October 2025 Newsletter

Affordable Care Act Refresher

Background

The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer compliant health coverage to its full-time employees or otherwise pay a penalty. These rules are collectively known as the ‘pay or play’ rules. Under those rules, an employer is only liable for a penalty IF at least one full-time employee receives a subsidy for marketplace coverage. Generally speaking, an ALE is defined as an employer employing at least 50 full-time employees, including full-time equivalents (FTEs), in the prior calendar year.

Employee Counts

An employer’s ALE status is based on the combined number of full-time employees and FTE employees. An employee is considered full-time if they work at least 30 hours per week, or 130 hours per month.

To calculate your FTE count, follow these steps:

1.     Calculate the number of FTEs by adding all the part-time hours worked for each month and dividing the total by 120. This is your number of monthly FTEs.

2.     Add the total number of full-time and FTEs and divide by 12 to get the average.

If the average is 50 or more, you are an ALE for the current year.

If during 2025, your count as outlined above averaged 50 or more for the first time, then you must offer compliant health coverage no later than April 1, 2026. You will also be subject to certain ACA reporting requirements beginning in 2027.

Penalties

Depending on the circumstances, one of two penalties may apply under the ‘pay or play’ rules: the Section 4980H(a) penalty or the Section 4980H(b) penalty.

Under 4980H(a), an ALE will be subject to a penalty if it does not offer coverage to ‘substantially all’ (generally, at least 95%) of its full-time employees and one of its full-time employees receives a subsidy toward their marketplace plan. This monthly penalty is equal to the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $3,340 (2026) for any applicable month. This is an increase of $440 from 2025.

Under 4980H(b), ALEs that offer coverage to substantially all full-time employees but whose coverage is unaffordable or does not provide minimum value may still be subject to a penalty. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $5,010 (2026) for each applicable month. This is an increase of $660 from 2025. The total penalty for an ALE is limited to the 4980H(a) penalty amount.

Please contact Benefits Inc. if you have any ACA compliance questions or care discuss these issues further.

B. Kyle Sanders