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How Medicare-Eligible Employees Impact Pay or Play Penalties

Jul 08, 2016

HR360, Inc
July 1, 2016

Medicare-Eligible Employees Ineligible to Receive Premium Tax Credits

Under the Affordable Care Act (ACA), Medicare-eligible individuals are ineligible to receive premium tax credits. As a result, employers with Medicare-eligible employees should consider how those employees may impact their potential liability under the ACA's employer shared responsibility provisions (also known as "pay or play").

Background
For 2016, applicable large employers (ALEs)—generally those with at least 50 full-time employees, including full-time equivalent employees (FTEs), in the preceding calendar year—will be liable for a pay or play penalty only if:

  • The ALE does not offer minimum essential coverage to at least 95% of its full-time employees (70% for the 2015 plan year) and their dependents, and at least one full-time employee receives a premium tax credit. Under this scenario, the annual penalty amount is $2,160 per full-time employee, minus up to 30 full-time employees (or up to 80 for the 2015 plan year for an employer with 100 or more full-time employees, including FTEs, on business days during 2014).
  • The ALE offers minimum essential coverage to at least 95% of its full-time employees (70% for the 2015 plan year) and their dependents, but at least one full-time employee receives a premium tax credit (either because the employer did not offer coverage to that employee or because the coverage the employer offered to that employee was unaffordable to the employee or did not provide minimum value). Under this scenario, the annual penalty amount is $3,240 per full-time employee that receives a premium tax credit.

Medicare-Eligible Employees and Pay or Play
As highlighted in a recent IRS memorandum, because Medicare-eligible individuals are ineligible to receive premium tax credits, ALEs that offer coverage to at least 95% of their full-time employees (70% for the 2015 plan year) and their dependents will not owe a pay or play penalty for any Medicare-eligible individual. For ALEs that do not offer coverage to at least 95% of their full-time employees (70% for the 2015 plan year) and their dependents, however, Medicare-eligible full-time employees could potentially trigger (or increase) the penalty owed.  

To learn more about an employer's responsibilities under the ACA, please visit our Pay or Play section.

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