Are you a business owner navigating the maze of group health insurance? Whether you’re in the know or just starting out, we’ve got you covered. Check out our summary of the top five things you need to know about employee benefits and group health insurance.
1: The ACA Mandates Coverage for Some Groups
The Affordable Care Act (ACA) Shared Responsibility Provisions require some businesses to offer health insurance to employees. This “employer mandate” says businesses with 50 or more full-time and/or full-time equivalent (FTE) employees must offer health insurance. Full-time is an employee working 30 hours or more weekly.
More specifically, the mandate requires health insurance be offered to at least 95% of eligible employees and their children (up to age 26). If your business is subject to the ACA mandate and you don’t offer “affordable” coverage with “minimum value,” you are subject to penalties. Minimum value means the plan’s share of the total average cost of covered services is at least 60% — the same as Bronze level coverage.
Employers with 50 or more employees are what the IRS and ACA say are “Applicable Large Employers” (ALEs). For more information on ALEs, and how to determine if your business is an ALE, visit the IRS website.
2: California Mandate Has No Impact on Employers
In 2020, California became one of five states (plus the District of Columbia) to implement an individual requirement for health coverage. Californians must either have qualifying health insurance or pay a penalty when filing state income taxes.
For tax year 2023 (paid in 2024), if an individual/family does not have an exemption, the penalty is $900 per adult and $450 for dependent children under 18. A family of four earning less than $142,000 without insurance for a full year faces a penalty of $2,700. Individuals and families with greater incomes face a possible percentage of family income penalty based on tax-filing status and number of dependents. Visit the State of California Franchise Tax Board web page for more information.
The California health care mandate has no impact on you as an employer. It only affects you as an individual taxpayer. If your business employs fewer than 50 employees, you are not required to offer health insurance – under federal or state regulation.
3: It’s Easy to Determine “Affordability” for Your Group
In 2024, a job-based health plan is considered “affordable” if your employee’s share of the monthly premium (in the lowest-cost plan offered by the employer) is less than 8.39% of household income.
The lowest-cost plan must also meet the minimum value standard set in the ACA. Affordability is based on only the premium the employee pays for self-only (individual) coverage.
If an employee is offered job-based coverage through a household member’s job, affordability is based on the premium amount to cover everyone in the household.
Total household income includes incomes from everybody in the household who’s required to file a tax return.
If the premiums are not considered affordable for the employee and the household, they may qualify for savings in an ACA Marketplace plan (such as those from Covered California). But, if the premium is considered affordable for the employee, but not for other members of the household, then only the other household members may qualify for savings.
Examples:
- Household’s monthly income = $4,083 (about $49,000 per year).
- 8.39% of the household’s monthly household income = $343
For the employee:
- Monthly premium the employee would have to pay for the lowest-priced plan that covers just the employee = $300
- Is the plan affordable for the employee? YES. The premium the employee would have to pay to cover just themselves ($300) is less than 8.39% of the household’s income ($343). Because the job-based coverage is affordable, the employee will not qualify for savings in the Marketplace.
For other household members:
- Monthly premium the employee would have to pay for the lowest-priced plan that covers other members of their household = $450
- Is the plan affordable for other household members? NO. The premium the employee would have to pay to cover others in the household ($450) is more than 8.39% of the household’s income ($343). Because the job-based coverage isn’t affordable for the employee’s household members, the employee’s household members may qualify for savings in the Marketplace.
4: Your Coverage Waiting Period Cannot Exceed 90 Days
If you offer group health insurance to your employees, your coverage Waiting Period for those who are eligible cannot exceed 90 days from the date they start their employment. Coverage must begin no later than 91 days after employment begins.
You can choose a shorter waiting period. Some employers select 30 or 60 days. Others may choose to make coverage effective the first of the month following 30 days of employment. So, for example, if an employee started on May 15, coverage would be available beginning on July 1. (Link here to download a PDF of IRS guidance on the 90-day waiting period limitation.)
5: You Must Report on Group Health Offered
The ACA requires insurance companies, self-insured organizations, and businesses that provide health insurance to employees to annually submit information returns to the Internal Revenue Service to report on those offers of health insurance coverage. If you have 10 or more information returns, you must submit electronically.
Dates for filing change slightly each year, but generally forms are due to employees in early March and due to the IRS in early April.
Your status as an ALE is determined annually on or about January 1. It is based on the average size of your workforce in the preceding calendar year. A useful Full-time Equivalent Employee Calculator is available on the HealthCare.gov website.
The forms used in connection with IRS filing are as follows; forms are required for all persons employed full time for at least one calendar month of the reporting year.
- IRS Form 1094-Ccontains company information that tells the IRS who the submitting ALE is, how many 1095-C reports are being submitted, certificates of eligibility, affiliated employees (common ownership and “controlled group” information), employee count, etc.
- IRS Form 1095-C contains employee information, related to the coverage offered by the ALE. It includes the employee’s required contribution for the lowest-cost ACA compliant health plan offered by the ALE (at the employee-only rate), the ACA affordability safe harbor, and other important information.
Most taxpayers receive multiple Forms 1095 from different entities.
Employers who fail to comply with IRS rules on reporting are subject to non-compliance penalties, which can be substantial. The ACA Times features a post on penalty increases for 2024.
For more information on ACA reporting, visit the ACA Information Center for ALEs on the IRS website.
Reasons to Offer Health Benefits
Even if your business doesn’t qualify as an Applicable Large Employer, there are plenty of compelling reasons to consider it for both your business and your employees. Here’s why::
- goodwill toward employees/increased worker morale;
- tax deductibility of health insurance benefits;
- effective tool in helping you recruit new workers;
- increases retention of existing employees/minimizes turnover;
- keeps your workforce healthy and increases productivity.
While there is a cost for health insurance, it can be offset by these clear benefits.
Beyond that, employees (and potential employees) today expect benefits. You’re at a disadvantage when it comes to attracting and keeping employees if you don’t offer them.
Now You Know – Learn More from a Broker
Hopefully, this article addressed your questions and provided additional information of value. Dive deeper by chatting with a broker. Your broker is your guide, helping you navigate through your options and educating you along the way. And the best part? Consulting with a broker is free. They’re ready to tackle all your questions about health insurance, benefits budgeting, provider networks, and beyond.
If you don’t have a broker, we make it easy to search for one.
