Healthcare Reform

Individual Mandate

Employer Mandate

Preventative Health

Covered California

Individual Mandate


The Affordable Care Act requires most individuals to demonstrate and maintain proof of “minimum essential coverage” or face a penalty tax. Individuals are said to have “minimum essential coverage” if they have a qualified employer-sponsored plan, individual plan, government-sponsored plan (Medicare, Medi-Cal) or a grandfathered plan.

If a person cannot keep minimum essential coverage, the IRS will collect a tax penalty from him/her. The monthly tax penalty is described as 1/12th of the greater of:

FOR 2015

$325 per uninsured adult in the household (capped at $975 per household) or two percent of the household income over the filing threshold

FOR 2016

$695 per uninsured adult in the household (capped at $2,085 per household) or 2.5 percent of the household income over the filing threshold.

AFTER 2016

The penalty will be increased annually by the cost-of-living adjustment.

The penalty will be half of the amount for people under age 18.

Exemptions are granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, illegal immigrants, incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of an individual’s income, and those with incomes below the tax filing threshold.

A grandfathered plan is a health plan that was in place when President Obama signed the new healthcare reform law on March 23, 2010. Grandfathered plans are not required to comply with some of the PPACA provisions.

Employer Mandate

Employers must offer health insurance or pay a penalty

Employer mandate overview

Employers must offer health insurance that is affordable and provides minimum value to 95% of their full-time employees and their children up to the end of the month in which they turn age 26, or be subject to penalties. This is known as the employer mandate. It applies to employers with 50* or more full-time employees, and/or full-time equivalents (FTEs). Employees who work 30 or more hours per week are considered full-time.

Employer mandate requirements

Affordable coverage

Coverage is considered “affordable” if employee contributions for employee-only coverage do not exceed a certain percentage of an employee’s household income (9.86% in 2019 and 9.78% in 2020).

Based on IRS safe harbors, coverage is affordable if the cost of self-only coverage is less than the indexed percentage of the following:

  • Employee’s W-2 wages (reduced by any salary reductions under a 401(k) plan or cafeteria plan)
  • Employee’s monthly wages (hourly rate x 130 hours per month),
  • Federal Poverty Level for a single individual

In applying wellness incentives to the employee contributions used to determine affordability, assume that each employee earns all wellness incentives related to tobacco use, but no other wellness incentives.

Minimum value

A plan provides “minimum value” if it pays at least 60% of the cost of covered services (deductibles, copays and coinsurance). The U.S. Department of Health & Human Services has developed a minimum value calculator that can be used to determine if a plan provides minimum value.

Learn more about the coverage requirements

Employer mandate penalties

This graphic summarizes the coverage requirements and the penalties that apply if any full-time employee purchases coverage on the Marketplace and receives a federal premium subsidy.

Overview of the coverage requirements and the penalties that apply if any full-time employee purchases coverage on the Marketplace and receives a federal premium subsidy.

Get more details below

Additional details on the Employer Mandate

Employer mandate coverage requirements since 2016

Employers with 50 or more full-time and/or FTE employees must offer affordable/minimum value medical coverage to their full-time employees and their dependents up to the end of the month in which they turn age 26, or they may be subject to penalties. The amount of the penalty depends on whether or not the employer offers coverage to at least 95% of its full-time employees and their dependents.

  • Employers who fail to offer coverage to at least 95% of full-time employees and dependents may be subject to a penalty of $2,320 per full-time employee minus the first 30.
  • Employers who offer coverage may still be subject to a penalty if the coverage is not affordable or does not provide minimum value. This penalty is the lesser of either $3,480 per full-time employee receiving a federal subsidy for coverage purchased on the Marketplace, or $2,320 per full-time employee minus the first 30.

Employers must treat all employees who average 30 hours a week as full-time employees.

Dependents include children up to age 26, excluding stepchildren and foster children. At least one medical plan option must offer coverage for children through the end of the month in which they reach age 26. Spouses are not considered dependents in the legislation, so employers are not required to offer coverage to spouses.

Examples of the requirement to cover 95% of full-time employees

Assume each employer has 1,000 full-time employees who work at least 30 hours per week.

  • Employer 1 currently offers medical coverage to all 1,000 and their dependents. The company is considered to offer coverage since it offers coverage to more than 95% of its full-time employees and their dependents.
  • Employer 2 currently offers medical coverage to 800 full-time employees and their dependents. The company will need to offer coverage to 150 more full-time employees and their dependents to meet the 95% requirement to be treated as offering coverage.
  • Employer 3 has 500 full-time, salaried employees who are offered coverage and 500 full-time hourly employees who are not offered coverage. The company will need to offer coverage to at least 450 hourly employees (and their dependents) to meet the 95% requirement to be treated as offering coverage.
  • Employer 4 offers coverage to 950 full-time employees and their dependents. Only 600 of those employees actually enroll in coverage. The company is compliant no matter how many employees actually enroll in affordable coverage that offers minimum value.
Determining how many full-time employees an employer has

The regulations allow various calculation methods for determining full-time equivalent status. Because these calculations can be complex, employers should consult with their legal counsel.

  • Full-time employees work an average of 30 hours per week or 130 hours per calendar month, including vacation and paid leaves of absence.
  • Part-time employees’ hours are used to determine the number of full-time equivalent employees for purposes of determining whether the employer mandate applies.
  • FTE employees are determined by taking the number of hours worked in a month by part-time employees, or those working fewer than 30 hours per week, and dividing by 120.
Counting part-time and seasonal employees

Here are some considerations to help determine how part-time and seasonal employees equate to full-time and FTE employees.

  • Only employees working in the United States are counted.
  • Volunteer workers for government and tax-exempt entities, such as firefighters and emergency responders, are not considered full-time employees.
  • Teachers and other education employees are considered full-time employees even if they don’t work full-time year-round.
  • Seasonal employees who typically work six months or less are not considered full-time employees. This includes retail workers employed exclusively during holiday seasons.
  • Schools with adjunct faculty may credit 21/4 hours of service per week for each hour of teaching or classroom time.
  • Hours worked by students in federal or state-sponsored work-study programs will not be counted in determining if they are full-time employees.
Waiting periods to become eligible for coverage

Employers may not impose enrollment waiting periods that exceed 90 days for all plans beginning on or after January 1, 2014. Shorter waiting periods are allowed. Coverage must begin no later than the 91st day after the hire date. All calendar days, including weekends and holidays, are counted in determining the 90-day period.

Plans subject to the employer mandate

U.S.-issued expatriate plans meet the employer mandate.

Effective July 16, 2014, the employer mandate no longer applies to insured plans issued in the U.S. territories (Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa and the Northern Mariana Islands). A territory may enact a comparable provision under its own law.

Employer mandate reporting

All applicable large employers are required to file an annual report that ensures compliance with the employer mandate. The reporting will include information on all employees who were offered and accepted coverage, and the cost of that coverage on a month-by-month basis.

What happens if an employee receives subsidized coverage

Each year, public Marketplaces should send notices to employers that may owe a penalty for not complying with the employer mandate. These notices will alert employers if any of their employees received a subsidy through the Marketplace.

Employers that receive these notices will have 90 days to file an appeal if they believe the eligibility determination was made in error. It’s important that employers maintain documentation and records to provide proof of compliance with the employer mandate.

Read more about the employer notice process from the Centers for Medicare and Medicaid Services.

Employer mandate penalty amounts and processes

Examples of employer penalties
The employer does not offer coverage to full-time employees
The penalty is $2,320 per full-time employee, excluding the first 30 employees. This example shows how the penalty would be calculated.
Employer Trigger Penalty
500 full-time employees

No coverage offered

One employee purchases coverage on the Marketplace and is eligible for a federal premium subsidy $2,320 per full-time employee, minus the first 30 employees

500 – 30 = 470 employees

470 x $2,320 = $1,090,400 penalty

The employer offers coverage that does not meet the minimum value and affordability requirements

The penalty is the lesser of the two results, as shown in this example.

Employer Trigger Penalty
1,200 full-time employees

Employer offers coverage, but coverage is not affordable and/or doesn’t provide minimum value

The penalty is triggered if one employee purchases coverage on the Marketplace and receives a federal premium subsidy

250 employees purchase coverage on the Marketplace and are eligible for a subsidy

Lesser of $2,320 per full-time employee, minus the first 30 employees, OR $3,480 per full-time employee receiving a federal premium subsidy

1,170 x $2,320 = $2,714,400 penalty

250 x $3,480 = $870,000 penalty (lesser penalty applies)

Penalty assessment process

Here is a snapshot of the penalty assessment process:

Employer offers health coverage compliant with the employer mandate

  • The Marketplace should notify the employer if an employee receives subsidized coverage during this same plan year
  • Employer may gather facts for response or file an appeal within 90 days of Marketplace notification
Employer reports coverage offer and respective data during the applicable tax season
Marketplace reports Minimum Essential Coverage data on employees, including subsidy information
IRS sends Letter 226J, with an Employer Shared Responsibility Payment assessment based on the data they have processed

  • Employer sends Form 14764 (response to Letter 226J) with Form 14765 (lists employees receiving subsidized coverage) and any updated or corrected data to previously reported Forms 1095-C
IRS sends Notice 220J, confirming the final penalty amounts owed, which could state no amount is owed after final audit review.
How an employer will know if a penalty has been assessed

If an employee receives subsidized coverage, the employer should be notified by the public Marketplace. The employer will then be provided an opportunity to respond and appeal if the employee was offered coverage that meets the minimum value and affordability standards.

Once the IRS has received individual tax returns and employer reporting for a given calendar year, it may determine that an employer did not meet its employer mandate requirements and is subject to a financial penalty, known as the Employer Shared Responsibility Payment (ESRP). The IRS will send the employer an IRS Letter 226J.

How an employer can appeal a penalty assessment

Any employer who receives a 226J letter should take immediate action to respond to the IRS. The employer has 30 days to respond with documentation and corrected reporting data (if applicable). Doing this may help the employer reduce or eliminate the ESRP assessed.

After the employer responds with documentation of corrected data previously reported on the Forms 1095-C, the IRS will complete their review and send a Notice 220J to the employer. This notice confirms the final penalty amounts being charged, by month. The Notice 220J may also indicate that no penalty is being charged based on the IRS’s review of any data or documentation provided by the employer in response to the initial Letter 226J.

Read more about employers’ options on the IRS web page, Employer Shared Responsibility Payment Q&As, questions 55-58.

How penalties apply to companies with a common owner

Companies that have a common owner are combined for purposes of determining whether they are subject to the mandate. However, any penalties would be the responsibility of each individual company.

* Before January 2016, employers with 50-99 employees were not required to offer coverage, and employers with 100 or more complied if they offered coverage to at least 70% of their full-time or FTE employees.

Preventative Health Services

All Marketplace plans and many other plans must cover the following list of preventive services without charging you a copayment or coinsurance. This is true even if you haven’t met your yearly deductible.

This applies only when these services are delivered by a network provider.

  1. Abdominal Aortic Aneurysm one-time screening for men of specified ages who have ever smoked
  2. Alcohol Misuse screening and counseling
  3. Aspirin use to prevent cardiovascular disease for men and women of certain ages
  4. Blood Pressure screening for all adults
  5. Cholesterol screening for adults of certain ages or at higher risk
  6. Colorectal Cancer screening for adults over 50
  7. Depression screening for adults
  8. Diabetes (Type 2) screening for adults with high blood pressure
  9. Diet counseling for adults at higher risk for chronic disease
  10. Hepatitis B screeningThis link takes you to a website not operated by the federal government. The site may have different privacy and security policies. for people at high risk, including people in countries with 2% or more Hepatitis B prevalence, and U.S.-born people not vaccinated as infants and with at least one parent born in a region with 8% or more Hepatitis B prevalence.
  11. Hepatitis C screening for adults at increased risk, and one time for everyone born 1945 – 1965
  12. HIV screening for everyone ages 15 to 65, and other ages at increased risk
  13. Immunization vaccines for adults — doses, recommended ages, and recommended populations vary:
  14. Lung cancer screeningThis link takes you to a website not operated by the federal government. The site may have different privacy and security policies. for adults 55 – 80 at high risk for lung cancer because they’re heavy smokers or have quit in the past 15 years
  15. Obesity screening and counseling for all adults
  16. Sexually Transmitted Infection (STI) prevention counseling for adults at higher risk
  17. Syphilis screening for all adults at higher risk
  18. Tobacco Use screening for all adults and cessation interventions for tobacco users

Covered California – State Exchange

The Affordable Care Act requires states to set up their own on-line marketplace to sell health insurance, or have one set up by the federal government.  California chose to set up its own marketplace called Covered California.  There are two components to Covered California—the Individual Exchange and the SHOP Exchange (Small Business Health Options Program).   Although the exact same health plans sold inside the exchange are also available outside the exchange, the exchange is the only place where individuals may receive tax credits and cost sharing subsidies, and where small groups may receive a tax credit.

Individuals applying for coverage in the exchange may qualify for federal tax credits and cost-sharing subsidies.  Tax credits and subsidies are available for individuals and families who meet certain income requirements and who do not have affordable* coverage through their employer or a government program.  Eligibility is based on a sliding scale determined by family income and size.  Individuals and families who make between 138 percent and 400 percent of the federal poverty level – an individual earning up to $46,680 and a family of four earning up to $95,400 – may be eligible.

Federal tax credits may be used when you enroll to lower the cost of your monthly premium.  Tax credits are paid by Covered California directly to your health plan.

Cost-sharing subsidies reduce the amount of health care expenses an individual or family must pay at the time they access care.  You may be eligible for subsidies if your income in 2015 will be less than $29,175 for an individual and less than $59,625 for a family of four.

The SHOP exchange is available to small groups with 50 or fewer full-time employees.  Business owners select the tier of coverage (platinum, gold, silver or bronze) and employees choose which carrier they want from within that tier.  Covered California collects the premium from the group and distributes it to the appropriate carrier(s).  Even if a group’s employees choose different carriers, the group only needs to make one monthly premium payment to Covered California.  The SHOP exchange will be open to employers with 100 or fewer full-time employees effective January 1, 2016.

Small businesses enrolling in the SHOP exchange may qualify for a tax credit if they have 25 or fewer full-time equivalent employees who are paid an average annual salary of less than $50,000.  To qualify for tax credits, the employer must contribute at least 50 percent toward the employee’s premium cost.  Employers with 10 or fewer full-time equivalent employees paying an annual wage of $25,000 or less qualify for the maximum credit.

An individual that is offered affordable coverage from his/her employer is NOT eligible for a tax credit or subsidy in the exchange and neither are his/her dependents.  Employer coverage is considered affordable if the plan covers at least 60% of healthcare expenses AND if what the employer charges the employee for “employee only” coverage does not exceed 9.5% of the employee’s income.

Are these additional services provided by your broker?

One Simple Solution. No Extra Fees.

Benefit Plan Consulting

Client Branded Benefits Portal

Employee Education

Healthcare Reform

Compliance Solutions

On-Demand HR



Anytime we have a new hire, employee termination, or change we notify Sanitas Benefits and they handle the rest. Sanitas Benefits has been great about notifying employees of their benefit options and answering all employee questions related to benefits. They actually administer our benefits and don’t just shop plans and rates once a year. I am very pleased with the knowledge and service my employees and I receive from Bill Marr and his team.

Rande McKellarTexas Drillit

Throughout the year, employees utilize the Employee Benefits portal and find important and helpful information such as group numbers for each benefit, comparisons of plans, educational videos, summaries of benefits, find a provider tools and the required summary of benefits and coverage (SBC’s). Many questions that employees would normally contact me for can now be answered when they visit the site. For more in-depth questions related to benefits, I direct them to Bill. He is extremely responsive and knowledgeable. I’ve been very impressed with how quickly he responds to all of our service needs and works empathetically with employees.

Norma Jean BowmanADM Associates

Anytime I have a new hire, I simply notify Bill and his team and they take the time to reach out to the employee, educate our employee on their benefit options and help them enroll without filling out any paper. Then, we receive notification from Bill or his team on what plans they enrolled, payroll deductions and what the effective date is. Anytime I have a Termination, I notify Sanitas and they handle the rest!

Shirley Agajanian-ProctorMounting Systems

Anytime we’ve had a claims issue with any of the insurance carriers, we’ve reached out to Bill and he’s immediately addressed the issue. We’ve had nothing but positive feedback from our employees about Sanitas and especially Bill Marr when it comes to being responsive. I highly recommend Bill and his team.

Debe Owens3i International Inspecting