California Small Business Health Insurance Requirements
Despite Congressional efforts and numerous lawsuits, the Affordable Care Act (ACA) is still the law of the land. This means your business may be subject to the ACA employer mandate. If so, there are several requirements for your business to stay within the law.
Where Do You Stand?
First, find out if the law requires your business to provide health benefits. Currently, if you own or manage a business with 50 or more full-time employees or full-time equivalent (FTE) employees, you are an Applicable Large Employer (ALE). That makes you subject to the ACA employer mandate. If you are unsure if your business is an ALE, visit the IRS website to help determine your status.
What You Need to Do as an ALE
Under its employer shared responsibility provisions, the ACA requires ALEs to either offer minimum essential coverage that is “affordable” and provides “minimum value” to full-time employees and dependents or pay a penalty to the IRS. ALEs can require employees to share in the cost of their health coverage. However, as of 2019, the employee cost cannot exceed 9.86 percent of an employee’s household income. The ACA further requires ALEs to report annually on coverage offered (or not offered) to employees using forms 1094-C and 1095-C.
Determining the Penalty
If an employer does not provide adequate coverage to at least 95 percent of employees and eligible dependents, and one full-time employee receives a premium tax credit to enroll for health coverage through a state health exchange (like Covered California), the IRS imposes a no-coverage penalty. In 2019, the no-coverage penalty is $2,500 ($208.33 per month) times the total number of full-time employees minus the first 30. There is no penalty for not offering health insurance to part-time employees. A greater penalty, $3,750 for 2019, applies if coverage is not affordable and does not provide minimum value.
The IRS calculates your penalty separately for each month during which you offer no coverage. Therefore, if you offer coverage for some months during the year, but not all, you pay for only those months you offer no coverage.
Businesses with fewer than 50 full-time equivalent employees in 2018 are not subject to the ACA’s employer mandate in 2019. That doesn’t necessarily mean you shouldn’t provide coverage. Many small businesses offer employee benefits, including health insurance coverage, to support recruitment and retention efforts. Keep in mind, your contributions to group health are tax deductible. Moreover, when you set up a Premium Only Plan (POP), your employees can pay their share of the premium with pre-tax dollars. A POP also means reduced payroll taxes for your business.
Controlling Health Care Costs
Cost is a huge factor for employers looking at options for health insurance. CaliforniaChoice allows you to control costs and offer employees more health care choices. With Defined Contribution, you choose the amount you want to contribute toward benefits and your employees apply those dollars toward the health plan they like best.
You can contribute a Fixed Percentage (50% to 100%) of a specific plan type, OR you can choose to contribute a Fixed Dollar Amount. If an employee selects a plan that costs more than your contribution, he or she simply pays the difference.
At renewal, you have the option to adjust your Defined Contribution – up or down – and lock it in for another 12 months.
Proposed California Legislation
In January, the state legislature introduced California Senate Bill (S.B.) 175 imposing a penalty on any California resident without health insurance. This proposed measure is working its way through the State Senate and is before the Committee on Governance and Finance. If it becomes law, we’ll outline the implications for your business.
How to Learn More
For specific details about selecting employee health benefits for your business, consult a health insurance agent. An agent will educate you about the process and provide information to help you choose what’s right for you and your employees.