California Small Business Health Insurance Requirements
Small businesses – and employers across America – continue to await a decision by the U.S. Supreme Court on whether the individual mandate in the Affordable Care Act (ACA) is unconstitutional. A decision is expected before the Court’s term ends in June. In the interim, the ACA remains the law of the land – affecting what employers are required to offer health insurance to employees.
Below, we’ve summarized ACA requirements that could affect your business in 2021.
ACA Employer Mandate
The employer mandate requires Applicable Large Employers (ALEs) to offer their full-time employees and eligible dependents “Minimum Essential Coverage” (MEC). An ALE is generally a business with at least 50 full-time and full-time equivalent employees, on average, during the prior calendar year. If you’re not certain if your business qualifies as an ALE, there’s a useful Full-Time Equivalent Employee Calculator on the HealthCare.gov website.
If you are subject to the employer mandate and you fail to offer “affordable” MEC coverage to 95% of your eligible full-time employees and their children, then you are subject to the Employer Shared Responsibility Payment Penalty. This is sometimes referred to as the “pay or play provision.”
The 2021 penalty is $2,700 for each full-time employee minus the first 30. For example, if you are an employer with 100 employees and you do not offer health insurance to full-time employees and their dependents, and at least one of your employees goes to the Covered California public exchange for tax-subsidized health insurance, your penalty will be $189,000 (100 – 30 = 70 x $2,700).
Essential Health Benefits
To comply with the ACA, qualifying health coverage must include 10 Essential Health Benefits (EHBs):
- Ambulatory patient services (outpatient care without being admitted to a hospital)
- Emergency services
- Hospitalization (like surgery and overnight stays)
- Pregnancy, maternity, and newborn care (both before and after birth)
- Mental health and substance use disorder services, including behavioral health treatment that includes counseling and psychotherapy
- Prescription drugs
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions or to help an insured gain or recover mental and physical skills)
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care (Note: Adult dental and vision coverage are not Essential Health Benefits)
Most group plans you may be considering are likely compliant with ACA guidelines; however, it’s a good idea to discuss your available options with a licensed employee benefits broker.
If you offer health insurance coverage to your employees, but their share of the cost for 2021 is greater than 9.83% of their annual household income, the coverage is not considered affordable. Offering “unaffordable” ACA-compliant coverage to your subjects your business to a different ACA penalty. Because employers rarely know their employees’ total household income, you can take advantage of several “safe harbors” set forth by the IRS. The Society of Human Resource Management published an article in 2020 that discusses the 2021 affordability threshold and available safe harbors.
According to the IRS, an employer-sponsored health plan offers minimum value if it covers at least 60% of the total allowed cost of benefits expected to be incurred under the plan. That requirement would be met by offering a Bronze-level ACA-compliant plan.
Under the ACA, four metal tiers of coverage are available: Bronze, Silver, Gold, and Platinum. A higher metal tier offers a greater percentage of covered costs. For example, at the Bronze tier, the plan covers 60% of health care costs and the insured pays 40%; a Silver plan covers 70% of health care costs, with the insured paying 30%; and a Gold plan covers 80% of health care costs, while the insured pays 20%. Finally, a Platinum-level plan covers 90% of health care costs, and the insured pays 10%. Higher metal tier plans have higher premiums, but a higher tier plan can cost a patient less in the long term if medical care is needed.
No Requirement for Non-ALEs
If your business is not an ALE, you are not required to offer ACA-compliant health coverage to your employees. However, there are several reasons why you might want to consider it.
- It can help you differentiate your business as an employer; it can aid you in your recruitment and retention.
- It also offers tax advantages – to you and your employees. The cost of providing health insurance is generally deductible as a business expense on your state and federal taxes.
- Your employees’ share of their premium can be paid through a Premium Only Plan, reducing their tax burden and lowering your FICA taxes, too.
- Healthier employees are typically more productive as well.
California Health Care Mandate
Although California has a Minimum Essential Coverage (MEC) mandate for individuals, it’s not something about which employers need to be concerned. It does not require businesses to play a role to ensure employees have coverage; it only mandates that most California residents have health insurance, obtain a qualifying exemption, or pay a fine to the California Franchise Tax Board (CFTB) when taxes are filed. A penalty estimator and more information is available on the CFTB website.
Qualifying coverage can be in any of several forms, including:
- Employer-sponsored health insurance
- Individual and Family Plans (IFP)
- Medicaid (Medi-Cal in California)
If you offer health insurance coverage to your employees, and you provide them with information on that coverage each year using IRS Form 1095-C, your employees can confirm they are in compliance with the California MEC Health Care Mandate.
Shopping for Group Plans
One important thing to know is that your cost as an employer does have not be influenced by the coverage your employee selects. You can help control your costs using Defined Contribution, which is available from the CaliforniaChoice multi-carrier, employee-choice health insurance exchange.
With CaliforniaChoice, you can choose a Fixed Percentage contribution of a specific plan and/or benefit, or you can to contribute a Fixed Dollar Amount for each of your employees. (The contribution needs to be the same for each.) Your employees then apply your generous contribution to whichever health plan and benefits they like best. CaliforniaChoice offers dozens of coverage options from nine different health plans across the state. If an employee selects a plan that costs more than your contribution, he or she simply pays the difference.
If you are interested in learning more about the employee benefits options available to you and your employees, one of the best ways to do so is to talk with an employee benefits agent or broker. Services are typically available at no cost, and consulting a broker can actually save you money.
That’s because a local broker will know your marketplace, the HMO, PPO, and other coverage options in your area, health care providers that are part of each health plan’s network, and any value-added benefits that may be available. If you do not already have a broker, we can help you find one here.