What are the Employer Shared Responsibility (ESR) provisions in the Affordable Care Act (ACA)?

Beginning January, 2015, employers employing at least a certain number of employees (generally 50 full-time employees and full-time equivalents) will be subject to the Employer Shared Responsibility provisions under section 4980H of the Internal Revenue Code (added to the Code by the Affordable Care Act).  Employers that fail to meet new Federal Employer Shared Responsibility standards will be subject to a $2,000 per employee fine- even if only one of their full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges.

What is the definition of a full time employee?

As defined by the statute, a full-time employee is an individual employed on average at least 30 hours per week (so half-time would be 15 hours per week).  Employers with 50 or more full-time employees (including full-time equivalents) must offer all employees working an average of 30 hours per week or more in a month health care coverage with “minimum value,” beginning in 2014, or pay penalties.  In other words, although large employers are not required to provide health care coverage to part-time employees working less than 30 hours per week, these part-time employees are included in calculating the threshold number of 50 workers (including full-time equivalents) that would require employers to offer affordable coverage to all full-time employees.

The 95% and Affordability Standards

Under the law, an employer would be liable for penalties if it fails to provide affordable coverage to at least 95 percent (or, if greater, five) of its full-time employees (and to those employees’ dependents) and one or more of those employees who are not offered coverage receive a premium tax credit or cost-sharing reduction when purchasing coverage on a state exchange.  Beginning in 2014, employees with household income between 100 percent and 400 percent of the federal poverty level are eligible for tax credits for exchange coverage if they do not have access to affordable employer-sponsored coverage that is of at least a minimum value.  If large employers do offer coverage to their full-time employees and their dependents but the coverage is “unaffordable” to certain employees or does not provide minimum value, the employers face a penalty of $3,000 times the number of full-time employees receiving tax credits for exchange coverage (not to exceed $2,000 times the total number of full-time employees).