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Summary of Potential Employer Penalties
Under PPACA (P.L. 111-148)
Hinda Chaikind
Specialist in Health Care Financing
Chris L. Peterson
Specialist in Health Care Financing
April 5, 2010
Congressional Research Service
7-5700
www.crs.gov
R41159
CRS Report for Congress
Prepared for Members and Committees of Congress
c11173008



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Summary of Potential Employer Penalties Under PPACA (P.L. 111-148)

his report provides a description and illustrations of the penalties, when applicable
beginning in 2014, to employers under the new health insurance reform law—specifically,
Tin §1513 and §10106 of the Patient Protection and Affordable Care Act (PPACA, P.L. 111-
148), as amended by §1003 of the Health Care and Education Reconciliation Act of 2010 (P.L.
111-152). Hereafter, PPACA wil refer to PPACA as amended by the reconciliation act.
PPACA does not explicitly mandate an employer to offer employees acceptable health insurance.
However, certain employers with at least 50 ful -time equivalents will face penalties, beginning in
2014, if one or more of their full-time employees obtains a premium credit through an exchange.1
As described in greater detail below, an individual may be eligible for a premium credit either
because the employer does not offer coverage or the employer offers coverage that is not
“affordable.”
Application Only to “Large Employers”
To be subject to these penalties regarding employer-sponsored health insurance, an employer
must be a “large employer,” defined as having “at least 50 full-time employees during the
preceding calendar year.”2 “Ful -time employees” are defined as those working 30 or more hours
per week.3 The number of full-time employees excludes those ful -time seasonal employees who
work for less than 120 days during the year.4
The hours worked by part-time employees (i.e., those working less than 30 hours per week) are
included in the calculation of a large employer, on a monthly basis. This is done by taking their
total number of monthly hours worked divided by 120.
For example, a firm has 35 ful -time employees (30+ hours). In addition, the firm has 20 part-
time employees who all work 24 hours per week (96 hours per month). These part-time
employees’ hours would be treated as equivalent to 16 ful -time employees, based on the
following calculation:
20 employees x 96 hours / 120 = 1920 / 120 = 16
Thus, in this example, the firm would be considered a “large employer,” based on a total ful -time
equivalent count of 51—that is, 35 full-time employees plus 16 full-time equivalents based on
part-time hours. However, in terms of calculating potential penalties below, part-time hours and
part-time employees are not included; only the actual 35 ful -time employees would be counted.
1 For more information about exchanges under PPACA, see CRS Report R40942, Private Health Insurance Provisions
in Senate-Passed H.R. 3590, the Patient Protection and Af ordable Care Act .
2 Internal Revenue Code (IRC) §4980H(c)(2), as amended by §1513 and §10106 of PPACA, and as amended and
renumbered by §1003 of http:/ www.congress.gov/cgi-
lis/bdquery/R?d111:FLD002:@1(111+152)P.L. 111-152.
3 IRC §4980H(c)(4).
4 IRC §4980H(c)(2)(B). In addition, an employer would not be considered a large employer if its number of full-time
employees exceeded 50 for 120 days or less.
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Summary of Potential Employer Penalties Under PPACA (P.L. 111-148)

Potential Tax Penalties in 2014 on Large Employers
Regardless of whether or not a large employer offers coverage, it will be potential y liable for a
penalty only if at least one of its ful -time employees obtains coverage through an exchange and
receives a premium credit. (For purposes of applying the penalty amounts discussed in the
remainder of this report, a “ful -time employee” is only those individuals working 30 hours per
week or more. Part-time workers or ful -time equivalents are not included in penalty calculations.
An employer wil not pay a penalty for any part-time workers, even if that employee receives a
premium credit.)
Beginning in 2014, individuals who are not offered employer-sponsored coverage and who are
not eligible for Medicaid or other programs may be eligible for premium credits for coverage
through an exchange. These individuals will generally have income between 138% and 400% of
the federal poverty level (FPL).
Individuals who are offered employer-sponsored coverage can only obtain premium credits for
exchange coverage if, in addition to the other criteria above, they also are not enrolled in their
employer’s coverage, and their employer’s coverage meets either of the following criteria: the
individual’s required contribution toward the plan premium would exceed 9.5% of their
household income, or the plan pays for less than 60%, on average, of covered health care
expenses.
In 2014, for example, if citizens whose income is below 138% FPL (that is, 133% FPL plus an
extra 5% FPL that is to be disregarded from individuals’ income when determining Medicaid
eligibility) apply for premium credits through an exchange, they will be determined eligible for
Medicaid and be enrolled in Medicaid rather than exchange coverage with premium credits. This
could affect whether any of an employer’s full-time employees obtain premium credits in an
exchange—and if so, how many.
Large Employers Not Offering Coverage
A large employer will be subject to a penalty if any of its ful -time employees receives a premium
credit toward their exchange plan. In 2014, the monthly penalty assessed to employers who do not
offer coverage will be equal to the number of full-time employees minus 30 multiplied by 1/12 of
$2,000 for any applicable month. After 2014, the penalty payment amount would be indexed by a
premium adjustment percentage for the calendar year.
Employers that do not offer coverage must also file a return stating that they do not offer
coverage, the number of ful -time employees, and other information required by the Secretary.
They must provide notice to employees about the existence of the exchange, including a
description of the services provided by the exchange.
Large Employers Offering Coverage
As previously mentioned, employers who do offer health coverage wil not be treated as meeting
the employer requirements if at least one ful -time employee obtains a premium credit in an
exchange plan because, in addition to meeting the other eligibility criteria for credits, the
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Summary of Potential Employer Penalties Under PPACA (P.L. 111-148)

employee’s required contribution exceeds 9.5% of the employee’s household income or if the
plan offered by the employer pays for less than 60% of covered expenses.
In 2014, the monthly penalty assessed to the employer for each full-time employee who receives a
premium credit will be 1/12 of $3,000 for any applicable month. However, the total penalty for an
employer would be limited to the total number of the firm’s full-time employees minus 30,
multiplied by 1/12 of $2,000 for any applicable month. After 2014, the penalty amounts would be
indexed by a premium adjustment percentage for the calendar year.
An employer must file a return providing the name of each individual for whom they provide the
opportunity to enroll in coverage, the length of any waiting period, the number of months that
coverage was available, the monthly premium for the lowest cost option, the plan’s share of
covered health care expenses paid for, the number of ful -time employees, the number of months
employees were covered, if any, and any other information required by the Secretary. The
employer must provide notice to employees about the existence of the exchange, including a
description of the services provided by the exchange.
Finally, those firms with more than 200 ful -time employees that offer coverage must
automatically enroll new full-time employees in a plan (and continue enrollment of current
employees). Automatic enrol ment programs wil be required to include adequate notice and the
opportunity for an employee to opt out.
Examples
Table 1
shows four types of large employers (columns A through D) based on which, if any,
employer penalty applies. To correspond with the columns lettered in Table 1, assume the
following scenarios in a large employer with 50 ful -time employees (with the number unchanged
throughout the year). Table 1 shows calculations for penalties on an annual basis, rather than a
monthly basis as described above.
Scenario A
The large employer does not offer coverage, but no full-time employees receive credits for
exchange coverage. No penalty would be assessed.
Scenario B
The large employer does not offer coverage, and one or more full-time employees receive credits
for exchange coverage. The number of full-time employees receiving the credit is not used in the
penalty calculation for an employer not offering coverage. The penalty is simply the number of
full-time employees minus 30, times $2,000 (assuming annual amounts). Thus the employer’s
annual penalty in 2014 would be (50-30) x $2,000, or $40,000.
Scenario C
The employer offers coverage and no full-time employees receive credits for exchange coverage.
No penalty would be assessed.
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Summary of Potential Employer Penalties Under PPACA (P.L. 111-148)

Scenario D
The employer offers coverage, but one or more full-time employees receive credits for exchange
coverage. The number of full-time employees receiving the credit is used in the penalty
calculation for an employer that offers coverage. The penalty is the lesser of the fol owing:
1. the number of full-time employees minus 30, multiplied by $2,000—or $40,000
for the employer with 50 full-time employees (i.e., 50 minus 30, multiplied by
$2,000); or
2. the number of full-time employees who receive credits for exchange coverage,
multiplied by $3,000.
Although the penalties are assessed on a monthly basis (with the dollar amounts above then
divided by 12), this example uses annual amounts, assuming the number of affected employees is
the same throughout the year.
If the employer with 50 full-time employees had 10 employees who received premium credits,
then the potential annual penalty on the employer for those individuals would be $30,000.
Because this is less than the overal limitation of $40,000, the employer penalty in this example
would be $30,000.
However, if the employer with 50 full-time employees had 30 employees who received premium
credits, then the potential annual penalty on the employer for those individuals would be $90,000.
Because this exceeds the overal limitation of $40,000, the employer penalty in this example
would be the overal limitation of $40,000.
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Summary of Potential Employer Penalties Under PPACA (P.L. 111-148)

Table 1. Potential Annual Penalties Beginning in 2014 for Large Employers
Applies to For-profit and Nonprofit Organizations
Not a large
Large employer: 50 or more full-time employeesa
employer: Less
than 50 full-time
Does not offer coverage
Offers coverage
employeesa
A
B
C
D
No full-time
1 or more full-time
No full-time
1 or more full-time
employeesb receive employeesb receive
employeesb receive
employeesb receive
credits for
credits for
credits for exchange
credits for
exchange coveragec exchange coveragec
coveragec
exchange coveraged
No penalty
No penalty
Number of full-time
No penalty
Lesser of:
employeesb minus 30
multiplied by $2,000
Number of ful -time
employeesb minus 30,
multiplied by $2,000.
Number of ful -time
employeesb who
receive credits for
exchange coverage,
multiplied by $3,000.
Source: CRS analysis of P.L. 111-148 and P.L. 111-152.
Notes: Under the health insurance reform law, penalties wil be assessed on a monthly basis (with the penalty
amounts divided by 12). To illustrate annual amounts, this table assumes that the number of full-time employees
and the number of those ful -time employees receiving credits through an exchange remains constant throughout
the year. State and local governments (in their role as employers) wil not be subject to these penalties.
a.
For purposes of determining whether an employer is a “large employer,” the number of ful -time employees
(i.e., those working 30 hours per week or more) is added to the number of full-time equivalents (calculated
by taking the hours worked by part-time employees in a month divided by 120).
b.
For purposes of applying the penalty amounts in this table, a ful -time employee is an individual working 30
hours per week or more. Part-time workers or ful -time equivalents are not included.
c.
Beginning in 2014, individuals who are not offered employer-sponsored coverage and who are not eligible
for Medicaid or other programs may be eligible for premium credits for coverage through an exchange.
Credit-eligible individuals wil general y have income between 138% and 400% of the federal poverty level
(FPL). The 138% FPL is 133% FPL plus an extra 5% FPL that PPACA requires to be disregarded from
individuals’ income when determining Medicaid eligibility.
d.
Individuals who are of ered employer-sponsored coverage can only obtain premium credits for exchange
coverage if they first meet the regular eligibility criteria for credits (e.g., they are not eligible for Medicaid or
other programs, and general y have income between 138% and 400% FPL) and meet the fol owing additional
criteria: they are not enrol ed in their employer’s coverage, and their employer’s coverage either (1)
requires the individual to contribute toward the plan premium more than 9.5% of their household income,
or (2) the plan pays for less than 60%, on average, of covered health care expenses.
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Summary of Potential Employer Penalties Under PPACA (P.L. 111-148)

Author Contact Information
Hinda Chaikind
Chris L. Peterson
Specialist in Health Care Financing
Specialist in Health Care Financing
hchaikind@crs.loc.gov, 7-7569
cpeterson@crs.loc.gov, 7-4681
Congressional Research Service
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