What is the Affordable Care Act (ACA)?

The Affordable Care Act (ACA), often referred to as “Obamacare,” represents a historic milestone for healthcare reform in the United States (U.S.). The law was officially signed in March 2010, with the primary objective being to make health insurance more affordable and accessible nationwide. Since its passage, the ACA has significantly reduced the number of working-age Americans (18-64 years) living without health insurance, dropping from 14.7% in 2019 to 10.9% in 2023.

Not only did the ACA benefit employees by expanding their insurance coverage options, it also offered certain tax provisions for employers, depending on the size and structure of their workforce However, the law also imposes additional requirements and responsibilities on employers, which may be daunting to navigate.

Understanding the Affordable Care Act's mandates and how to comply with them is especially crucial for certain businesses to avoid hefty tax penalties.

This article will break down what you need to know about the ACA to ensure your business is fully ACA-compliant.

TL;DR: Quick ACA Overview

• ACA = Affordable Care Act, a landmark healthcare reform law passed in 2010.
• Employers with 50+ full-time equivalent employees (ALEs) must offer affordable, ACA-compliant coverage.
• MEC plans combined with DPC, HRAs, and group health plans are common employer options for meeting ACA compliance.
• ACA penalties for noncompliance can exceed $7,000 per employee annually.

Understanding the Affordable Care Act (ACA)

The ACA was primarily designed to extend health coverage to millions of uninsured Americans, with three primary goals.

1. Offer subsidies, also known as premium tax credits, to help low-income individuals and households between 100% and 400% of the federal poverty line (FPL) afford insurance.
2. Allow states to expand their Medicaid coverage to all adults with income below 138% of the FPL.
3. Support innovations in medical care delivery methods to lower healthcare costs in the U.S.

The ACA requires most insurance plans, including those sold on the Health Insurance Marketplace, to cover a list of preventive services at no cost to policyholders. This marketplace is a federal platform that offers insurance plans for individuals, families, and small businesses to explore and compare.

Each year, the Health Insurance Marketplace has an open enrollment period, starting on November 1, during which policyholders can buy or switch to new insurance plans. Outside this open season, enrollment is limited only to those under specific circumstances.

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Core Pillars of the Affordable Care Act (ACA)

1. Expanded access to health insurance

To remain compliant with the ACA, employers must provide health insurance coverage to their workers. Certain small businesses are eligible for tax credits that cover specified health insurance costs for their employees. The law also allows young adults to remain on their parents’ policies until age 26.

2. Increased consumer insurance protections

The ACA prevents insurance plans from excluding coverage for children with preexisting conditions and canceling or rescinding coverage. It also prohibits the use of annual or lifetime maximums on insurance coverage, as well as establishes state rate reviews for insurance premium increases.

3. Greater emphasis on prevention and wellness

In order to meet ACA compliance requirements, employers must offer access to insurance plans that cover preventative services, such as immunizations, preventative care for children, and health screenings for chronic diseases such as high blood pressure, high cholesterol, diabetes, and cancer. The ACA also mandates providing public education on the importance of oral health.

4. Improved health quality and lower health care costs

Under the ACA, careful oversight of health insurance premiums and practices is required. This initiative aims to reduce healthcare fraud and uncompensated care, while also encouraging consumers to compare plans for improved price transparency.

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ACA ALE Requirements: What Is an Applicable Large Employer (ALE)?

What is an ALE?

An Applicable Large Employer (ALE) is defined as a business with an average of 50 or more full-time or full-time equivalent (FTE) employees in the previous calendar year. ALEs must follow specific ACA compliance rules.

Requirements for applicable large employers under the ACA

If the ALE requirement is met for the current calendar year, the employer is subject to certain requirements under the Affordable Care Act.

• Offer Minimum Essential Coverage (MEC): ALEs must offer minimum essential coverage (MEC) to at least 95% of their workforce or face penalties. Learn more about MEC here.
• Ensure Affordability: In 2025, an employer-sponsored health plan is considered affordable as long as employees pay no more than 9.02% of their household income toward health coverage.
• Reporting Requirements: ALEs must submit Forms 1094-C and 1095-C to report whether they offered affordable MEC plans with minimum value to their full-time employees. Employers are also required to report the value of the health insurance coverage provided to each employee on their Form W-2. For more details, click here.
• Payment and Provisions: If ALEs fail to meet ACA compliance requirements, they may be penalized with a significant employer shared responsibility payment of $7,250 per employee.

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ACA Health Coverage: Essential Benefits to Maintain ACA Compliance

The Affordable Care Act defines a set of 10 “essential health benefits” that are minimum requirements for all health insurance plans to meet ACA compliance requirements. All ACA-compliant plans must cover some or all of these 10 essential benefits.

1. Outpatient or ambulatory patient services
2. Emergency services
3. Hospitalization
4. Pregnancy and newborn care
5. Mental health and substance use disorder services
6. Prescription drugs
7. Services like physical therapy, occupational therapy, and speech therapy
8. Laboratory services
9. Preventive and wellness services and chronic disease management
10. Pediatric services, including oral and vision care for children

Birth control and breastfeeding coverage must also be included. It’s important to note that while pediatric dental and vision are considered essential health benefits under the ACA, adult dental and vision coverage are not. As a result, not all ACA-compliant plans include these ancillary benefits, and coverage may vary by state and plan type.

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