U. S. C h a m b e r o f C o m m e r c e
Who will be subject to the “Free Rider” penalty?
“Applicable large employers”
•
50 or more full time equivalents (FTEs)
What is full time (FT) employee?
• An employee working > 30 hours per week, averaged over a
month for more than 120 days/yr.
(excludes seasonal workers)
How is the number of FTEs calculated?
• Aggregate the # of hours of part-time (PT) employees for a
month divided by 120.
• Penalty will is based on number of FT employees, not FTEs.
U. S. C h a m b e r o f C o m m e r c e
Calculating FTEs
Example
36 Part time workers, working 24 hrs/wk
36 workers [24 hrs/wk x 52 wks/yr x 1 yr/ 12 mos]
120
=
31.2 FTE
U. S. C h a m b e r o f C o m m e r c e
“Large” Employer Not Offering Coverage
Will I be assessed the penalty? Yes, if….
• I employ 50 or more FTEs;
• At least 1 FT employee (with household income of 133-400% FPL)
qualifies for a premium assistance credit; and
• At least one such eligible employee uses the credit to
purchase coverage in the exchange.
How will the penalty be calculated?
• $2,000 per year (pro-rated) per each FT worker minus first 30
full-time employees.
U. S. C h a m b e r o f C o m m e r c e
EXAMPLE
“Large” Employer Not Offering Coverage
In July, a bakery with :
• 35 FT employees and
• 20 PT employees (all working 24 hrs/week )
[20PT x 24hrs/wk x 52 wk/yr x 1yr/12mos]/120 = 17.3 or 18 FTEs
= 53 FTE employees
One FT employee qualifies for premium assistance credits and elects to
purchase coverage in the exchange
Bakery owner is liable for :
1/12 of $2,000 = $166.66/per FT employees
x (total # of FT employees per month - 30 FT employees )
Total # of FT employees in July = 35 FT Employees – 30 FT employees = 5 FT
Owner is liable for 5 FT workers x $166.66 = $833.30 for July
If every FT worker stays employed for 12-months, the owner of the bakery
would have to pay $9,999.60 ($833.30 x 12months)
U. S. C h a m b e r o f C o m m e r c e
How can I avoid paying the “Free Rider”
penalty?
Simply offering coverage is not enough to avoid penalty.
Coverage must be:
1. “Minimum essential coverage” (>60% AV)
AND
2. “Affordable”
For FT workers with household incomes between 133400% FPL, premiums cannot >9.5% of household income
U. S. C h a m b e r o f C o m m e r c e
If coverage offered is not enough…
If coverage is not “minimum essential coverage” or is not
“affordable:”
=> penalty!
How will the penalty be calculated?
• $3,000 (pro-rated) per FT Employee receiving premium
assistance credit
OR
• $2,000 x (Total # of FT employee - 30 FT employees)
U. S. C h a m b e r o f C o m m e r c e
EXAMPLE
“Large” Employer Offers “Insufficient” Coverage
John has 100 FT employees and offers a HDHP with an HSA
The actuarial value of the plan is 50%
(<60% AV = not minimum essential coverage!)
Some employees earn more than 400% FPL, but 9 employees have
household incomes between 133%-400% FPL
All 9 “low wage” workers elect to purchase coverage on the
exchange
Business will be liable for the lesser of:
$3,000 x all FT employees receiving a subsidy assistance credit, or
$2,000 x total # of FT employees - 30
John must pay the lesser of either:
$3,000 x 9 employees = $27,000; or
$2,000 x 70 (100 FT employees -30) =$140,000
John must pay $27,000, even though he offers health care coverage
U. S. C h a m b e r o f C o m m e r c e
EXAMPLE
“Large” Employer Offers “Unaffordable” Coverage
Lauren and David are married and employed by different
businesses.
They receive their health coverage through David’s employer, an
auto supply manufacturer with 100 full-time employees, Lauren
works part-time in retail.
David and Lauren together earn $48,000, a little less than 350%
FPL. David’s premium for individual coverage in his employer’s
health insurance coverage exceeds 9.5% of his household income.
At the auto supply manufacturer, 68 FT employees qualify for the
premium assistance credit and elect to purchase coverage in the
Exchange.
The auto supply manufacturer would have to pay the lesser of:
$3,000 per FT employee obtaining a credit to purchase exchange
coverage ($3,000 x 68=$204,000) or
$2,000 x 70 FT (Total # of FT employees -30) = ($140,000)