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Home / Articles / The ACA affects the individuals who work for you. Will their response to the legislation shape yours?

The ACA affects the individuals who work for you. Will their response to the legislation shape yours?

March 6, 2013


Because the ACA has tax implications for individuals, your organization may feel the need to respond to the shifting expectations of your workforce as well as comply with the parameters of the law. Your ACA strategy could take recruitment and retention into consideration. The approach won’t be easy to formulate, and the impact of that strategy won’t be simple to predict.

But solid, reasoned decisions can be made by those who understand the law’s penalties and subsidies and how they will impact both individuals and organizations. We’re here to highlight the numbers you need to know.


Under ACA, individuals in your workforce will soon be compelled by law to have healthcare coverage. Called the individual mandate, the legislation imposes a tax on individuals who are not covered by medical insurance beginning in 2014, with exceptions that we’ve explained below. The annual uninsured tax penalty will increase over the first three years the law is in force, as shown here:

•    2014: $95 per adult and $47.50 per child, to a maximum of $285 per family, or 1% of family income, whichever is greater ($28,500 is threshold)
•    2015: $325 per adult and $162.50 per child, to a maximum of $975 per family, or 2% of family income, whichever is greater ($48,750 threshold)
•    2016: $695 per adult and $347.50 per child, to a maximum of $2,085 per family, or 2.5% of family income, whichever is greater ($83,400 threshold)

Those who can claim any of the following may avoid the uninsured tax penalty:

•    They are part of a religion that opposes acceptance of benefits from a medical insurance policy
•    They are an undocumented immigrant
•    They are an incarcerated person
•    They belong an Indian tribe
•    They have family income below the threshold requiring you to file a federal income tax return ($9,750 for an individual and $19,500 for a family; 2012 figures)
•    They would have to pay more than 8% of income for medical insurance, after taking into consideration any employer contributions or tax credits

Additionally, an individual will be deemed to have medical insurance and would not be subject to the tax penalty, if he or she is insured for the entire year through a combination of:

•    Medicare
•    Medicaid or the Children’s Health Insurance Program (CHIP)
•    TRICARE (for service members, retirees, and their families)
•    Veteran’s Administration medical insurance
•    An employer-based plan of medical insurance
•    Individually purchased medical insurance of at least “Bronze” level of coverage
•    A “grandfathered” health plan in existence before the enactment of PPACA on March 23, 2010

When the individual mandate to be insured goes into effect in 2014, premium tax credits will be available for individuals with family incomes between 100% and 400% of the federal poverty level (FPL) to purchase medical insurance from the Public Exchange.

The below chart illustrates 2013 federal poverty level guidelines, representing 100% of the federal poverty level (multiply figures by four to arrive at 400% FPL).


Persons in family/household

Poverty guideline

















For families/households with more than 8 persons, add $4,020 for each additional person.

•    FPL guidelines for Alaska and Hawaii are approximately 25% and 15% higher, respectively.

The premium tax credits will be expressed as a percent of income required to purchase Exchange coverage at the “Silver” level (estimated to be 70% Actuarial Value, plus or minus 2%), scaled from 2% of income up to the 9.5% maximum threshold. These tax credits make coverage more affordable, but should still be compared to the coverage and (pre-tax) premium contribution required from an employer, if available.

Cost sharing subsidies will be also available for individuals purchasing medical insurance from the Public Exchange with family incomes between 100% and 250% of the FPL. Cost sharing subsidies protect individuals from high out-of-pocket costs by lowering the deductibles, coinsurance, and co-pays of the Silver level of coverage. The subsidy is expressed as an Actuarial Value scaled from 73% up to 94% based on FPL income. The lower the income, the higher the plan reimbursement will be, via Actuarial Value percentage.

As part of the Affordable Care Act, each state has the option of allowing the federal government to provide greater funding for Medicaid coverage and services. Should a state accept expanded Medicaid funding, the lower threshold of federal poverty level will increase from 100% FPL to 133% FPL, whereby individuals with income up to 133% FPL would be entitled to Medicaid coverage.

Individuals covered under Medicaid are not entitled to premium tax credits or cost sharing subsidies through the Exchange.

It is important to remember, however, that individuals and their dependents who have been offered coverage through an employer, large or small, which meets the affordability and minimum value tests (i.e., 9.5% of income and 60% Actuarial Value) are not eligible for premium tax credits or cost sharing subsidies when purchasing coverage through a Public Exchange, without regard to the income of the individual.

Large Employer Groups

Your business will of course need to strategize the best way for your organization to comply with the ACA regulations. There are two key penalties under the Affordable Care Act for large employer groups, broadly understood to be those with 50 or more employees working 30 or more hours per week.

►    The No Offer Penalty, applied when a large employer chooses to not offer a medical plan to its full-time employees, is $2,000 times the number of full-time employees working 30 or more hours per week, less a “deductible” of $2,000 times the first 30 such employees (provided that at least one employee purchases coverage from the Public Exchange and receives a tax credit to assist in the purchase).
►    The Inadequate and Unaffordable Penalty, applied when a large employer offers a medical plan that does not meet the 60% Actuarial Value test or exceeds the 9.5% cost test for employee contributions, is $3,000 times the number of full-time employees working 30 or more hours per week that choose to purchase coverage from the Public Exchange and receive a tax credit to assist in the purchase (assessed monthly, with a maximum penalty equal to the “No Offer” penalty).

Note that large employers will not pay penalties for employees covered under Medicaid.

Small Employer Groups

Compliance is not an issue for small employer groups, those with 2 through 49 employees working 30 or more hours per week. There is no penalty for those that choose not to offer medical insurance to its employees. But this group may still feel the pressure to compete for qualified workers by offering employee benefits in the form of medical coverage.

There is help for employer groups of fewer than 25 full-time equivalent employees who want to offer healthcare insurance. Small Business Tax Credits may be available. These scale up to 50% (35% for non-profit employers) of paid premiums, if an employer pays average annual wages below $50,000, contributes 50% or more toward employee medical insurance premiums, and purchases coverage through the Small Business Health Options Program (“SHOP”), the Public Exchange for small employers. The lower the average annual wage, the higher the tax credit will be.

This article is the third in a series authored by Clark Schaefer Hackett and The Scheller Bradford Group to provide guidance on implementation of The Affordable Care Act (“ACA”). Read the first article here, the second article here, and review these definitions that are crucial to understanding the ACA.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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