The ACA 95% Offer Requirement: What Employers May Be Overlooking

For applicable large employers (ALEs), complying with the Affordable Care Act (ACA) involves more than offering an affordable health insurance plan. Employers must also ensure that coverage is offered to a sufficient percentage of their full-time employees and their dependents. Even when an employer has a compliant health plan, administrative errors involving eligibility, enrollment, or employee records can create unexpected compliance risks.

Understanding the ACA’s 95% offer requirement and monitoring it throughout the year can help employers avoid costly penalties.

Understanding the 95% Offer Requirement

Under the ACA’s employer shared responsibility provisions, ALEs, generally employers with 50 or more full-time employees, including full-time equivalent employees, must offer minimum essential coverage (MEC) to at least 95% of their full-time employees and their dependents to avoid potential penalties under Section 4980H(a).

For this purpose, dependents generally include an employee’s children under age 26, but not spouses.

An ALE that fails to meet the 95% threshold for a month may face a significant employer shared responsibility penalty if at least one full-time employee receives a premium tax credit for coverage purchased through the Health Insurance Marketplace.

Importantly, the 95% requirement is based on offers of coverage, not employee enrollment. An employee who declines a valid offer of coverage generally still counts as having received an offer.

How Administrative Errors Can Affect Compliance

Employers may assume they are meeting the 95% requirement because they offer health insurance to all eligible employees. However, problems can arise when eligibility and enrollment processes do not accurately reflect employees’ employment status or coverage opportunities.

Common issues include:

• New hires: Delays in identifying newly eligible employees or initiating enrollment can result in missed coverage offers. Employers should also account for applicable waiting periods and ACA eligibility rules.
• Changes in employment status: Employees moving between part-time and full-time positions may not be identified promptly, resulting in missed enrollment opportunities.
• Variable-hour employees: Incorrect measurement period calculations or failure to recognize when an employee becomes eligible for coverage can lead to compliance issues.
• Employees returning from leave: Inaccurate employment records or missed reinstatement procedures may affect eligibility and coverage offers.
• Incomplete enrollment records: Employers may have difficulty demonstrating that an employee received an offer of coverage if enrollment communications and election records are not properly maintained.
• Incorrect termination dates: Errors in employment or coverage termination records may cause an employer to incorrectly report whether coverage was offered during a particular month.

These errors may affect only a small number of employees, but they can become significant when an employer is close to the 95% threshold.

Why the 5% Margin Should Not Be Treated as a Safety Net

The ACA allows a limited margin for employees who do not receive an offer of coverage. However, employers should not view this as permission to routinely overlook a portion of their workforce.

The threshold is determined monthly, and the consequences of falling below it can be substantial. If the applicable conditions for a Section 4980H(a) penalty are met, the assessment is generally based on the employer’s total number of full-time employees, subject to the applicable statutory reduction, rather than only the employees who did not receive offers.

This makes accurate eligibility administration especially important.

Steps Employers Can Take to Reduce Risk

Employers should establish processes to monitor ACA eligibility and coverage offers throughout the year rather than waiting until annual reporting begins.

Recommended practices include:

• Regularly reconciling payroll, HR, and benefits enrollment records.
• Monitoring employee hours and changes in employment status.
• Tracking measurement, administrative, and stability periods when using the look-back measurement method.
• Confirming that newly eligible employees receive timely enrollment opportunities.
• Maintaining documentation of coverage offers, employee elections, and waivers.
• Reviewing monthly ACA eligibility and offer-of-coverage reports to identify potential gaps.

How BAS Can Help

ACA compliance requires ongoing monitoring, not just year-end reporting. Employers that use BAS for ACA data collection and reporting have access to a module that tracks whether the 95% offer-of-coverage requirement is being met throughout the year.

BAS sends reminders to employers to review their 95% offer-of-coverage status, providing an opportunity to identify potential gaps and take corrective action before they become larger compliance issues.

By monitoring coverage offers throughout the year rather than waiting until annual ACA reporting, employers can address eligibility and enrollment issues promptly and reduce the risk of costly penalties.