Are Employers Obligated To Offer Health Insurance?

Signed into law over a decade ago, the Affordable Care Act changed our healthcare system. Some of these impacts were those we might take for granted – more accessible calorie counts at restaurants and requiring breaks for breastfeeding mothers at work. One of the more visible impacts was the thousands of lives saved thanks to expanded coverage options.

In fact, around 20 million previously uninsured and underinsured Americans were extended health insurance coverage. One of the ways this happened was through “the employer mandate.”

If you have employees, you’re probably wondering, “does an employer have to offer health insurance?” The answer depends on a few factors. Let’s take a look at what you need to know regarding health insurance coverage for your employees.

Does An Employer Have to Offer Health Insurance?

Overall, many employers are not obligated to offer health insurance to their employees. However, the Affordable Care Act did introduce regulations that require certain employers to offer coverage.

In addition, not just any plan counts. If an employer is required to offer health insurance, the plan must meet some general standards.

For example, out-of-pocket costs have a limit of $8,550 for individuals and $17,100 for families. However, ten essential health benefits do not have a dollar limit.

Pre-existing conditions must be covered without a waiting period. Finally, a dependent should be allowed to remain on their parent’s plan until the dependent is age 26.

When Is It Required?

Whether or not a company must offer health insurance depends on the number of employees they have. Companies that have under a certain number of employees do not have to offer health insurance. This is because small businesses have different capabilities than their larger counterparts and, because of this, often do not have the financial leeway to offer healthcare.

Meanwhile, larger businesses are usually able to afford the expense. If a company fails to offer health insurance when they are supposed to, it may face penalties.

How Many Employees?

If a company has 50 or more full-time employees, it must offer health insurance. It’s important to note that this also includes part-time employees. However, full-time and part-time employees are counted in different ways in regard to meeting this total.

This is determined by calculating a part-time employee as half of a full-time employee. For example, 100 part-time employees are equal to 50 full-time employees. Therefore, a company with 100 part-time employees must offer health insurance to its employees. The same is true for a company with ten full-time employees and 80 part-time employees. In the end, if the adjusted calculation ends up totaling up to 50, then the company must offer health insurance.

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What Are the Penalties for Noncompliance?

If businesses do not comply with the provisions of the ACA, they will end up owing financial penalties to the IRS. These penalties are standardized by 4980H(a) and 4980H(b) and are on a per-employee basis.

For 2022, the penalty is $2,750 per full-time employee minus the first 30 employees. This penalty will be triggered if the employer does not offer the minimum coverage for 95% of its full-time employees and their dependents.

Small Businesses and the Affordable Care Act

Small businesses with only a few employees make up the vast majority of US companies. These are companies that typically have fewer than 50 employees. This means that most businesses are not required to offer health insurance.

The best practice for the remaining businesses is to offer coverage. However, some larger employers that are required to offer insurance choose not to. This is because it might be less expensive not to offer full coverage or to invest in another option, including a Health Reimbursement Arrangement (HRA).

Related: OnRamp Healthcare Conference

Offering Voluntary Benefits

It might be a little more challenging for some smaller businesses to offer health insurance when they are not required to do so. But, many still chose to offer voluntary benefits. In fact, in 2019, 47.4% of private sector workers in the US were offered health insurance.

This is because there are benefits that can help offset the additional cost. By offering healthcare, a company can extend it as a benefit to current and potential employees. Company benefits and perks like these are a key way to attract and keep good workers. Many workers consider if and what benefits a company offers before deciding on taking a job.

In addition, remember that good health insurance coverage can also benefit your business. Employees with adequate insurance can see the doctor when they are ill. This reduces absenteeism and allows your employees to be in good health and spirits when they are at work, improving productivity.

The Healthcare Tax Credit

Businesses that choose to offer health insurance to their employees can also claim a healthcare tax credit. This can help reduce premiums or can be applied toward a tax bill. Together, these factors make it easier for the business to cover the cost of offering healthcare insurance.

Businesses with fewer employees and lower-than-average salaries can qualify for a larger credit.

In order to qualify, a business must have less than 25 full-time employees with an average salary under $50,000. Plans must be purchased via the federal Marketplace, and the employer must pay half of the insurance premiums.

Should You Offer Health Insurance?

Woman in Brown Blazer seated beside Table

If you are a small business with under 50 full-time equivalent employees, you have a decision to make: will you offer your employees voluntary health insurance coverage? If you want to attract and retain the best workers for your business, it is highly recommended that you do so.

Remember, employers were offering health insurance for many decades before the ACA mandated it at all. Many chose to do this despite not having the same level of legal pressure. This was because coverage was popular and sometimes even expected among workers. Even if you can’t offer a large salary or a slew of other benefits, your health insurance and similar offerings could set you apart for those employees you want.

Keep Your Employees Healthy

Many businesses wonder, “does an employer have to offer health insurance?” In the end, there are actually two answers to this question. In general, larger businesses have to offer health insurance, while smaller businesses are exempt from this requirement.

But even if your business does not need to offer coverage, benefits like these can still positively impact your employees and your business overall. So, even though some businesses do not have to offer health insurance, they still want to do so.

Want to discuss how Xcellent Life can help you keep your employees healthy? Schedule a consultation with our CEO today.

December 23, 2022