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.
- 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.
- Allow states to expand their Medicaid coverage to all adults with income below 138% of the FPL.
- 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.
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.
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.
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.
- Outpatient or ambulatory patient services
- Emergency services
- Hospitalization
- Pregnancy and newborn care
- Mental health and substance use disorder services
- Prescription drugs
- Services like physical therapy, occupational therapy, and speech therapy
- Laboratory services
- Preventive and wellness services and chronic disease management
- 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.
Types of ACA Compliant Health Plans
Requirements for ACA compliance vary depending on whether a plan is sold in the individual/small group market or the large group market, and whether it is self-insured or fully insured. In self-insured plans, the employer pays claims directly, while in fully insured plans, the coverage is purchased from an insurance company by an individual or a business.
Regardless of their specific differences, all ACA-compliant plans must share five key features:
- Essential Health Benefits: ACA plans must cover some or all of the ACA’s essential health benefits, including preventative care, prescription drugs, and mental health services.
- Preventive Care Services: Services such as immunizations, screenings, and counseling are covered at no additional cost.
- No Lifetime or Annual Limits: ACA-compliant plans prohibit caps on essential health benefits.
- Coverage for Pre-Existing Conditions: Plans cannot deny coverage or charge higher premiums based on an individual's health history.
- Cost-Sharing Limits: ACA-compliant plans limit out-of-pocket costs, such as deductibles and copayments.
Unique features of individual and small-group health insurance
- Must comply with the ACA’s medical loss ratio (MLR) rules that require a carrier to spend at least 80% of premiums on medical expenses.
- Dependents are allowed to participate in a parent’s retirement plan until age 26.
Unique features of large-group and self-insured coverage
- Large-group or self-insured plans of any size are not required to cover all essential benefits defined by the ACA.
- Large-group plans must provide minimum value or else the employer faces a potential financial penalty. To meet this requirement, plans must cover at least 60% of the employee’s health costs and provide substantial coverage of preventive physician and inpatient hospital services.
- Large-group plans must comply with the ACA’s MLR rules that require a carrier to spend at least 85% of premiums on medical expenses and no more than 15% on administrative expenses.
- Self-insured plans are not subject to MLR requirements.
Note: Employers with 51 or more employees can purchase large-group health plans in most states, but in certain states (i.e., California, Colorado, New York, and Vermont), eligible businesses must have 101 or more employees. However, Colorado will switch to the 51-employee threshold for large-group plans starting in 2026.
Non-ACA-Compliant Health Plans
Some types of plans are not regulated by the ACA and therefore cannot provide the same protections as the plans described above.
These plans do not meet ACA compliance standards:
- Short-term health insurance (temporary, limited coverage)
- Health care sharing ministries (religious-based)
- Legacy plans (purchased before Jan 1, 2014)
Meeting ACA Compliance: Options for Employers
Applicable large employers have a few options when looking to offer ACA-compliant health plans to their employees. The following types of health plans can be used to meet both the minimum essential coverage requirement and the minimum value standard imposed by the ACA.
Traditional Group Health Insurance
Traditional group health insurance remains one of the most widely used and ACA-compliant solutions. These plans are often managed through insurance carriers or brokers and typically offer a broad network of providers. When fully insured, they cover all essential health benefits required by the ACA. Group health plans can be customized based on business size, workforce needs, and budget, making them a flexible option for many employers.
Minimum Essential Coverage: MEC Plans
MEC plans are designed to fulfill the ACA’s basic coverage requirement for employers. At a minimum, they must include preventive services like immunizations, screenings, and wellness visits. By offering a MEC plan to at least 95% of full-time employees, employers meet a key ACA compliance standard and avoid the “Part A” employer mandate penalty—currently set at $2,900 per employee in 2025.
However, to fully satisfy ACA compliance, these plans must also meet the Minimum Value standard. This means the plan must cover at least 60% of the total cost of medical services and include substantial coverage of inpatient hospital and physician services. Failing to meet the minimum value or affordability standards could subject employers to additional penalties, up to $4,350 per full-time employee, if any employee receives a subsidy on the Health Insurance Marketplace.
MEC plans are often paired with other benefits, such as Direct Primary Care (DPC), to enhance coverage for primary care while keeping costs low. Learn more about how to evaluate MEC plans here.
Health Reimbursement Arrangements (HRAs): Individual Coverage HRA
Individual Coverage Health Reimbursement Arrangements (ICHRAs) allow employers to reimburse employees for individual health insurance premiums and eligible medical expenses. ICHRA plans are funded by the employer and are tax-deductible as a business expense. ICHRAs are highly flexible and customizable, enabling businesses to tailor health benefits according to their workforce size, structure, and financial strategy. To meet ACA compliance, an ICHRA must be paired with a qualifying individual health plan that meets MEC and minimum value standards. Using a trusted HRA administrator is an easy way to ensure your ICHRA plan is designed to be ACA-compliant.
Click here to learn more about how ICHRA can help your business meet ACA compliance requirements.
Better Healthcare Benefits for Everyday Workers with Vitable
Vitable is a health benefits platform making healthcare better for everyday workers. To do this, we equip employers with the tools to offer better health benefits to their employees while keeping plans affordable to the employer. With Vitable, employers get flexible, affordable, and ACA-compliant plans that help them stay competitive, attract and retain talent, and avoid costly penalties.
What makes Vitable different is that every plan we offer includes access to our enhanced Primary Care membership. This covers the type of care employees need most, like sick visits, preventive screenings, mental health support, and more. Vitable benefits offer a better experience for employees, and a smarter, budget-friendly solution for employers.
Ready for Better Benefits?
Let’s build a health benefits strategy your employees will actually use and your finance and operations teams will appreciate. We’ll walk you through your options, run a cost-benefit analysis, and design a custom benefits plan that keeps your business compliant and competitive.
Connect with a Vitable team member today and get started offering better benefits!
