Understanding Group Health and Other Benefits Laws in 2023

January 5, 2023by Alex Strautman

If you’re planning to offer Group Health and other benefits to your employees in 2023, there are important requirements you should know. While much of what applied in 2022 will carry over to the new year, it’s critical to be aware of what’s new for California employers and employees. We’re covering all the bases.

Affordable Care Act (ACA) Requirements

Signed into law in 2010, the ACA has a mandate for Applicable Large Employers (ALEs). That’s any business with 50 or more full-time or full-time-equivalent employees (FTEs). It requires ALEs to offer affordable, minimum value health insurance coverage to full-time employees and eligible dependents. If your business is an ALE and you do not comply, you could be subject to ACA penalties.

Under the ACA employer shared responsibility provisions, ALEs must offer minimum essential coverage. It must be “affordable” and provide “minimum value” to full-time employees (and their dependents). If you do not offer coverage, your business faces a potential IRS penalty. This is often referred to as “the employer mandate” or the ACA’s “pay or play provisions.” Most businesses fall below the ALE threshold and are not subject to the shared responsibility provisions. But, your business may be an ALE.

You must determine your ALE status annually in January. Ask your broker (if you have one). A broker can help you calculate your status using an ACA calculator. A CPA can also offer you valuable guidance concerning your business’s ALE status. Your CPA has the expertise to calculate your health plan affordability and determine any potential ACA penalty for non-compliance.

California Mandate

Starting in 2020, California was among a handful of states with an individual mandate for health insurance coverage. This mandate does not apply to employers, but rather to state residents.

To comply, California residents must:

  • have qualifying health insurance coverage
  • get an exemption from the requirement to have coverage, or
  • pay a penalty when filing their state income tax returns.

When filing taxes, penalties are due for each month an individual or family went without health insurance during the tax year. For example, when filing in 2023 for tax year 2022, the penalties are at least $850 per adult and $425 per dependent child under 18 in the household. Without an exemption, a California family of four without health insurance for a full year would face a penalty of at least $2,550.

For information on the state health care mandate, 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.

What’s New in 2023?

Several measures signed into law by California Governor Gavin Newsom during 2022 go into effect this month.

Expanded Family and Paid Sick Leave: California Assembly Bill 1041 expands state family and paid sick leave. It allows employees to take time off to care for a “designated person.” Previously, under the California Family Right Act (CRFA), eligible employees could take protected job leave to care for select individuals. They include a child, parent, parent-in-law, grandparent, grandchild, sibling, spouse, or registered domestic partner. The new measure adds a “designated person” to the list.

The new designated person can be “any individual related by blood or whose association with the employee is the equivalent of a family relationship.” AB 1041 does not elaborate on who may be considered for designation. Further guidance is anticipated from state authorities. The designation by an employee is not required in advance. An employer may limit an employee to one designated person in a 12-month period.

The same measure expands the definition of a family member under the state’s Healthy Workplaces, Healthy Families Act of 2014. This is also known as the California Paid Sick Leave Law.

Pay Transparency: Senate Bill 1162 requires employers with 15 or more employees to post a pay scale in any open job advertisement. It requires job title and wage history records for all employees for their periods of employment – plus three years. You can read more about SB 1162 in an article posted by the Society of Human Resource Management (SHRM). Other information is on the California Department of Industrial Relations website.

Bereavement Leave: Assembly Bill 1949 updates the CRFA (mentioned above) as it relates to bereavement. It requires employers with five or more employees to provide them with up to five days of unpaid leave for a family-related death. Leave need not be continuous, but it must be completed with three months of the family member’s death. That includes the death of a spouse, child, parent, sibling, grandparent, domestic partner, or parent-in-law. For additional information, refer to this National Law Review article.

Federal Consolidated Appropriations Act (CAA) Provisions: Beyond new state rules, the Pregnant Workers Fairness Act (PWFA) and the PUMP Act offer federal protections for pregnant and breastfeeding workers. Other legislation put in place in response to COVID-19 will boost telehealth flexibility in 2023. The Acute Hospital Care at Home Initiative is being extended through 2024. The CAA also includes funding for mental health, substance abuse disorders, and crisis response services.

Reasons to Offer Employee Health Insurance

Even if your business is not required to offer health insurance to employees, there are many reasons to consider it, including:

  • Tax Deduction: In general, premiums paid for employees’ health insurance (and eligible dependents) are 100% deductible as an ordinary business expense. That applies to your business’s federal income taxes as well as your state income taxes. Consult your professional tax advisor concerning health insurance premium deductibility.
  • Lower Payroll Taxes: Tax savings do not end with your business’s premium contributions for employee health insurance. If you offer a Section 125/Premium Only Plan (POP), you can reduce your payroll taxes, while giving employees the ability to fund their premium contributions with pre-tax money. That means they could spend less than buying comparable coverage through the individual health insurance marketplace.

If employees enroll in a High Deductible Health Plan (HDHP), and take part in a POP, they can reduce their taxes further with a Health Savings Account (HSA). Together, an HDHP, POP, and HSA can yield a payroll deduction in the range of 25% to 40%.

Discuss Your Options Broker

Employee benefits are a proven differentiator in a competitive talent market. If you want to learn more about your options, talk with a broker. A broker can provide insights into what’s available locally and provide a custom quote for your business. If you don’t have a broker, you can search for one here.

Shopping for group health insurance?

This guide compiles a list of common questions you may have before you start offering health insurance coverage.
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