisite “affordable” health insurance coverage providing minimum value.  

A general discussion of each of these issues follows.  However, employers should note that each employer’s strategy for avoiding the Shared Responsibility penalties will vary and should be developed independently, in light of the employer’s particular circumstances.

23 Pub. L. No. 111-148, 124 Stat. 119 (2010).    24 26 U.S.C. § 4980H, originally scheduled to take effect January 1, 2014, but subsequently postponed by the IRS until January 1, 2105.   25 26 U.S.C. § 4980H(a).  26 26 U.S.C. § 4980H(b).

27 The amount the employee would be required to pay after the subsidy for health insurance coverage on the exchange would depend where the employee’s household income fell in the 100% - 400% FPL range.  For example, an  employee’s whose household income was between 300% and 400% of the FPL would be required to pay 9.5% of his/her household income for health insurance coverage after the subsidy; an employee in the 200% to 250% range would pay between 6.3% and 8.05% of his/her household income for coverage.