Laying off workers? Here’s how to avoid ACA fines

Ioannis Pashakis//May 11, 2020

Laying off workers? Here’s how to avoid ACA fines

Ioannis Pashakis//May 11, 2020

Employers who layoff or furlough their staff could be subject to fines through the Affordable Care Act if they fail to offer those employees health coverage.

The COVID-19 pandemic has left many businesses little choice but to cut down on staff, but choosing not to outright terminate an employee could leave you open to one of two penalties, according to Rob Glus, partner and consulting actuary at Harrisburg-based financial advisory firm Conrad Siegel.

The act, commonly referred to as Obamacare, stipulates that employers with 50 or more full-time equivalent employees must offer at least 95% of their employees affordable health care. To determine what employees are considered full time during any given year, Glus said that most employers look back at the number of hours each employee worked the previous year and apply that to the next.

“If there is a furlough period where I am laid off, I am still considered a full-time employee for that period unless that employer terminates me,” Glus said.

Because each employee was already documented as full time for the coming year, employers need to offer some level of health care to the employees they furlough or layoff or they will be susceptible to the act’s “sledgehammer” penalty. The sledgehammer penalty is given to employers who fail to cover 95% of their employees. Businesses that incur the penalty are subject to $2,570 in fines for each full-time worker.

“From the Affordable Care Act perspective, that person is still a full time employee,” Glus said. “If I don’t offer coverage, I have opened myself to an employer-mandate penalty. You have to be careful with how you offer coverage.”

Glus suggests offering furloughed or laid off employees coverage through COBRA, a federal law that allows employees to continue their health care benefits but at 100% of the cost.

Offering COBRA to employees brings along its own risk. If an employee declines to keep their benefits through COBRA and elects a subsidized policy in the ACA marketplace, the employer could receive a “tack-hammer” penalty of $3,860 for that employee.

“The offer of COBRA is considered to be an offer of coverage and you’ve protected yourself as an employer for that calendar year, but it does open you up to the tack-hammer, or affordability penalty, as there is a possibility that the offer of coverage you are providing would be considered unaffordable,” Glus said.

Taking on the risk of the tack-hammer penalty could be worth it for employers since paying for coverage is a guaranteed expense but allowing an employee to turn down COBRA only has the risk of a potential penalty, said Glus.