Can the Employer Mandate Penalties be Waived or Reduced?

Senator Susan Collins (R-ME) submitted an inquiry to the Internal Revenue Service (IRS) earlier this year asking  two  very specific questions. She wanted to know if penalties related to the Employer Mandate could be reduced or waived if it would cause a hardship on an employer. She also wanted to know if the IRS would extend the transition relief that was previously available to employers with 50-99 employees. Previous transition relief exempted most employers of this size from the Employer Mandate during its first year of implementation in 2015.

The IRS responded to Senator Collins in Information Letter 2019-0008.  In summary, the IRS  said the law does not allow for a reduction or a waiver of any Employer Mandate penalty. The IRS also recognized that transition relief was previously available, but no  transition has been available since 2017. Therefore, employers with 50-99 employees must continue to comply with the Employer Mandate requirements or risk penalties. The letter also indicates that it would take legislative action from Congress for provisions related to the Affordable Care Act (ACA), including the Employer Mandate, to change.

That means the Employer Mandate will continue to exist and be enforced as we know it today. In 2019, the Employer Mandate has the following requirements:

  • Requirement  #1:  An applicable large employer (ALE), defined as one with 50 or more full-time equivalent employees in the previous year, must offer minimum essential coverage to at least 95% of its full-time employees. 
  • Penalty  #1:  If the offer requirements are not  satisfied and  at least one full-time employee receives a premium tax credit on the Health Insurance Marketplace, the employer is assessed a penalty of  \$2,500 multiplied by the number of full-time employees in excess of 30.

Assuming an employer meets the offer requirements, they will avoid the most significant penalties under the Employer Mandate. However, another requirement also needs to be considered to avoid all penalties related to the Employer Mandate.

  • Requirement  #2:  An  ALE  must  offer  minimum  essential  coverage  that  is  affordable  and  has minimum value  to  every full-time employee. Coverage is considered affordable if an employee has to pay no more than 9.86% of their income for the lowest-priced, self-only coverage plan. Minimum value is coverage that would be considered equivalent to or better than a bronze plan offered on the Health Insurance Marketplace. 
  • Penalty #2: The employer is charged a penalty of $3,750 for every full-time employee who isn’t offered coverage that has minimum value and is affordable, but the penalty only applies to those full-time  employees  who  receive  a  premium  tax  credit  for  a  plan  purchased on  the  Health Insurance Marketplace.  

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