On Monday, we discussed how to determine if you are a “large employer” for purposes of the ACA’s employer mandate. Once you know whether the mandate is applicable, the next step is to know what you will be signing up for if you decide to “play.”  The mandate requires you to offer “minimum essential health coverage” that is “affordable” to all full-time employees in 2014. Of course, you need to know what these vague terms really mean. Here’s a general description:

• “Minimum essential health coverage”: The plan must pay at least 60% of the expected health care costs. The remaining 40% may be paid by the employee through co-pays, deductibles, or co-insurance.

• “Affordable”: The employee’s share of the premium for employee-only coverage must not exceed 9.5% of his or her income. Employers must offer dependent coverage, but the cost of this coverage does not factor into the affordability calculation.

Employers are not required to provide coverage for all employees.  There is a safe harbor provision so that no penalties will apply for any month in which an employer offers coverage to all but 5% of its full-time employees (or five full-time employees for employers with less than 100 employees). In simple terms, you must offer coverage to 95% of your employees, not all of them.

Likewise, you need to know what you are going to “pay” if you forego providing coverage. Large employers risk extensive penalties, both for failing to offer coverage to their full-time employees and for failing to offer “affordable” coverage to full-time employees and their dependents.  If you do not offer coverage, you will face a penalty of $2,000 for every employee in excess of 30. If the coverage offered is not affordable, you risk a penalty of $3,000 for every full-time employee who receives a tax credit or reduction under the new, ACA-created Exchanges.

Before you decide to play or pay, make sure you know the rules of the game. The mandate is detailed, complicated, and comes with costly penalties. Employers must determine which course of action is best for them; many are seeking professional advice.