There’s been a lot of coverage in the news lately about individuals getting health insurance (or not) through the health insurance Marketplace. But what about employers? Are they required to provide coverage for workers?
If your company has less than 50 full-time equivalent (FTE) workers, the answer is no. Businesses of this size are considered “small businesses” under the Affordable Care Act (ACA). You can read more about how the ACA does NOT require all small businesses to provide health insurance in our previous post.
If you have 50 or more FTE employees, the answer is that it’s strongly encouraged. Beginning in 2015, companies with 50 or more FTE employees, considered “large businesses” under the ACA, may be penalized if they do not offer coverage to their workers or if they offer coverage that doesn’t meet the ACA’s requirements.
It’s important to note that the ACA’s definition of “full time” means anyone working 30 hours a week (not 40) or more. To calculate FTEs, add up the hours worked by part-time employees in any given month and divide the total by 120 to get the number of FTE employees. If you’d like more details on this, see the IRS bulletin.
The penalty tax for a large employer not offering coverage increases according to the number of employees. For each additional full-time worker—not FTE—past the first 30, the annual penalty tax increases by $2,000. Note that when calculating the penalty tax, part-time/FTE employees are not counted toward the number of full-time workers; only actual full-time workers are counted. Also, businesses employing seasonal workers may be exempt if certain conditions are met. This is complicated, so here are a couple of examples:
- Company ABC has 50 full-time employees, so the annual penalty for not providing coverage totals $40,000—20 full-time employees (the first 30 aren’t counted) at $2,000 each. The total is then divided by 12 and the company is penalized monthly. That means that Company ABC will pay $3,333.33 each month until qualifying health insurance is made available to the full-time workers.
- Company DEF has 25 full-time employees and 60 part-time workers, for a total of 55 FTE employees. This company, though considered a large employer, has no penalty assessed because 30 full-time workers are needed for a penalty to be issued. Because there are only 25 full-timers and the part-timers don’t count, the company is off the hook.
Minimum essential and affordable coverage
Businesses that provide health insurance coverage must meet certain requirements for coverage and price, called “minimum essential and affordable coverage.” Health plans must cover at least 60% of health care expenses. The plan itself has to cost employees less than 9.5% of their salaries for self-only coverage. If the health plan does not meet these requirements, there are penalties that may total as much as not offering a health plan at all.
If an employee is offered an employer-sponsored plan that meets these requirements, then that employee is, generally, ineligible for a premium tax credit and cost-sharing reduction for health insurance purchased through the Marketplace.
Time to decide
Many large employers provide health insurance for their workers already as part of their total compensation package. For those that don’t, it’s time right now to decide whether or not to start offering a health plan. The penalties for employers don’t begin until 2015, but taking care of your workers is always a good idea. For more information, please see our free brochure, 7 Things Small Businesses Need to Know About Health Care Reform, or visit our Health Care Reform Information Center.