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Affordable Care Act (ACA) definition and meaning
Formally known as the Patient Protection and Affordable Care Act, the ACA is a federal healthcare reform law enacted on March 23, 2010. Sometimes referred to as PPACA or “Obamacare,” the ACA aims to make medical coverage more accessible and affordable for Americans. Among other provisions, it includes a mandate for applicable large employers (ALEs) to offer health insurance or potentially pay a penalty for failing to do so.
More about the ACA and its purpose
A comprehensive piece of legislation, the ACA has three major objectives:
- Make health insurance available and affordable to more Americans. Consumers earning between 100% and 400% of the federal poverty level can take advantage of premium tax credits (or subsidies) that reduce the cost of healthcare services.
- Expand the Medicaid program to cover individuals earning less than 138% of the federal poverty level. Thus far, only some states have expanded their Medicaid program while others have chosen not to.
- In general, lower the cost of healthcare by supporting innovations in medical care delivery methods.
Notably, the ACA includes an “employer mandate” as part of its goal to make health insurance more available and affordable to employees. This mandate is known as the “Employer Shared Responsibility Provisions.”
What the ACA’s employer mandate requires
Here are some of the provisions and requirements that employers will want to be aware of.
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ACA employer mandates |
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| Employers with 50 or more full-time (or full-time equivalent) employees must offer health insurance to at least 95% of their full-time employees. Known as applicable large employers, or ALEs. | For an ALE’s plan to be considered “affordable” under the ACA, an employee’s required contributions for coverage should not exceed a specific percentage of their household income (8.39% for 2024, down from 9.12% for 2023). |
| The ACA is administered jointly by the Departments of Health and Human Services, Labor, and the Treasury. | The IRS represents administers the ACA’s tax provisions and enforces the employer mandate. |
| Employees who work 30 or more hours per week (for the same employer) are considered to be full time for ACA purposes. | ALEs must provide employees statements and file annual information returns with the IRS reporting whether they offered health insurance, and if so, the type. |
| ALEs must provide no less than minimum essential coverage, including essential health benefits such as hospitalization, mental health services, prescription drugs, and emergency/ambulatory services. | ALEs may owe penalties if they do not offer coverage to their full-time employees, the coverage is not affordable, and/or the coverage does not meet the minimum value. |
To make health insurance more accessible for consumers, the ACA also created the “Health Insurance Marketplace,” which we cover in more detail below.
The Marketplace: Information for individuals and employers
Sometimes called the “Exchange,” the Health Insurance Marketplace is a service that individuals and employers may use to shop for (and enroll in) health insurance. The federal government operates the Marketplace in most states, though some states have their own Marketplace.
Individuals can purchase health insurance through the Marketplace in the following ways:
- By phone at 1-800-318-2596
- The federally-operated Marketplace is located online at healthcare.gov
- In-person assistance, such as through a broker or agent
In addition to medical coverage, people can shop for dental and vision insurance. Based on their income, they might qualify for reduced monthly premiums or savings on out-of-pocket expenses. By completing a Marketplace application, they can learn whether they qualify for Medicaid or the Children’s Health Insurance Program (CHIP). To obtain coverage, individuals must sign up during the enrollment period.
Small businesses with one to 50 full-time employees are able to buy group health insurance through the Marketplace’s Small Business Health Options Program (SHOP). Keep in mind, the ACA’s employer mandate does not apply to these employers — only those with more than 50 full-time employees.
Furthermore, small employers may be eligible for the Small Business Health Care Tax Credit when they meet the following criteria.
- They have fewer than 25 full-time employees.
- Their average employee wage is around $56,000 per year or less.
- They pay no less than 50% of their full-time employees’ health insurance premium costs.
- They offer SHOP coverage to all their full-time employees.
Generally, small business owners can enroll in the same SHOP coverage that they offer their employees. For this to happen, the plan must also cover at least one employee who isn’t a business owner, partner, or family member.
Small employers can enroll in SHOP coverage through an insurance company or a SHOP-registered broker or agent. Alternatively, they can explore reimbursement options, such as a QSEHRA or ICHRA.
Using the Affordable Care Act in a sentence
“As an ALE under the Affordable Care Act, we chose to offer health insurance because it is important for attracting and retaining top performers. This also keeps us penalty-free.”
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