Pay or Play Penalties under ACA

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While the Affordable Care Act (ACA) does not require all businesses to offer health benefits to their employees, applicable large employers (ALEs) (those with 50 or more full time equivalent employees) must offer affordable coverage providing minimum value to at least 95% of their full-time employees. ALEs could incur penalties if they fail to provide this coverage.

The “Pay or Play” penalties under the Affordable Care Act (ACA) apply to applicable large employers (ALEs), defined as those with 50 or more full-time equivalent employees. These penalties are part of the employer shared responsibility provision, which requires ALEs to offer health coverage that is both affordable and provides minimum value to full-time employees (those working 30 or more hours per week).

There are two types of penalties:

1. **Penalty A **(Penalty for not offering coverage): This applies if an ALE does not offer health coverage to at least 95% of its full-time employees and at least one full-time employee receives a premium tax credit for purchasing coverage through the Health Insurance Marketplace. In 2024, the penalty is calculated as $2,970 per full-time employee, excluding the first 30 employees.
2. **Penalty B **(Penalty for offering unaffordable or inadequate coverage): This is triggered if an ALE offers coverage but the coverage either doesn’t meet the ACA’s minimum value standards or is not affordable, and at least one employee receives a premium tax credit through the Marketplace. The penalty for 2024 is $4,460 per full-time employee who receives the credit, but this amount cannot exceed what would have been assessed under Penalty A.

Employers are only penalized if one or more employees receive a premium tax credit for Marketplace coverage. These penalties encourage ALEs to offer sufficient and affordable health insurance to their full-time employees.