7 Things to Know About Offering Group Health Insurance
If you own or manage a small business and you’re considering offering health insurance to your employees, it’s important to be informed before making a decision. We’ve answered seven of the most common questions concerning health insurance for employees of small businesses.
1. Is health insurance required?
Currently, the “employer mandate” of the Affordable Care Act (ACA) is still in place. If your business employed, on average, a combination of 50 or more full-time and “full-time equivalent” (FTE) employees during six months or more of last year (or, this year, if you’re a start-up), you are considered an Applicable Large Employer. As an ALE, you must provide employees and their eligible dependents with affordable, minimum essential health insurance coverage. If you do not offer such coverage, your business is subject to ACA penalties if at least one full-time employee receives a premium tax credit for enrolling in health insurance through a state exchange (like Covered California).
If you have fewer than 50 employees, you are not required to offer health insurance coverage (nor are you subject to a penalty for not offering it). However, many small business owners do elect to extend such benefits to their employees. That’s because, in today’s highly competitive talent marketplace, health insurance and other perks can help level the playing field when it comes to attracting new employees and retaining your existing staff.
2. How is “affordable” coverage determined?
Affordability is determined by whether the employee’s share of the premium for personal coverage costs no more than 9.56% of his or her household income in 2018. The figure for 2019 is 9.86% of household income. If an employer’s coverage is not considered affordable, the business is subject to a penalty: the lesser of $3,480 for each full-time employee receiving a premium tax credit subsidy or $2,320 for each full-time employee (minus the first 30 employees).
3. What’s the maximum Waiting Period?
If you offer health insurance to your employees, you must offer it to all eligible employees within 90 days of the date they start their employment. Coverage must begin no later than 91 days after employment begins.
You can choose a shorter waiting period, such as 30 or 60 days, but you cannot offer a longer waiting period. Many employers 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.)
4. What are the rules on SBCs?
Businesses that offer health insurance to employees are required to provide a standard “Summary of Benefits and Coverage” (SBC) that explains what’s covered by each plan and the related costs. The SBC is designed to help employees better understand their health insurance options when comparing plans. Failing to comply with the ACA’s requirement concerning SBCs could subject your business to a fine. Your insurance company, health insurance exchange, or third party administrator will be able to provide you with an SBC in advance of your group’s enrollment.
5. What are the ACA reporting requirements?
The ACA requires Applicable Large Employers (see above) to report to the IRS annually on health insurance coverage offered – or not offered – to eligible employees and dependents.
It further requires reporting by all employers of any size who sponsor self-insured health insurance coverage or a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement).
6. Is there a minimum employer contribution?
Employers with fewer than 50 full-time equivalent employees are not subject to the ACA’s employer mandate, so they are not required to make a certain percentage contribution to employees’ costs.
Small businesses looking to qualify for a Small Business Health Care Tax Credit must:
- Have no more than 25 full-time equivalent employees
- Pay employees average wages of no more than $52,000
- Pay at least 50% of the annual premium for employees’ health insurance, and
- Purchase coverage through a Small Business Health Options Program (SHOP) marketplace
Some health insurance carriers and administrators do require at least 50% of the premium be paid by the employer. Ask your employee benefits agent for information about the plans you’re considering.
7. Where can I get help?
Using a health insurance or employee benefits agent can help you save time and money. And, working with an agent is free.
Your agent can provide you with valuable assistance, including answers to any questions you may have – about health insurance, offering voluntary or employer-sponsored coverage (or a combination), and benefits budgeting. If you do not already have an employee benefits agent, we can help you find one.