Navigate ACA Penalties: Understanding Penalty A & B to Ensure Compliance
Employers who fail to meet the Affordable Care Act (ACA) requirements face penalties under Section 4980H, commonly referred to as Penalty A and Penalty B. These penalties are assessed if an employer either fails to offer health insurance to full-time employees or offers insurance that does not meet the affordability and minimum value standards. Understanding these penalties is essential to avoid unexpected costs and ensure compliance with the ACA.
What is Penalty A?
Penalty A, also known as the Employer Shared Responsibility Payment, applies to employers with 50 or more full-time employees who fail to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents). If just one employee receives a premium tax credit to purchase coverage through the marketplace, the employer will be subject to a penalty.
Penalty A Breakdown:
- Applies when an employer does not offer MEC to at least 95% of full-time employees.
- The penalty is calculated based on the total number of full-time employees (minus the first 30), multiplied by a fixed dollar amount (adjusted annually by the IRS).
The penalty amount is $241.67 per month ($2,900 annually) for each full-time employee (minus the first 30 employees).
What is Penalty B?
Penalty B applies if an employer offers health insurance that does not meet the minimum value or affordability standards set by the ACA. If an employee’s share of the premium for the employer’s plan exceeds a certain percentage of their household income (as determined annually by the IRS), or if the plan covers less than 60% of the total allowed cost of benefits, the employer will be penalized.
Penalty B Breakdown:
- Penalty B occurs when health insurance fails the affordability or minimum value tests.
- The penalty is triggered if one or more employees receive a premium tax credit through the marketplace due to insufficient employer coverage.
The 2025 penalty amount is $362.50 per month ($4,350 annually) for each full-time employee who buys subsidized coverage on the Exchange.
This penalty is only triggered by full-time employees who are offered unaffordable or inadequate coverage and who go on to purchase subsidized insurance through the ACA Exchange.
How to Avoid Penalty A & B
- Offer ACA-Compliant Plans: Ensure your health plans meet minimum essential coverage and minimum value standards.
- Monitor Affordability: Use the IRS’s affordability thresholds to set employee premiums that do not exceed a specified percentage of their income.
- Stay Informed: Keep up with annual updates to penalty rates and thresholds to avoid unexpected penalties.
Employer Action Steps
- Regularly assess your health benefits offerings to ensure compliance with MEC and MVP standards.
- Use affordability safe harbors provided by the IRS to ensure your plans meet affordability guidelines.
- Take advantage of Beni Solutions’ expert resources to avoid costly penalties while providing quality healthcare coverage to your employees.
By understanding Penalty A and Penalty B, you can take the necessary steps to stay compliant, avoid financial penalties, and provide affordable health insurance to your workforce.
