Now that the year is more than halfway over, organizations across industries are starting to look at adjustments that may affect their employee benefits in the coming year.
One of those upcoming adjustments for 2024 is the out-of-pocket maximums and projected employer mandate penalties under the Affordable Care Act (ACA).
As you gear up for 2024, keep this information handy.
A Quick Review of the ACA
The Affordable Care Act (also referred to as Obamacare) is a healthcare reform law enacted in 2010 that makes health insurance coverage affordable and available to more people, expands Medicaid, and seeks to lower the cost of healthcare by supporting innovative medical care delivery methods.
The ACA mandates certain employer-sponsored coverage responsibilities and benefits that depend on the structure and size — i.e., the number of full-time employees and full-time equivalents — of the business.
If you have 50 or more full-time employees or full-time equivalents, your business is considered an Applicable Large Employer (ALE). Two provisions of the ACA apply only to ALEs: 1) the employer shared responsibility provisions, and 2) employer information reporting for offers of minimum essential coverage. Note: non-ALEs that sponsor self-insured group medical plans are also required to report offers of minimum essential employee coverage.
The first provision means you need to offer minimum essential health care coverage to your full-time employees and their dependents or make an employer shared responsibility payment to the Internal Revenue Service (IRS) — also referred to as the “employer mandate penalty” — if you fail to provide coverage.
The second provision means you also have to send annual reports to the IRS about the health care coverage you offered if any — and send a statement to employees with the same information that you provided to the IRS.
The Different Types of ACA Penalties
Under the Affordable Care Act (ACA), there are different types of penalties that can be imposed on employers who fail to meet certain requirements regarding health insurance coverage for their employees. These penalties, often referred to as the “A” and “B” penalties, are designed to ensure that employees have access to affordable and adequate health coverage.
Understanding these penalties is important for employers to avoid potential financial liabilities and comply with the ACA provisions. In the following sections, we will delve into the details of each type of penalty and how they are calculated.
What is the 2024 ACA Penalty 4980H(a) Amount?
The 2024 ACA penalty for 4980H(a) amount is $2,970. The 2024 ACA penalty for 4980H(a) is an important consideration for businesses that do not offer health insurance coverage to their full-time employees. This penalty is also known as the “hammer penalty” and is calculated based on the number of full-time employees a company has.
To understand how the penalty is calculated, let’s consider this very simple example of John’s Pizza Parlor. In 2024, John’s Pizza Parlor has 75 full-time employees and does not offer Minimum Essential Coverage (MEC) to its employees. The penalty is triggered when at least one full-time employee obtains a Premium Tax Credit through the marketplace.
For each full-time employee, John’s Pizza Parlor would be subject to a penalty of $2,970.
In the case of John’s Pizza Parlor, if 10 full-time employees obtain Premium Tax Credits, the penalty amount for the business would be roughly $29,700.
Note: It’s critical to consult with a professional to ensure the calculations for your unique situation are correct.
It’s important for businesses to be aware of the 2024 ACA penalty 4980H(a) amount and the potential impact on their organization. By offering health insurance coverage to their full-time employees, businesses can avoid these penalties while ensuring their employees have essential coverage.
What is the 2024 ACA Penalty 4980H(b) Amount?
The 2024 ACA penalty 4980H(b) is $4,460. The 2024 ACA penalty 4980H(b) amount is assessed on a per-violation basis when an employer offers unaffordable or non-Minimum Value coverage to their employees, and an employee receives a Premium Tax Credit (PTC) from a state or federal health exchange.
For each employee who receives a PTC, the penalty is roughly $372 per month or $4,460 annualized. This penalty is designed to incentivize employers to offer affordable and comprehensive health insurance coverage to their employees.
To illustrate how the penalty is calculated, let’s consider an example. ABC Company will have 100 full-time employees in 2024. Out of these employees, 20 obtain PTCs from a health exchange because the coverage offered by ABC Company is either unaffordable or does not meet the Minimum Value requirements.
In this case, ABC Company would be subject to a penalty of $4,460 per employee who receives a PTC. Therefore, the total penalty for ABC Company would be $89,200 ($4,460 multiplied by 20 employees).
It is important for employers to ensure that their health insurance coverage meets the affordability and Minimum Value standards set by the ACA to avoid being subject to these penalties. Employers can consult with healthcare experts or insurance providers to navigate the complex regulations and ensure compliance with the ACA requirements.
Understanding 4980H 2024 ACA Penalties
In 2024, under section 4980H of the Affordable Care Act (ACA), employers are subject to penalties for not offering affordable and comprehensive health insurance coverage to their full-time employees. There are two penalty provisions under this section: 4980H(a) and 4980H(b).
The 4980H(a) penalty is applicable to large employers with 50 or more full-time employees (including full-time equivalent employees) who do not offer minimum essential coverage to at least 95% of their full-time employees and dependents. If an employer fails to meet this requirement, they may be subject to an annual penalty.
The penalty is calculated based on the number of full-time employees (minus 30) and is multiplied by 1/12 of the applicable premium tax credit (PTC) amount. The PTC amount for 2024 is roughly $372 per month.
The 4980H(b) penalty is applicable if the employer does offer coverage to their full-time employees but it is not considered affordable or does not meet the minimum value requirements. The penalty for this provision is $4,460 per employee who receives a PTC from a health exchange.
Understanding these penalties is crucial for employers to ensure compliance with the ACA and to avoid substantial financial consequences.
ACA Out-of-Pocket Maximums for 2024
In 2024, the ACA out-of-pocket maximum for employers with sponsored group health plans can impose on enrolled employees will be $9,450 for individual coverage (up from $9,100 last year) and $18,900 for family coverage (up from $18,200 last year). These changes both represent a 3.8% increase from the previous year.
2024 Employee Benefits Adjustments
The IRS recently released the new required employer responsibility amount for 2024 to determine affordability will be 8.39%, decreasing from 9.12% in 2023. This percentage is used to assess whether an employee is offered affordable minimum essential coverage, per subsection (b) of the employer mandate. For taxable years and plan years beginning after December 31, 2023, this revenue procedure will be in place.
Get the Right Guidance
It’s critical that you apply correct yearly adjustments for employee benefits and determine any other impact these adjustments may have on your business. Partnering with an HR solutions provider can help you get the guidance you need.
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