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Affordable Care Act (ACA) & Health Care Reform - Employer

What the law means for employers

The Affordable Care Act (ACA) established new standards and opportunities for access to health care in the United States. Congress enacted this law in March 2010.

Now almost everyone must have insurance. To help enforce these rules, the law set up new reporting requirements and penalties. They affect both individuals and employers. We want to help you understand what the law means for you.

Here are a few highlights of the law:

  • Large employers – those with 50 or more full-time-equivalent employees – must provide health insurance that meets certain standards, or potentially pay a penalty.
  • Smaller employers and individuals have another option for buying coverage. It’s called a public exchange, or marketplace. 
  • If you offer health insurance to your employees, you or your insurance company must provide a Summary of Benefits and Coverage in a standard format. 
  • Health insurers must spend a set percentage of premium dollars on health care expenses. If we don’t hit this target, we have to send you a rebate. This rule is called the minimum medical loss ratio rule. It applies only to fully insured plans.
  • If the cost of health insurance for some of your employees exceeds a certain dollar amount, you may have to pay an excise tax beginning in 2020. Some people call this the Cadillac tax.
  • Reporting rules are in effect to confirm that you and your employees comply with the law.
  • Most health plans must include preventive care at no cost  to the individual. 

You can find more details about the Affordable Care Act below.

Large employers may be penalized for not offering health coverage

This part of the ACA is called employer shared responsibility. It affects large employers. Your company is included if you had an average of 50 or more full-time and full-time-equivalent employees in the last calendar year.

Here are some basics about how the rule works:

  • Large employers can be penalized if they don’t offer health coverage to all full-time employees and their dependents. “Full time” is defined as at least 30 hours per week on average. 
  • The coverage must be affordable, as defined by the law. This means that employees shouldn’t have to pay more than 9.5 percent of their household income for coverage. This is based on the amount they would pay to insure only themselves, not their families.
  • The health coverage has to cover at least 60 percent of the total allowed costs of benefits under the plan.
  • Large employers that don’t meet these requirements may have to pay a penalty to the IRS. This penalty is triggered if at least one of your full-time employees buys a health plan on an exchange and receives a premium tax credit. 

Find out more about ACA coverage rules and penalties

Buying a plan on an exchange

If you have fewer than 50 full-time and full-time-equivalent employees, the shared responsibility rules do not apply to you.

You have the option to buy insurance for your employees through the Small Business Health Options Program (SHOP). This is another program set up under the ACA. SHOP is an online public health exchange where small employers can buy insurance for their employees. 

Of course, you can still work with a broker or buy group insurance directly from Aetna.

If you have fewer than 25 full-time employees and you offer a health plan, you may qualify for a tax credit. Still trying to decide whether to offer coverage? The U.S. government’s exchange shopping website offers tools that can help. They include a tax-credit calculator.

Use the small-business calculators

Find out more about health insurance exchanges

Summary of Benefits and Coverage
Minimum medical loss ratio
Tax and reporting requirements
Excise tax (Cadillac tax) for high-cost plans

The ACA includes an excise tax on employer-sponsored health plans when their cost exceeds a set amount. Many people call this excise tax the Cadillac tax because it applies to higher-cost plans. The tax applies to plans that are fully insured or self-insured.

Collection of this tax has been delayed. It is now scheduled to take effect for group health plans offered in 2020 or later. The Internal Revenue Service (IRS) has not yet released final regulations.

The amount of the excise tax is 40 percent of the “excess benefit.” The dollar limit used to determine excess benefit will be adjusted each year based on the Consumer Price Index.

The excise tax applies to applicable employer-sponsored coverage for employees and retirees. This includes:

  • Plans offered by private and government employers
  • Multi-employer plans

Find out more about the excise tax

If you want to estimate your possible excise tax liability, you can try this calculator. It comes from The Alliance, a cooperative of employers with self-funded health plans.

Try the Cadillac tax calculator

No costs for preventive care

Most health plans must cover preventive care without cost to the individual.  If your employees use doctors in the plan’s network, they don’t have to pay any cost sharing for preventive care services. 

The U.S. government defines what must be covered under preventive care. The list includes:

  • Recommended vaccines for children
  • Screening tests for some conditions
  • Certain women’s health services, including birth control 

Find out about more about preventive care for:

Adults

Women

Children

Some religious employers or organizations do not have to cover birth control and certain related services.

Learn about religious exemptions

Certain health plans that were sold before the ACA was passed do not have to cover preventive care. They are called grandfathered plans.

The information above does not cover all provisions and requirements of the ACA. You can find much more information on the IRS and Department of Labor websites. 

See the IRS guide for large employers

See the IRS guide for small employers

See the Department of Labor guide to regulations

Note: this information is not meant as legal or tax advice. Please talk to your legal or tax advisor about any questions.

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