The Affordable Care Act (ACA) has changed over the years since it was signed into law in 2010. But it is the law of the land and its popularity with American consumers has increased during the past decade. According to the February 2024 Kaiser Family Foundation (KFF) Health Tracking Poll, about two-thirds (59%) of American adults view the ACA favorably. Thirty-nine percent currently view it unfavorably.
Full implementation of the ACA began in 2014. That’s when the Individual Mandate began and the ACA’s “employer responsibility provisions” took effect. The latter are also often referred to as the Employer Mandate.
ACA Mandates and Penalties
As established by the ACA, the Individual Mandate and Employer Mandate both included penalties. The Individual Mandate required individuals to purchase “minimum essential coverage” or pay a penalty unless they were eligible for an ACA marketplace subsidy.
According to KFF, in 2014, the adult Individual Mandate penalty was $95. The household penalty was $285. In year two (2015), the adult penalty jumped to $325, with the household penalty increasing to $975. In 2016, the per adult penalty was $695 and the household penalty rose to $2,085. According to IRS data, from 2014 to 2018, households making less than $75,000 faced most of the Individual Mandate penalties.
The ACA Individual Mandate penalty was set to zero beginning in tax year 2019. The change was made in the Tax Jobs Act enacted in 2017 during the Trump administration.
For businesses, the ACA’s Employer Mandate has been in place since January 1, 2015. It requires Applicable Large Employers (ALEs) to offer minimum essential health coverage (MEC). An ALE is any employer with 50 or more full-time or full-time-equivalent employees. For more information about how an ALE is determined, visit the IRS website.
Even if you’re not a current ALE, you should conduct an annual “ALE test” in January. Your business size could change over time, and that could mean new requirements for your business.
Coverage offered to employers must be made available to at least 95% (70% in 2015) of full-time employees and dependents. If an ALE fails to offer affordable coverage with minimum value standards, it is subject to an ACA penalty. The amount of the penalty depends on the nature of the failure – whether no coverage is offered or whether coverage is considered inadequate. KFF published an easy-to-understand explanation of the Employer Responsibility Under the ACA in February 2024. A Q&A is also available on the IRS website.
Health coverage is “affordable” if the employee share of the cost for self-only coverage, for the lowest cost plan available, does not exceed 9.5% (subject to an annual inflation adjustment) of the employee’s monthly salary, wages, or the annual federal poverty level.
Coverage is deemed to provide “minimum value” if it covers 60% of the total allowed costs of benefits under the plan. It must also include substantial coverage of inpatient hospital services and physician services. An ACA health plan in the Bronze tier meets this requirement, as do plans in other ACA metal tiers.
For your employees and dependents enrolled in CaliforniaChoice, their coverage satisfies the California Individual Mandate. As a reminder, effective January 1, 2020, all California residents must either: a) have qualifying health insurance coverage; b) obtain an exemption from the coverage requirement, or c) pay a penalty when filing their California state tax return.
Employees and dependents who had health care coverage for each month of 2023 are not subject to a penalty. Nor are your employees (and their dependents) with coverage in 2024. For more information on the California Health Care Mandate, visit the State of California Franchise Tax Board website.
Escalating Costs
Insurance industry analysts are forecasting higher health insurance premiums in 2024, after relatively low increases during most of the last decade. This year you and your employees could see a larger bump. Estimate ranges run from less than five to nearly nine percent. Your increase – if any – could be influenced by rising payments to health care providers, your group’s and members’ health plan choices, ACA metal tier, and the area in which they live. While some CaliforniaChoice health plan partners are making premium adjustments in 2024, the changes vary by coverage type and region, and some plans are taking a “rate pass.”
Of course, you’re somewhat protected because you have coverage through CaliforniaChoice. A big reason why so many small businesses in California select CaliforniaChoice is it gives you the ability to lock in your employer contribution for 12 months. You determine the amount you want to contribute to employees’ health care premiums and that amount remains the same for 12 months.
That is also true for your employees. Their premiums are locked in for 12 months unless they make a change to coverage. At renewal, they can switch plans and still stay in the CaliforniaChoice program.
Prescription drug prices are going up, too. In January, drugmakers raised prices on hundreds of drugs. Manufacturers include Pfizer, Sanofi, and Takeda. Pfizer stood out by raising prices on more than a quarter of all of its affected medicines. Takeda’s Baxalta had increases on 53 drugs. It’s uncertain how those increases might affect future health care premiums.
Talk With Your Broker
Ask your employee benefits broker about what you and your group might expect as your CaliforniaChoice renewal approaches. You have the option to adjust your contribution toward employees’ premiums or to add options for employees. Many employers have moved to “Total Choice,” which gives employees access to all of the plans and tiers in the CaliforniaChoice program. You may find it’s an added way to help you attract and retain workers in today’s competitive environment.