United States: Refresher Course On Affordable Care Act Individual And Employer Penalties For Not Having Health Insurance

Even though penalties for failure to comply with Affordable Care Act (ACA) coverage requirements have been in force since January 1, 2014 for employers with 100 or more full-time equivalent employees and January 1, 2015 for employers with 50-99 full-time equivalent employees, there is still a good deal of confusion surrounding the employer and the individual mandates.

Employer Coverage Requirements

Employers with 50 or more full-time equivalent employees, referred to as Applicable Large Employers (ALEs), are required to offer full-time employees and their dependents a minimum level of health insurance coverage at an affordable price. ACA contains special definitions of full-time and full-time equivalent employees, as well as what satisfies minimum value coverage and how much an employee can be charged for coverage under the affordability test. Qualifying coverage under ACA rules is called Minimum Essential Coverage.

What happens if an Applicable Large Employer does not meet ACA coverage and affordability requirements?

ALEs face two penalties for failing to meet coverage and affordability requirements:

  1. If an employer does not offer Minimum Essential Coverage to at least 95 percent of its full-time employees, the penalty is $2,000 ($2,160 in 2016) per full-time employee. All full-time employees of the ALE are included in calculating the penalty.
  2. If an employer offers coverage which is either not affordable or does not provide minimum value, the penalty is $3,000 ($3,240 in 2016) for each full-time employee:

    1. who is not offered ACA-compliant coverage from the employer;
    2. who purchases a qualified health plan on the Marketplace, and
    3. who receives a premium tax credit (e.g., receives Health Insurance Marketplace coverage at a reduced cost). Premium subsidies are calculated based on individual household income under federal poverty guidelines which are updated each year.

Although the rules seem straightforward, their application continues to cause confusion. For example, even if an employer offers Minimum Essential Coverage to 95 percent of its full-time employees, so that it is exempt from the $2,000 per full-time employee penalty, the employer still has exposure to the $3,000 penalty if one or more of the remaining 5 percent of its full-time workforce receives a premium tax credit for purchasing health insurance on the Marketplace. Some employers may assume this risk depending on the number, age and salary level of full-time employees who are not offered ACA-compliant coverage. In addition, a full-time employee who does not receive an offer of Minimum Essential Coverage must receive IRS Form 1095C, which is also filed with the IRS. IRS Form 1095C will indicate that the employee was full-time but did not receive an offer of ACA-compliant coverage. Employees who do receive an offer of ACA-compliant coverage are not eligible for a premium tax credit on the Health Insurance Marketplace.

Individual Coverage Requirements

ACA also requires individuals to maintain qualifying health insurance coverage throughout the year or pay a fee.

"Qualifying health insurance coverage" means ACA-compliant coverage provided by an employer, government-sponsored coverage, coverage purchased on Marketplace or Minimum Essential Coverage purchased directly from an insurance company. Qualifying coverage does not include insurance with limited benefits such as dental, vision or specified disease insurance (e.g., cancer treatment expenses only).

Policies that do not comply with ACA rules are gaining popularity because they cost a fraction of the cost of more comprehensive policies. These policies are usually short-term policies and exclude pre-existing conditions, a restriction which is prohibited by ACA. The less expensive, short-term policies were initially marketed to provide gap coverage but many individuals, especially the young and healthy, are buying these policies instead of purchasing employer-provided coverage or coverage on the Health Insurance Marketplace. However, what many people do not understand is that unless they have qualifying coverage under ACA, they will owe a fee, known as the Individual Shared Responsibility Payment, unless an exemption applies.

The Individual Shared Responsibility Payment is either a flat payment or a percentage of the individual's income, whichever is greater. The fee for not having ACA coverage in 2016 is the greater of:

  1. 2.5 percent of household income; or
    2016 Maximum Amount: Yearly premium for national average price of Bronze plan on the Health Insurance Marketplace
  2. $695 per adult plus
    $347.50 per child under age 18;
    2016 Maximum Amount: $2,085

Certain exemptions from the Individual Shared Responsibility Fee apply for hardships, some life events and certain short-term gaps in coverage (less than three consecutive months). Individuals who have no affordable coverage options because the minimum cost for annual premiums exceeds 8 percent of their household income are also exempt from the Individual Shared Responsibility Payment.

If an employer offers non-ACA compliant health insurance to employees who are not full-time employees, the employer is not subject to ACA penalties, but the employee may still owe a penalty for not having Minimum Essential Coverage unless an exemption applies. Employers should make sure any policies or communications contain appropriate disclaimers that such coverage does not satisfy ACA requirements and that employees understand what coverage they are purchasing and receiving.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Brown Smith Wallace
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Brown Smith Wallace
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions