Complying with the ACA’s Pay-or-Play Rules for 2025
As healthcare continues to evolve, compliance with the Affordable Care Act (ACA) remains essential for businesses to avoid significant penalties.
The ACA’s Pay-or-Play rules require applicable large employers (ALEs) to offer affordable, minimum-value health coverage to their full-time employees. With the deadline for 2025 on the horizon, it’s crucial to understand what your business needs to do to comply with these regulations.
Here’s a quick checklist to guide you:
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- Is your company an ALE?
- ALEs are defined as businesses with an average of 50 or more full-time employees or full-time equivalent (FTE) employees. This status is determined by employee count during the previous calendar year.
- If your company does not meet this threshold, the ACA’s pay-or-play rules do not apply.
- Who qualifies as a full-time employee?
- Under the ACA, a full-time employee is anyone who works an average of 30 hours a week or at least 130 hours per month.
- The law allows two methods for determining full-time status: the monthly measurement method or the look-back measurement method. Choose the method that best fits your organization’s needs.
- Are you offering coverage to at least 95% of your full-time employees and their dependents?
- Employers must ensure that 95% (or at least five full-time employees, whichever is greater) of their full-time workforce is offered health coverage.
- Failure to do so may result in a penalty under IRS code 4980H(a). For 2025, this penalty is $2,900 per full-time employee (excluding the first 30).
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- Is your health plan affordable?
- The ACA considers a health plan “affordable” if the employee’s contribution for self-only coverage does not exceed 9.02% of their household income in 2025.
- Employers can use safe harbor methods such as Form W-2 wages, rate of pay, or the federal poverty level to assess affordability. Failure to meet this standard could result in a penalty of $4,350 per full-time employee who receives a premium tax credit.
- Does your health plan provide minimum value?
- The plan must cover at least 60% of total allowed healthcare costs and include substantial coverage for inpatient hospital and physician services.
- Failure to meet the minimum value standard could lead to additional penalties.
6. Documentation is Key
- Maintain thorough documentation
- Employee hours and classification
- Health plan offers and declinations
- Affordability calculations and determinations
- Minimum value assessments
- IRS Forms 1094-C and 1095-C
Looking Ahead
The ACA’s pay-or-play rules can seem complex, but preparation is the key to staying compliant. I'm here to guide employers through these steps and help them avoid costly penalties.
If you have questions or need assistance with your company’s healthcare compliance, feel free to reach out.