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ACA Fact Sheet – Applicable Large Employer 2017 Employer Shared Responsibility "Pay or Play" Provision

The Affordable Care Act (ACA) enacted the Employer Shared Responsibility provisions under Section 4980H of the Internal Revenue Code (Code) which assesses a tax penalty to Applicable Large Employers (ALEs) who either (1) fail to offer coverage to a certain percentage of its full-time employees or (2) fail to offer coverage that is affordable or provides minimum value. Although indications are that changes to the ACA may be forthcoming, the information below is current as of November 2016.

An ALE is an employer who employed a monthly average of at least 50 full-time employees (including full-time equivalent employees (FTEs)) on business days during the preceding calendar year.1 This provision is frequently referred to as "Pay or Play" because ALEs potentially "Pay" a penalty if they do not "Play" by offering Minimum Essential Coverage (MEC) that meets ACA requirements. During 2017, in order to avoid penalties if one or more employees obtain subsidized coverage through a healthcare Marketplace (also referred to as an Exchange), the ALE must:

(1) Offer MEC to at least 95% of full-time employees and eligible dependent children, and

(2) At least one medical plan must:

a. Meet minimum actuarial value requirements, which means that in theory the plan pays for at least 60% of the cost of covered benefits, and

b. The employee's portion of the employee-only premium is no greater than 9.69% for plan years beginning in 2017 based on one of three IRS safe harbors:

    • Form W-2 wages from the prior calendar year
    • Rate of Pay (not permitted for tipped or commissioned employees)
    • The Federal Poverty Level
Play Selective Play
MEC Only
Selective Play
Carve-Out
Pay
Medical Plan Offered Offer MEC to at least 95% of full-time employees
At least one plan:
• Meets minimum value, and
• Employee pays no more than 9.69% of employee-only coverage premium

Offer MEC to at least 95% of full-time employees

Plans do not meet minimum value and affordability requirements

Offer MEC to less than 95% of full-time employees (e.g. "carve-out" by class)
(Regardless of whether plans meet minimum value and affordability requirements)
Discontinue employer sponsored plan

Penalty if at least one
full-time employee obtains
subsidized Marketplace coverage2

None $3,390 annually for each full-time employee that obtains subsidized Marketplace coverage3 $2,260 annually per full-time employee, minus the first 30 $2,260 annually per full-time employee, minus the first 30

1 Please refer to the ACA "Applicable Large Employer Calculation" and "Controlled Group Overview" Fact Sheets for more information on how to determine ALE status.

2The penalty is calculated on a monthly basis. Penalty amounts are indexed annually.

3 The ALE's total penalty for full-time employees that obtain a subsidy will not exceed the penalty amount for not offering MEC ($2,260 times the number of full-time employees, minus the first 30).