Getting a Good Grip on the Employer Mandate
The Affordable Care Act (ACA) employer mandate may have your mind doing jumping jacks, but this guide can help steady your thoughts when it comes to thinking about health insurance for your employees. You may be unsure about how the mandate applies to your business and what happens if you don’t follow the rules. That’s why this quick guide on all the basic facts about the mandate can get you up to speed, so you can get back to doing what you do best: running your business.
Employer Mandate Definition: What Is It?
The mandate is part of the Affordable Care Act’s (ACA) Employer Shared Responsibility Provision, which requires that employers with 50 or more full-time equivalent (FTE) employees, known as applicable large employers (ALEs), offer health insurance to at least 95% (as of 2022) of full-time staff and their dependents up to age 26 or pay a fee.1 The ACA recognizes dependents as natural born or legally adopted children. Spouses, stepchildren, and foster children are not considered dependents. Complying with the ACA employer mandate also means that businesses must offer coverage that is affordable and meets the minimum value.
- Affordability: The cost of a health plan must not exceed 9.61% (as of 2022) of an employee’s income for the least expensive employee-only plan.2 For example, if Sarah earns $3,000 a month, her monthly premium for a health plan should not cost more than $288.30 a month.
- Minimum Value: Employers must offer health insurance that’s equivalent to the minimum essential coverage and cost-sharing amount (60%) for a Bronze plan found on the marketplace. This doesn’t mean employees have to choose health insurance that only provides the minimum coverage (if other plan options are offered). They can always accept a plan that provides a higher percentage of coverage.
What Can Employees Do if Coverage Doesn’t Meet the Mandate or No Coverage Is Offered?
Let’s say Sarah works full time for an ALE, but the health coverage offered is not affordable or no coverage is offered at all. Sarah can shop for individual health insurance on the marketplace, through a private insurance company, or through a health insurance agency. An advantage Sarah may have in going through an insurance agency is working with a licensed insurance agent who can explain the different plan options and which would be most suitable for her needs. A licensed insurance agent can also check subsidy eligibility.
If Sarah gets health insurance from the marketplace, she may qualify for an ACA subsidy to get a premium tax credit or a cost-sharing reduction (only available with Silver plans) based on her income. If the benefits offered are unaffordable, Sarah may need to have the company complete an employer coverage tool that shows how much she would have to pay in premiums. Another option Sarah may have is to reject her employer’s health insurance and go on Medicaid if she’s eligible. In this case, her employer wouldn’t have to pay a penalty.
How to Know if Your Company Is an Applicable Large Employer (ALE)
Don’t let the name “applicable large employer” throw you off. Generally, a company with fewer than 500 employees is considered a small business by the U.S. Small Business Administration (SBA).4 For the purpose of the Employer Shared Responsibility, “applicable large employer” is the term used to describe companies that are subject to the employer mandate. An employer’s ALE status for a calendar year is based on the size of the full-time equivalent (FTE) staff in the previous calendar year. So for 2022, you would be an ALE if you had an average of 50 or more full-time employees, which includes FTEs, in 2021.5
FTEs are not the same as full-time employees. Full-time equivalents include those who work part-time or variable hours. A full-time employee is anyone who works 30 or more hours a week or 130 hours per month.6 An FTE, however, is a non-full-time employee who has worked for at least 30 hours in a week during a specific time frame. Whenever a non-full-time employee works 30 hours, he or she amounts to one FTE. However, a part-time employee who has not worked 30 hours may count as a percentage of an FTE.
So, one full-time employee may equate to one FTE employee, but two part-time employees may also equate to one FTE employee. It all depends on the hours worked per employee during a given period of time. Employers can use a measurement period that looks back to the previous 3 to 12 months to determine which employees qualify as FTEs. To see how your employees add up, read more on how to calculate full-time equivalent employees.
How the Health Insurance Mandate Affects Businesses
The majority of businesses in the U.S. are not required to comply with the health insurance employer mandate. That’s because approximately 7.5 million of the nearly 8 million firms in America have less than 50 employees.7 Among small businesses, about 421,000 out of the nearly 8 million (5.29%) need to offer benefits.7 Although this is a low percentage, millions of employees at these businesses can now get access to health insurance.
But what about companies with 50 or more full-time workers? It turns out that 96% already provided health benefits prior to the ACA.8 If your business is one of these firms, you may still need to make sure that the benefits offered comply with the mandate.
Businesses With Fewer Than 50 Full-Time Equivalents (FTEs)
Your company doesn’t have to comply with the employer mandate if you have fewer than 50 FTEs. But offering affordable, minimum value health coverage could help your business better compete with larger firms when it comes to recruiting and keeping the best talent. The ACA requires that plans sold in the small group market include these 10 essential health benefits:
- Prescription drugs
- Emergency services
- Laboratory services
- Ambulatory patient services
- Maternity and newborn care
- Pediatric services, including oral and vision care
- Rehabilitative and habilitative services and devices
- Preventive and wellness services and chronic disease management
- Mental health and substance abuse disorder services, including behavioral health treatment
There are several ways your small business can make health insurance available to employees. Some of these options include:
- Enrolling in a group health plan: Health insurance comes in several types, including Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), and Point of Service (POS) plans. HealthMarkets offers a wide variety of group health insurance plans within these types. With more options, it may be easier to find the right group coverage that meets your budget and employees’ needs, as well as choose supplemental benefits that can enhance their health coverage. Supplemental health insurance products you can provide employees access to include:
- Critical Illness
- Giving employees access to individual health coverage: A licensed insurance agent can meet with your employees individually to help them shop for health insurance.
- Buying health insurance through the small business marketplace: If you have 1 to 50 employees (this may be up to 100 employees in some states), you can buy coverage through the Small Business Health Options (SHOP) Marketplace.9 You may be eligible to apply for a tax credit of up to 50% (or up to 35% for non-profit organizations) toward your premium costs if you have fewer than 25 employees whose yearly salaries are less than $56,000 on average and you pay at least half of their premiums.10 You may qualify for the full 50% tax credit if you have less than 10 employees who earn average annual salaries of $27,000 or less.10 However, you can only qualify for tax credits if you buy health insurance through SHOP for at least 2 years.11
- Referring employees to the individual marketplace: A licensed insurance agent can help employees purchase coverage through the Health Insurance Marketplace for Individuals and Families at no cost to you. The marketplace offers a premium subsidy to those whose income falls within the federal poverty level. So this may be a better option if the majority of your employees earn lower wages. Employees won’t qualify for a subsidy if you offer health insurance that meets the employer mandate requirements and they decline coverage.
Businesses With 50 or More Full-Time Equivalents (FTEs)
It’s possible that a business with a little more than 50 or so FTEs doesn’t have to offer health insurance to its full-time staff. Here’s why: a penalty fee is not charged for the first 30 full-time employees. If your company has 60 FTEs with 40 at full time, for instance, you’re not required to offer health coverage because your first 30 full-time workers are exempt. Although this can be a loophole for not offering health benefits, you should consider how doing so could affect your business in the long run. You would save money in the short term, but there’s the possibility that employees may go looking for greener grass at a company that offers benefits, which could mean more time and money spent hiring and training new staff later on.
Another thing to keep in mind with health insurance under the mandate is that you can offer it, but workers don’t have to accept. This applies even if the health insurance offered is affordable and meets the minimum value. So, if employees choose not to accept, you will not have to pay the penalty.
Enrolling employees: The maximum waiting period before new hires must be enrolled in a qualified health plan is 90 days. For existing employees and their eligible dependents who lose non-employer, minimum essential coverage for reasons other than non-payment of premiums, companies must offer coverage within 30 days. The loss of health insurance triggers a “qualifying life event,” which allows an employee to use the Special Enrollment Period (SEP).
What Is the Employer Health Insurance Mandate Fee?
The mandate fee, officially known as the Employer Shared Responsibility Payment, is triggered if at least one full-time worker gets a premium tax credit from the IRS for buying individual health coverage on the marketplace. Although the number of FTEs determines if a company must comply with the mandate, the fee is based on full-time employees. There are two types of mandate fees:
- Fee if no health insurance is offered: Employers pay a $2,000 annual fee per full-time employee that’s divided into monthly payments. There’s no fee for the first 30 full-time employees.
- Fee if health insurance is unaffordable or doesn’t meet minimum value: Employers are charged a $3,000 annual fee for each full-time employee who received a premium tax credit or a $2,000 annual fee for each full-time employee, whichever is less. This fee is also divided into monthly monthly payments.1 The first 30 full-time employees are not included in this payment if the employer is charged the $2,000 annual fee for each full-time employee.
Other Health Insurance Mandate Requirements for Employers
Applicable large employers must submit “information returns” to the IRS regardless if health insurance is or isn’t offered to full-time employees. The information submitted is used to determine if an employee is eligible for a premium tax credit. Employers must also provide their employees with this same information. An employee can use an information return to determine if they can claim a premium tax credit for each month in a calendar year on their income tax return.
Help With the ACA Employer Mandate
When it comes to figuring out if the mandate will affect your small business, it all comes down to accurately calculating your number of full-time equivalent (FTE) employees. HealthMarkets can help. A licensed insurance agent doesn’t just talk to you over the phone or through email. One can meet with you in person at your place of business when it’s convenient for you.
Even if you have too few employees to be subject to the employer mandate, HealthMarkets can help determine the best way you can offer health coverage to your staff. Schedule your consultation with a licensed insurance agent to find out how you could save money on health insurance costs. Or, have a licensed insurance agent contact you. Have questions? Call (800) 827-9990 to speak with a licensed insurance agent today.