Making Sense of ACA-Compliant Health Insurance
The Affordable Care Act (ACA) took effect in March 2010. Still, many employers – particularly small businesses – remain unclear of its requirements. We’re untangling critical details about ACA coverage and the associated penalties.
If you employ 50 or more full-time or full-time equivalent (FTE) employees, you are an Applicable Large Employer (ALE) under the ACA and, therefore, subject to the ACA employer mandate. Under the mandate and the ACA employer share-responsibility provision, ALEs must offer minimum essential coverage that is “affordable” and provides “minimum value” to full-time employees and dependents.
All ACA-compliant plans for individuals and small groups must include these Essential Health Benefits:
- Ambulatory patient services
- Emergency services
- Pregnancy, maternity, and newborn care (before and after birth)
- Mental health and substance use disorder services, including behavioral health treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services (including chronic disease management)
- Pediatric services, including oral and vision care for children (adult dental and vision services are not essential health benefits)
The ACA divides health plans into four metal tiers: Bronze, Silver, Gold, and Platinum. Each tier offers a different level of support for covered services, with Bronze plans covering about 60% of health care costs. Silver plans cover 70%, Gold plans cover 80%, and Platinum plans cover 90% of costs for covered services.
Penalties for Non-Compliance
If you’re an ALE and do not offer health coverage, when an employee receives a federal subsidy to help pay for coverage through the Covered California exchange, that triggers a non-compliance penalty. The penalty is assessed monthly and is equal to the number of FTE employees (minus the first 30), multiplied by one-twelfth of $2,500 (the 2019 penalty amount). There is no penalty for not offering health insurance to part-time employees.
A greater penalty of $3,750 applies if you offer employee coverage that is not affordable or does not provide minimum value. Affordable means the cost does not exceed 9.86% of an employee’s household income for the lowest-cost, self-only coverage option. A health plan meets the ACA minimum value test if it includes substantial coverage of physician and inpatient hospital services and pays at least 60% of the total cost of medical services covered by a plan.
If you have seasonal or part-time workers and you are unsure if your business is an ALE, visit the IRS website to help determine your status.
Employer Cost Control
Cost is a huge consideration for employers when it comes to providing health benefits for employees, whether you’re required to provide coverage or not. However, the ACA does not require ALEs or non-ALEs to pay 100% of the costs of employee coverage. Businesses can share the costs with workers.
If you are not an ALE, what you contribute to employee coverage is entirely up to you. However, most employers who offer coverage, regardless of their workforce size, do pay at least half the cost. The Kaiser Family Foundation says in its 2018 Health Benefits Survey report that on average, covered workers make an 18-30% contribution to the cost of health insurance, depending on their plan type.
If you choose employee benefits through CaliforniaChoice, with Defined Contribution, you contribute a Fixed Percentage (50% to 100%) of a specific plan type, OR you can choose to contribute a Fixed Dollar Amount. If employees select a plan that costs more than your contribution, they simply pay the difference. At renewal, you can adjust your company’s Defined Contribution – up or down – to help you manage your costs for another year.
There are several non-Major Medical plans that are not regulated by the ACA, and therefore, non-compliant. Among them are short-term health insurance plans (already limited in California), accident-only plans, limited-benefit policies (such as Long Term Care plans and indemnity coverage), and plans offering medical discounts that are not actually insurance programs. None of these meet the ACA employer shared responsibility requirements.
How to Learn More
The best way to learn more about required ACA benefits and the potential costs for your business is to talk with a licensed health insurance agent. If you are not working with an agent, click here to find one in your area.