One of the key provisions in the Affordable Care Act (ACA) states that all applicable large employers (ALE) must offer a health insurance plan that qualifies as minimum essential coverage (MEC).

Employers are subject to penalties if their healthcare plans do not meet MEC requirements as stipulated by the ACA.

An ALE will owe the first type of employer shared responsibility payment—or, in other words, penalty—if it doesn’t provide MEC to at least 95% of its full-time staff, and at least one full-time employee qualifies for the premium tax credit (PTC) for purchasing coverage through the government marketplace.

On the other hand, even if an ALE offers MEC to at least 95% of its staff, it could owe the second type of employer shared responsibility payment for every full-time employee who receives the PTC for purchasing coverage through the government marketplace.

The IRS clarifies three instances in which employees may qualify for the PTC:

1. The employer-provided MEC isn’t affordable, as determined by Form W-2 wages, an employee’s rate of pay, or the federal poverty line
2. The employer-provided MEC doesn’t provide minimum value, meaning that it doesn’t cover at least 60% of total allowed cost of benefits that can be expected to be incurred under the plan
3. The employee is part of the 5% of a full-time workforce that isn’t offered MEC

For more information on minimum value and affordability in healthcare coverage, go to irs.gov.

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