Frequently Asked Questions on the Affordable Care Act

The Affordable Care Act (ACA) has reshaped the landscape of employer-sponsored healthcare, introducing new requirements, deadlines and considerations for businesses of all sizes. Navigating ACA compliance can be a challenge, especially as regulations continue to evolve and questions arise around reporting, penalties and eligibility.

To help employers better understand their obligations under the ACA, we’ve compiled answers to some of the most frequently asked questions.

Whether you’re determining who qualifies as a full-time employee, preparing for annual reporting or wondering about affordability thresholds, this guide is designed to provide clarity and actionable insights.

1. What is the Affordable Care Act (ACA) and who does it impact?

The Affordable Care Act (ACA), enacted in 2010, is a comprehensive healthcare reform law designed to improve access to affordable healthcare. It impacts individuals, employers and insurance providers by establishing mandates for coverage, affordability and reporting.

• For Employers: The ACA primarily applies to Applicable Large Employers (ALEs)—businesses with 50 or more full-time and full-time equivalent (FTE) employees. ALEs must offer affordable, minimum essential coverage (MEC) to eligible employees to avoid penalties.
• For Employees: The ACA ensures employees have access to health coverage and clarifies eligibility for premium tax credits if their employer coverage isn’t considered affordable.

2. How do I determine if my business is an Applicable Large Employer (ALE)?

An Applicable Large Employer (ALE) is an employer with an average of 50 or more full-time employees (FTEs) during the prior calendar year. To determine ALE status:

• Count full-time employees who work at least 30 hours per week or 130 hours per month.
• Calculate FTEs by adding the hours of all part-time employees and dividing the total by 120.
• Combine the full-time and FTE totals to determine your ALE status.

Example:
If you have 40 full-time employees and 20 part-time employees whose combined hours equal 10 FTEs, your total count is 50. Therefore, you are an ALE.

3. What are the ACA’s requirements for Applicable Large Employers (ALEs)?

ALEs must comply with two primary requirements under the ACA:

1. Offer Minimum Essential Coverage (MEC): ALEs must provide health insurance to at least 95% of their full-time employees (and their dependents).
2. Ensure Affordability and Minimum Value: Coverage must:
3. Cost no more than 9.02% of an employee’s household income (2025 threshold).
4. Cover at least 60% of the total allowed cost of benefits.

Failure to meet these requirements could trigger penalties under the Employer Shared Responsibility provisions.

4. Who is considered a full-time employee under the ACA?

Under the ACA, a full-time employee is anyone who:

• Works 30 hours per week on average, or 130 hours in a calendar month.

To determine full-time status, employers can use:

• Monthly Measurement Method: Track hours worked each month.
• Look-Back Measurement Method: Average hours over a defined period (e.g., 12 months) to determine eligibility.

This distinction is critical for understanding who must be offered coverage to remain compliant.

5. What are the penalties for failing to comply with ACA requirements?

If an ALE does not comply with the ACA’s coverage requirements, the IRS may impose penalties under Section 4980H:

1. 4980H(a) Penalty – Failure to Offer MEC:
• If an ALE fails to offer MEC to at least 95% of full-time employees and just one employee receives a premium tax credit, the employer faces a penalty of $3,340 per full-time employee per year (2026).
2. 4980H(b) Penalty – Offering Unaffordable or Inadequate Coverage:
• If the coverage offered is not affordable or does not meet minimum value, employers face a penalty of $5,010 per employee per year (2026) for those receiving premium tax credits.

6. What are the ACA reporting requirements for employers?

Employers must report health coverage information to the IRS and employees annually:

• Forms 1095-C (provided to employees): Details the coverage offered, eligibility and affordability.
• Form 1094-C (sent to the IRS): A summary of the employer’s health coverage compliance.

Deadlines:

• Provide Forms 1095-C to employees: Employers must simply make the form available upon request and let employees know that it is available to them by March 3.*
• Submit Forms 1094-C and 1095-C to the IRS: By February 28 (paper filing) or March 31 (electronic filing).

For a full breakdown of the Federal and New Jersey 1094/1095 Reporting Requirements, visit our employer reporting guide.

*Provided prior consent for electronic communication has been obtained by the plan sponsor.

7. How do I ensure my health plans meet affordability requirements?

For 2026, the ACA defines “affordable” coverage as costing no more than 9.96% of an employee’s household income. Employers can use safe harbor methods to calculate affordability:

1. W-2 Safe Harbor: Use the employee’s gross wages on their W-2.
2. Rate of Pay Safe Harbor: Multiply the hourly rate by 130 hours to estimate monthly income.
3. Federal Poverty Line Safe Harbor: Use the federal poverty level as a baseline to determine affordability.

8. What are the consequences of not offering coverage to eligible employees?

Failing to offer coverage to eligible employees can result in significant IRS penalties. Specifically:

• Employees can qualify for premium tax credits on the Health Insurance Marketplace if their employer coverage is inadequate or unaffordable.
• Employers are then subject to penalties under 4980H(a) or 4980H(b).

To avoid these penalties, monitor employee hours carefully and offer compliant coverage.

9. How has the ACA changed over the years, and what should HR teams monitor?

Since its enactment, the ACA has undergone changes, including:

• The elimination of the individual mandate penalty at the federal level.
• Adjustments to the affordability threshold percentage each year.
• State-specific mandates requiring individuals and employers to maintain coverage.

Employers should regularly review federal and state regulations and update plans as needed to stay compliant.

Remain compliant with Blue Ocean Benefits & Consulting.

Navigating the complexities of the Affordable Care Act can be challenging, especially as regulations evolve and penalties for non-compliance remain significant. By understanding the key ACA requirements, you can protect your organization from costly fines and ensure your employees receive the benefits they need.

However, staying up to date with ACA compliance isn’t something you have to do alone. Partnering with Blue Ocean Benefits and Consulting can help you interpret the latest regulations, implement the right strategies and streamline your reporting processes. With our expertise, you can focus on supporting your employees while ensuring your organization remains compliant and penalty-free.

Contact our team today if you’re ready to simplify ACA compliance and stay ahead of the curve.