Affordable Care Act (ACA)

What is the Affordable Care Act (ACA)?

The Affordable Care Act (ACA), also know as Obamacare, was enacted in 2010 and is a comprehensive health reform law designed to expand access to affordable coverage, reduce healthcare costs, and improve quality of care. It established health insurance marketplaces, expanded Medicaid in many states, and introduced subsidies to help individuals afford coverage. For employers, the ACA brought significant changes—like the employer mandate, reporting requirements, and protections for pre-existing conditions—that continue to shape benefits strategy and compliance efforts today.

A quick breakdown: what the ACA covers

Building on its goal to expand access and improve affordability, the ACA introduced a range of provisions that reshaped the health insurance landscape. From consumer protections to employer mandates, here’s a high-level look at what the law includes:

Employer mandate

Companies with 50+ full-time equivalent employees must offer affordable, minimum-value health coverage or face IRS penalties.

‍Health insurance marketplaces

The ACA created federal and state-run marketplaces where individuals and small businesses can buy qualified health plans, often with the help of tax credits.

Medicaid expansion

The law allowed states to expand Medicaid to more low-income adults, though not all states have adopted the expansion.

Consumer protections

Insurers can’t deny coverage or charge more due to pre-existing conditions. Plans must also cover dependents up to age 26 and meet specific cost and coverage standards.

Essential health benefits

ACA-compliant plans must include services like preventive care, hospitalization, mental health care, and maternity coverage.

Ongoing compliance rules

The ACA introduced ongoing requirements such as annual IRS reporting (Forms 1094/1095), limits on cost-sharing, and PCORI fees for self-funded plans.

What benefits must ACA-compliant plans cover?

The ACA mandates that health plans include a set of Essential Health Benefits (EHBs) to ensure Americans receive comprehensive coverage. These are especially important in the small-group and individual markets, but they’ve also influenced expectations in large group plans.

Key areas of required coverage include:

• Preventive care: Screenings, vaccinations, and checkups with no out-of-pocket cost
• Hospitalization: Inpatient surgeries and overnight stays
• Maternity and newborn care: Services before, during, and after delivery
• Mental health and substance use services: Counseling and inpatient treatment
• Pediatric care: Including dental and vision for children under 19
• Emergency services: Including out-of-network ER visits
• Prescription drugs: Coverage for a broad range of medications, often categorized by formulary tiers
• Lab work: Blood tests and other diagnostics used to detect, diagnose, and monitor health conditions
• Rehabilitative services: Therapies to help recover skills lost due to injury, disability, or chronic conditions

In addition, ACA-compliant plans must:

• Cover pre-existing conditions
• Offer no-cost preventive care
• Allow dependents to stay on a parent’s plan until age 26
• Eliminate annual and lifetime benefit caps on essential services

How the ACA affects HR and benefits in 2025

1. You may be legally required to offer health coverage

If your company has 50 or more full-time equivalent (FTE) employees, you’re considered an Applicable Large Employer (ALE) and subject to the employer mandate.

This means:

• You must offer health insurance to 95% of full-time employees and their dependents.
• The plan must be affordable, costing employees no more than 9.02% of their household income for self-only coverage (2025 threshold).
• The plan must provide minimum value—covering at least 60% of total allowed costs and including inpatient/hospital services.

If you don’t meet these standards, the IRS may assess significant penalties under Sections 4980H(a) or 4980H(b).

2. You’re responsible for annual ACA reporting

Each year, ALEs must file detailed reports with the IRS and send summary forms to employees that show:

• Who was offered coverage
• When it was offered
• Whether it met affordability and value standards

The forms:

• 1095-C: Sent to employees, showing their monthly coverage status
• 1094-C: Sent to the IRS as a cover sheet and summary

3. Plan design decisions must align with ACA standards

Even if you're offering coverage, what you offer matters. Your health plan needs to meet:

• Affordability standards, which can be calculated using safe harbors based on employees’ W-2 wages, rate of pay, or federal poverty levels.
• Minimum value, meaning the plan pays at least 60% of expected costs and covers key services like hospital and doctor visits.

Choosing plan types like level-funded or self-insured doesn’t exempt you from these rules—they just change how you manage compliance. For example, self-funded plans must:

• Pay PCORI fees annually (through 2029)
• Distribute Summary of Benefits and Coverage (SBCs)
• Track and report enrollment accurately

4. You’re navigating a more complex benefits landscape

As healthcare costs rise, more employers are exploring creative plan designs like:

• Captives
• Reference-based pricing
• Onsite/near-site clinics
• Direct primary care

Many of these options are ACA-compliant, but require deeper oversight of affordability, minimum value, and reporting. Benefits leaders must balance strategy with regulatory risk, and the ACA is still a central part of that equation.

First time handling ACA compliance? You’re not alone.

The ACA has a steep learning curve—especially for teams transitioning to self-funding or managing benefits in-house for the first time. And even if you partner with a vendor, you’re ultimately responsible for compliance.

Key risks include:

• Filing incorrect or late 1095-Cs
• Miscalculating affordability
• Missing PCORI deadlines
• Offering plans that don’t meet minimum value

These aren’t just paperwork issues—they can result in IRS penalties, employee confusion, or even legal claims.

ACA compliance: a lasting priority for HR teams

The ACA may be 15 years old, but it’s still essential to every benefits decision you make. From choosing a compliant plan to reporting correctly, the ACA continues to shape how HR teams deliver value—and reduce risk—for their organizations.

If you need support with ACA compliance or want help optimizing your benefits strategy, our team is here to help.