ACA Penalties Affecting Growing Start-ups

There has been a lot of hum regarding ACA Penalties and its regulations these days. So, it is likely that a growing company will be worried whether it will be affected by these regulations or not; and if yes then to what extent?

First take a look at the type of penalties that ACA might put upon a start up company.

ACA has regulated that organizations having more than 50 employees are mandatory to provide healthcare benefits to their employees. But still there are 0.2 % of companies that do not implement the employee healthcare benefit services.

To penalize those kind of organizations, ACA regulates two type of penalties to industry employees, falling under section 4980H(a) and section 4980H(b) commonly known as penalty A and penalty B. Companies who do not abide by the regulations set by ACA, fall under any one of the penalties according to the non-appliance of pre-set rules.

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Penalty A — This penalty is applied when an employer at all fails to offer at least 70% of his employees a minimum essential coverage.

Penalty B — When an employer does offer coverage but it is either not affordable or doesn’t cater minimum value defined by the regulation, then penalty B is applied.

To better understand the risks involved in not following the ACA regulations and MEC (Minimum Essential Coverage),

Consider an Example. For an organization having more than 50 employees, the penalty of not implementing healthcare to its employees, can be around $2,000 /year for every full-time worker minus 30. Using the above formula, if the penalty is calculated for a company with 60 employees not providing coverage to its employees, it will be number of employees (60) minus 30. This will result to 30, which when multiplied by $2,000 will result to $60,000. This implies that the company has to pay $60,000 per year, increasing according to growth in insurance rates every year, if the coverage is not provided to the employees.

Now for the companies falling under penalty B; ACA determines the coverage affordability qualification by calculating whether the employer is paying a considerable part of the coverage to its employees. If it comes out to be more that 9.5 % of the employees’ salary, then it is considered as unaffordable and the employer is required to pay the penalty.

Although it has to be notified that companies with less than 50 employees doesn’t fall under any kind of penalties as they are not mandated to provide health coverage to its employees, but still it will be good if the benefits are provided to the employees. It will help in attracting new talent and retaining the existing thereby making your employees realize that they are treated well and taken care of.

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