Penalties and Transitional Relief Under the Affordable Care Act

On January 1, 2015, the “employer shared responsibility” penalty, a core provision of the Affordable Care Act (a.k.a. “ACA” or “Obamacare”), becomes effective.  While the penalty is substantial, there is some transitional relief from the penalty available to some employers who meet specific qualifying criteria.

The employer shared responsibility provision requires large employers to offer affordable health insurance that provides minimum value for all full-time employees or pay a penalty.  If the employer does not offer health coverage to at least 70% of its full-time employees (and their dependents) in 2015, it will owe a monthly penalty of $166.67 ($2,000 per year) for each full-time employee (excluding the first 80).  If the employer provides health coverage to 70% or more of its full-time employees in 2015, but the coverage is not affordable or does not provide minimum value, the monthly penalty is the lesser of $250 per month ($3,000 per year) for each full-time employee or $166.67 per month ($2,000 per year) for each full-time employee (excluding the first 80).

With these provisions going into effect on January 1, 2015, what about employers whose health plans do not become effective until later in 2015?  For example, for employers whose ACA-compliant health plans do not begin until September 1, 2015, will they be required to pay the employer shared responsibility penalty for the first eight months of 2015?

Under Treasury Department regulations issued this year, the answer for some qualifying employers is “no.”  The regulations include several provisions applicable only to plans that start on a date other than January 1 (referred to as “non-calendar year plans”).  These regulations provide that if an employer offers an ACA-compliant, non-calendar year health plan in 2015, it will not be required to pay the employer shared responsibility penalty for the months in 2015 before the plan went into effect as long as certain conditions are met.  The conditions are detailed, but generally require the non-calendar year plan to have been in effect for several years and cover a certain percentage of employees.  If you believe your non-calendar year plan may meet these criteria, don’t hesitate to contact my office for a case-specific determination as to whether your company qualifies for transitional relief.

Erik M. Laiho is a Washington licensed attorney representing Management in labor and employment.  For more information contact Erik at, or (206) 447-0182.

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