ACA Compliance Guide (2024)

Katherine Haan is a small business owner with nearly two decades of experience helping other business owners increase their incomes.

Katherine Haan is a small business owner with nearly two decades of experience helping other business owners increase their incomes.

Katherine Haan is a small business owner with nearly two decades of experience helping other business owners increase their incomes.

Katherine Haan is a small business owner with nearly two decades of experience helping other business owners increase their incomes.

Kelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.

Kelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.

Kelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.

Kelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.

Brette Sember is a retired attorney who has been writing and editing law and legal topics for more than 25 years. She is the author of more than 40 books, is a nationally recognized expert on divorce and family law and has a depth of experience that.

Brette Sember is a retired attorney who has been writing and editing law and legal topics for more than 25 years. She is the author of more than 40 books, is a nationally recognized expert on divorce and family law and has a depth of experience that.

Brette Sember is a retired attorney who has been writing and editing law and legal topics for more than 25 years. She is the author of more than 40 books, is a nationally recognized expert on divorce and family law and has a depth of experience that.

Brette Sember is a retired attorney who has been writing and editing law and legal topics for more than 25 years. She is the author of more than 40 books, is a nationally recognized expert on divorce and family law and has a depth of experience that.

Updated: Apr 29, 2024, 8:22pm

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Table of Contents

• What Is ACA Compliance?
• ACA Compliance by Group Size
• Health Plans That Are Not Regulated by the ACA
• How To Comply With the Affordable Care Act
• Bottom Line
• Frequently Asked Questions (FAQs)

The Affordable Care Act (ACA) is a law that requires all businesses that average 50 or more full-time employees to provide health insurance to at least 95% of their employees or face penalties (among other stipulations). Businesses that do not comply with this law may be subject to penalties, which is why it’s important to ensure you are ACA-compliant. This guide will help you understand what ACA compliance is and how you can ensure that your business is compliant.

What Is ACA Compliance?

The ACA, sometimes known as Obamacare, is a law that requires businesses that average 50 or more full-time employees to provide health insurance to at least 95% of their employees or face penalties. Businesses also have to give an annual confirmation of benefits offered through Form 1095-C, a summary of plans and employee costs and the coverage and benefits they can choose from.

There are specific businesses required to be ACA compliant, and there are also specific employees who must be offered health insurance. Businesses that are required to be ACA compliant are known as Applicable Large Employers (ALEs). An ALE is a business that averages 50 or more full-time equivalent employees. An employee who works an average of 30 hours per week or more is considered a full-time employee. A part-time employee is an individual who works fewer than 30 hours every week.

To discourage employers from getting around the ACA requirement by only employing part-time employees, it looks at full-time equivalent employees. This is the number of full-time employees plus a fraction of the number of part-time employees. You convert the number of part-time employees to full-time equivalents by taking the total hours worked by all part-timers and dividing it by 30.

For example, if a business has 40 full-time employees and 20 part-time employees, the number of full-time equivalent employees would be 50. This business would be an ALE and would be required to comply with the ACA.

Not all businesses with 50 or more employees are required to comply with the ACA. For example, churches and other religious organizations are exempt from the ACA provisions about providing coverage for birth control, although they are still mandated to provide health insurance.

Additionally, not all employees are required to be offered health insurance. For example, employees who work less than 30 hours per week are not considered full-time employees and do not need to be offered health insurance. Employees who have been with a company for less than three months are also not required to be offered health insurance.

ACA Compliance by Group Size

What “ACA compliant” means varies depending on the type of coverage. In order to be ACA compliant as of January 2014, health plans need to adhere to the following guidelines, depending on how coverage is obtained.

Individual and Family Coverage

People usually purchase individual or family health plans from an employer, but some people prefer to buy these types of policies directly from a health insurance company. However, subsidies are only available for those who purchase their insurance coverage through the exchange.

A health plan must:

• Cover preexisting conditions
• Guarantee issue during open enrollment
• Guarantee issue during special enrollment periods
• Cover essential health benefits
• Allow dependents to be on a parent’s plan until the age of 26
• Spend at least 80% of premiums on medical care and quality improvements
• Determine premiums only by age (3-to-1 ratio, max), number of family members enrolling, use of tobacco and location
• Have a cap on the out-of-pocket costs for essential health care in-network
• Not have an annual or lifetime dollar limit for essential health benefits

Small Group Coverage

In California, Colorado, New York and Vermont, businesses with up to 100 employees can get small group coverage. The rest of the states can only have up to 50 employees. Health plan rules are the same as individual and family coverage:

• Cover preexisting conditions
• Guarantee issue during open enrollment
• Guarantee issue during special enrollment periods
• Cover essential health benefits
• Allow dependents to be on a parent’s plan until the age of 26
• Spend at least 80% of premiums on medical care and quality improvements
• Determine premiums only by age (3-to-1 ratio, max), number of family members enrolling, use of tobacco and location
• Have a cap on the out-of-pocket costs for essential health care in-network
• Not have an annual or lifetime dollar limit for essential health benefits

Large Group and Self-Insured Coverage

In California, Colorado, New York and Vermont, businesses must have 101 or more employees for coverage under the large group market. All other states must have 51 or more employees. The following rules apply:

• No waiting period for preexisting conditions
• Guaranteed issue during enrollment periods
• It must be affordable
• The insurance must offer extensive coverage for inpatient and physician services
• It must cover at least 60% of health care costs for a standard population
• There cannot be any dollar limits on annual or lifetime benefits for essential health benefits
• It must cover specific preventive care
• Have a cap on the out-of-pocket costs for essential health care in-network
• Must allow dependents to be on a parent’s plan until the age of 26
• The plan must spend 85% or more of its premiums on medical costs and quality improvements (excluding self-insured plans)

Health Plans That Are Not Regulated by the ACA

The ACA only applies to health plans that are purchased on or after January 1, 2014. However, there are some types of coverage that the ACA does not apply to. These types of plans include:

• Short-term health insurance: This type of health insurance is designed to cover you for a short period of time (usually three months or less).
• Health care sharing ministries: This is a type of religious-based health insurance where members share in the cost of medical bills. Examples include Samaritan Ministries, Medi-Share and Liberty HealthShare.
• Grandfathered plans: The ACA does not apply to health plans that were purchased before January 1, 2014. These plans are “grandfathered in” and are not required to comply with the ACA’s rules.

How To Comply With the Affordable Care Act

Complying with the Affordable Care Act can be a challenge for small businesses, as rules change frequently, and it’s not always easy to understand the legalese associated with the ACA. The best way to ensure compliance is to work with an experienced insurance broker who can help you navigate the law and find the best health insurance for your business.

• Know if you’re required to be compliant: The first step is to determine if you’re required to comply with the ACA. If you have 50 or fewer full-time equivalent employees, you may be exempt from the employer shared responsibility provision.
• Have an appropriate waiting period: All group health plans must have a waiting period that does not exceed 90 days and an orientation period that does not exceed one month.
• Watch what you put a dollar limit on: No annual dollar limits can be placed on coverage of “essential health benefits” (EHBs).
• Check the maximum out-of-pocket costs: EHBs provided by non-grandfathered group health plans in-network cannot have annual out-of-pocket costs exceeding $9,100 for individual or $18,200 for family coverage in 2023.
• Check your health reimbursement arrangements: If you have a Health Reimbursement Arrangement (HRA) with your small business, it must comply with rules set forth by the ACA. These rules include a limit on how much money can be put into the account and what types of expenses can be reimbursed.
• Analyze your Health Flexible Spending Arrangements (FSAs): No participant can receive benefits exceeding two times their annual salary reduction election, or $500 plus their salary reduction if that is greater. Verify that your plan documents mention the salary reduction contribution limit for health FSAs is $3,050 for 2023.
• Determine if you’ll allow carryover of FSA money: You need to decide if you want employees to be able to carry over up to $550 of leftover health FSA money into the next plan year, and then make the appropriate changes to your company’s health care policy.
• Send notices to employees within 14 days of hire: The notice must be written, and include details about the Health Insurance Marketplace. You must also provide a Summary of Benefits and Coverage and Notice of Plan Changes.
• Offer minimum essential coverage: All group health plans must provide minimum essential coverage, which is a defined set of benefits that must be met in order for a plan to be ACA compliant.
• Have an affordable coverage option: All group health plans must offer at least one health insurance option that meets the definition of affordability, which is having a premium that does not exceed 9.12% of an employee’s household income.
• Use forms 1094 and 1095 to report coverage: Applicable Large Employers must use forms 1094 and 1095 to report health coverage information to the IRS.

Bottom Line

The Affordable Care Act is a complex and ever-changing law, but there are steps small businesses can take to ensure compliance. Working with an experienced insurance broker or employment law attorney is the best way to navigate the ACA and find the right health insurance for your business.

Frequently Asked Questions (FAQs)

What is the Affordable Care Act (ACA)?

The Affordable Care Act, more commonly referred to as Obamacare, is a health care reform law making insurance coverage more affordable and accessible for all citizens of America. By offering subsidies to those who buy health insurance through the Health Insurance Marketplace and by expanding Medicaid coverage, the law allows more people to have access to affordable health care.

What's the difference between the Affordable Care Act (ACA) and Obamacare?

The Affordable Care Act (ACA) and Obamacare are one and the same. The ACA is the official name of the health care reform law, while opponents have nicknamed it Obamacare.

What is the individual mandate?

The individual mandate is a former provision of the ACA that required all Americans to have health insurance or face a penalty. There is no longer this rule at the federal level, though some states have implemented their own versions of the individual mandate.

What types of health plans are not regulated by the ACA?

There are some types of coverage that the ACA does not apply to. These types of plans include short-term health insurance, health care sharing ministries and grandfathered plans (ones that were purchased before Jan. 1, 2014).