What’s Required in an Employee Benefits Plan?
Are you looking to attract employees in today’s ultra-competitive talent market? Then it’s important for you to offer more than competitive wages. Employees expect more, including a comprehensive benefits program.
So, where do you start? It's good to know what’s required in a benefit plan? Group size is one factor. However, when you are comparing plans, group size is not your only consideration. It's also important to know what employees are looking for when comparing potential new jobs. For example, where does health insurance rank among "must have" benefits?
According to the MetLife 20th Annual U.S. Employee Benefit Trends Study 2022, a comprehensive benefits package is a "must have" for two-thirds (66%) of employees when accepting a new role. The same study found health, dental, vision, life, and disability insurance are five of the top seven priorities for employees.
Employee Benefit Plan Requirements
Affordable Care Act Requirements
There are also certain coverage requirements that, if not followed, could lead to penalties. The Affordable Care Act (ACA) was signed into law by President Barack Obama in 2010. Federal and state health insurance exchanges began in 2013. They offered coverage effective January 1, 2014. That's when insurance companies became required to provide health insurance to any American adult ages 19 to 64 who applied for ACA-compliant coverage.
To discourage people from waiting to get coverage until they got sick, the ACA required all Americans to buy coverage or face a fine. That ACA individual mandate was rescinded and no longer applied after 2018.
The Employer Shared Responsibility Provision continues to require Applicable Large Employers (ALEs) to provide minimum value coverage to 95% of full-time employees and dependent children. If an ALE does not offer affordable, comprehensive coverage, the employer is subject to penalties.
Compliant health plans must cover 10 categories of care. The complete Essential Health Benefits (EHB) list includes:
- Ambulatory patient services (outpatient care you get 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 (including counseling and psychotherapy);
- Prescription drugs;
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills);
- Laboratory services;
- Preventive and wellness services and chronic disease management; and
- Pediatric services, including oral and vision care (however, adult dental and vision coverage are not essential health benefits).
Beyond the ACA requirements, there are state-required Essential Health Benefits Benchmark Plans. For information, visit the Centers for Medicare & Medicaid Services (CMS) web page on benchmark plans. The page includes links for California’s required benefits and information for 2017-2023.
If your business is an Applicable Large Employer (ALE) as set forth in the ACA, you’re subject to the employer mandate. ALEs are organizations employing a monthly average of 50 or more full-time or full-time equivalent employees (FTEs). Each employer is required to make an annual ALE determination based on the business workforce during the prior year.
If an employer has fewer than 50 FTEs, on average, the business is not an ALE for the current calendar year. If that includes your business, you are not subject to the employer mandate or employer ACA reporting requirements.
In contrast, if you had at least 50 full-time employees, including FTEs, during the prior calendar year, your business is an ALE for the current calendar year.
As noted earlier, the ACA requires minimum health insurance coverage to 95% of full-time employees and dependent children.
If you do not offer coverage, your business is subject to ACA penalties. In 2022, a penalty of $2,750 applies for each of your full-time employees minus the first 30. For example, if you have 150 employees and do not offer health insurance to full-time employees and dependents, your penalty would be $330,000. That’s 120 employees times $2,750.
If coverage is not affordable or does not offer Minimum Value, a different penalty applies. In determining affordability, your employee’s cost cannot exceed 9.61% of income in 2022. Minimum Value means the plan covers at least 60% of the total allowed cost of benefits expected under the plan.
The “B” penalty (under Section 4980H(b) is $343.33 per month ($4,120 annualized) for each full-time employee with subsidized coverage through the marketplace.
If you’re unsure about your ALE status, CaliforniaChoice offers three ACA calculators on its website:
- ACA Full-Time Equivalent Calculator
- ACA Penalties Calculator
- ACA Safe Harbor Calculator
You can also download the Employer Mandate Reporting Guide through the CaliforniaChoice website (using the link above).
Beginning in 2020, California was among six jurisdictions with an individual mandate for health insurance coverage. The mandate does not apply to employers, but rather to residents, who must either:
- Have qualifying health insurance coverage;
- Obtain an exemption from the requirement to have coverage; or
- Pay a penalty when they file their state income tax return.
Penalties are due for each month an individual or family went without health insurance during the tax year. For example, in filing in 2022 for 2021, the penalties are at least $800 per adult and $400 per dependent child under 18 in the household. A family of four without insurance for a full year would face a penalty of at least $2,400.
For additional information on the state health care mandate, including the exemptions, visit the California Franchise Tax Board web page. Again, it’s important to note that penalties are paid by individuals, not employers, when filing state income tax returns.
Beyond What's Required
CaliforniaChoice makes it easy for you to offer what's required and deliver more to your employees.
In addition to offering health insurance from eight health plans and a variety of HMO, PPO, EPO, and HSA-compatible choices, you can offer your employees Dental, Vision, and Chiropractic care. Plus, CaliforniaChoice offers value-added extras like a Premium Only Plan, online HR support, and employee discounts on travel, entertainment, and more.
Consult a Broker
Shopping for the right coverage for employees can be overwhelming. An employee benefits broker is a great resource. A broker will help you explore your options to ensure you find the coverage that meets the requirements for your group size and addresses the diverse needs of employees.
If you are not already working with an employee benefits broker, you can search for one here.