(C) Common Dreams
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Employer-Sponsored Health Insurance 101 [1]

['Kff Authors', 'Gary Claxton', 'Matthew Rae', 'Aubrey Winger']

Date: 2025-02

The drafters of the ACA intended to provide coverage options to those without access to employer-sponsored coverage without encouraging employers to drop coverage. To achieve this balance, the ACA requires that employers with at least 50 FTEs offer health benefits which meet minimum standards for value and affordability or pay a penalty. The so-called ‘employer mandate’ constitutes two separate penalties.

First, employers are taxed if they do not offer minimum essential coverage to 95% of their full-time employees and their dependent children. This generally requires that employers offer major-medical coverage and not a limited benefit plan. Employers face this penalty when at least one of their employees receives an advance premium tax credit (APTC) to purchase coverage on the health insurance exchange markets or Marketplaces. In 2024, this penalty stipulates that employers will be assessed a tax of $2,970 for each full-time employee after their first 30 employees.

Secondly, employers are penalized if the coverage they offer is not affordable or does not provide minimum value. Plans are considered to meet the minimum value standard if they cover 60% of the health spending of a typical population. In 2023, coverage was deemed to be affordable if the employee premium contribution is less than or equal to 9.12% of their household income. Employers may be charged $3,750 for each employee enrolling on subsidized Marketplace coverage.

Defining what constitutes ‘affordable’ has been the focus of considerable attention in recent years. The Obama Administration initially issued rules that workers and their dependents would be considered to have an affordable offer if self-only coverage met the affordability test. With many employers requiring much larger premium contributions to enroll dependents, this meant that as many as 5.1 million people were in households where they had to pay a larger share of their income to enroll in the plan offered by their employers without being eligible for premium tax credits. Recent rules have addressed the so-called “family glitch” by considering the cost of family coverage when assessing affordability. While most large employers offer health benefits, many may encourage spouses and other dependents to enroll in different plans if possible. For more information on eligibility for premium credits, see the Affordable Care Act chapter.

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[1] Url: https://www.kff.org/health-policy-101-employer-sponsored-health-insurance/?entry=table-of-contents-introduction

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