When an Employer Owes a Payment for Not Offering Coverage

Answer first: nothing happens until an employee is certified as subsidised

The statute is titled shared responsibility for employers regarding health coverage, and it works by imposing an assessable payment rather than by requiring anyone to buy insurance.

The first branch applies where no offer was made. If an applicable large employer fails to offer to its full-time employees, and their dependents, the opportunity to enrol in minimum essential coverage under an eligible employer-sponsored plan for any month, and at least one full-time employee has been certified to the employer as having enrolled for that month in a qualified health plan with respect to which a premium tax credit or cost-sharing reduction is allowed or paid, then an assessable payment is imposed.

Read the second condition again, because it is the hinge. The payment is not triggered by the absence of an offer. It is triggered by the absence of an offer plus a certification that a full-time employee obtained subsidised marketplace coverage. Without that certification, the first branch does not fire.

The second branch applies where an offer was made. If an applicable large employer does offer that opportunity for any month, and one or more full-time employees are certified as having enrolled in a subsidised qualified health plan for that month, an assessable payment is imposed as well — but computed differently.

The certification mechanism itself sits outside this statute. The section refers to employees certified to the employer under section 1411 of the Patient Protection and Affordable Care Act, a provision not fetched for this page and not described here.

Two different sums, and a ceiling that connects them

The arithmetic differs between the two branches, and the difference is the point of the design.

Where no offer was made, the payment equals the applicable payment amount multiplied by the number of individuals employed by the employer as full-time employees during the month. That is a headcount calculation covering the whole full-time workforce, not only the subsidised employee.

Where an offer was made, the payment equals the number of full-time employees who were certified as subsidised for that month, multiplied by one twelfth of the second base amount. That is a per-person calculation counting only the employees who actually went to the marketplace.

The statute then caps the second against the first. The aggregate amount determined under the offer branch for all employees for any month shall not exceed the product of the applicable payment amount and the number of individuals employed as full-time employees during the month.

So an employer that offers coverage can never owe more under this section than an employer of the same size that offered nothing. That ceiling is what keeps the offer branch from producing a perverse result.

The statute defines the applicable payment amount as one twelfth of $2,000 for any month, and states the offer-branch multiplier as one twelfth of $3,000.

Both of those figures are statutory bases from the text of the section, not current amounts. The section provides that in the case of any calendar year after 2014, each of the dollar amounts in the offer branch and in the applicable payment amount shall be increased by the product of that dollar amount and the premium adjustment percentage as defined in the Affordable Care Act for the calendar year, with any increase that is not a multiple of $10 rounded to the next lowest multiple of $10. The adjusted amounts for any given year appear in annual guidance, which was not consulted for this page. No current-year figure is asserted here.

Who is an applicable large employer, and the arithmetic that decides it

The threshold is stated in terms of the previous year. An applicable large employer means, with respect to a calendar year, an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.

A full-time employee means, with respect to any month, an employee who is employed on average at least 30 hours of service per week. The statute directs the Secretary, in consultation with the Secretary of Labor, to prescribe regulations, rules and guidance as necessary to determine hours of service, including rules for employees not compensated on an hourly basis. Those rules were not consulted for this page.

The count is not limited to full-time employees. Solely for determining whether an employer is an applicable large employer, an employer must also include, for each month, a number of full-time equivalents determined by dividing the aggregate number of hours of service of employees who are not full-time employees for the month by 120.

Several rules govern how the counted entity is defined. All persons treated as a single employer under the specified controlled-group and affiliated-service provisions are treated as one employer. An employer not in existence throughout the preceding calendar year is measured on the average number of employees it reasonably expects to employ on business days in the current year. And any reference to an employer includes a reference to any predecessor.

There is a seasonal exemption. An employer shall not be considered to employ more than 50 full-time employees if its workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year, and the employees in excess of 50 employed during that 120-day period were seasonal workers. Seasonal worker is defined by reference to a Department of Labor definition and expressly includes retail workers employed exclusively during holiday seasons.

And there is an exclusion for certain coverage. Solely for determining applicable large employer status for a month, an individual is not taken into account as an employee for that month if the individual has medical coverage under the military health chapter, including coverage under the TRICARE program, or under a health care program under the specified veterans chapters, as determined by the Secretary of Veterans Affairs in coordination with the Secretary of Health and Human Services and the Secretary.

The thirty-employee reduction, and where it applies

One provision moves money more than any other in this section, and it is easy to read past.

The number of individuals employed by an applicable large employer as full-time employees during any month shall be reduced by 30, solely for purposes of calculating the assessable payment under the no-offer branch or the overall limitation under the offer branch.

Note the word solely. The reduction is a calculation rule for the payment and for the ceiling. It is not part of the test for whether an employer is an applicable large employer in the first place — that test uses the 50-employee average and the full-time-equivalent arithmetic without it.

Where persons are treated as one employer under the controlled-group rules, only one reduction is allowed with respect to those persons, and the reduction is allocated among them rateably on the basis of the number of full-time employees each employs.

The section also carries two administrative provisions. Any assessable payment shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as an assessable penalty under the relevant chapter of the tax code. And the payment is not deductible, by cross-reference to the provision denying a deduction for it.

What this section does not do

The negatives are as useful as the positives, and they explain several things employees notice.

It does not require an employer to provide coverage. It attaches a payment to an employer of a certain size in a month in which a full-time employee obtains subsidised marketplace coverage, and the payment differs depending on whether an offer was made.

It does not describe what the coverage has to contain. Minimum essential coverage under an eligible employer-sponsored plan is defined by cross-reference to a different section of the tax code, which was not fetched for this page.

It does not create any entitlement for an individual employee. The section imposes a liability payable to the government; nothing in what is quoted here gives an employee a payment or a benefit.

It does not define hours of service on its own. It delegates that to regulations, rules and guidance, which are a separate body of material not described here.

And it does not print a current dollar amount. It prints two base amounts and an indexing rule that applies to both for every calendar year after 2014, with the adjusted figures published elsewhere. That is why no current amount appears anywhere on this page.

For an employee reading this to understand their own situation, the practical takeaway is structural rather than numerical: the size test, the offer, the certification of subsidised coverage, and the thirty-employee reduction are the four moving parts, and a change in any one of them changes the arithmetic.