Does My Job Have to Provide Health Insurance?

As of 2014, employers with more than 50 full-time (FT) or full-time equivalent (FTE) employees must offer their workers a health care plan or face a tax penalty, also referred to as the “Employer Mandate.” Employers are eligible for several tax incentives or other benefits as part of the Affordable Care Act (ACA) when they offer their employees the option of participating.

Prior to the enactment of the ACA, it was not required for employers to provide health care coverage for their employees. However, employers and employees saw health care coverage as one of the best incentives for continued employment and new hires.

With the cost of health care skyrocketing, many employees will choose to stay with their current employer or choose their future employer based on health care coverage for their families.

From 2014 to 2015, the average annual cost of employer-provided health insurance rose by almost $500 per employee. For employees with 50 FT employees, that is a $25,000 increase.

However, according to a 2014 Towers-Watson survey 87 percent of employers will continue to offer health care as a “key part” of current and future employees’ total benefit package.

Full-time employee versus full-time equivalent

An FT employee averages more than 30 hours a week or an average of 130 hours a month and works more than 120 days per year. A part-time (PT) employee averages less than 30 hours a week but works 120 days or more per year. The full-time equivalent (FTE) rule includes FT and PT hours. To come up with the total number of FTE employees, use the calculator provided by Healthcare.gov.

Numbers are based on the previous year but can be predictive too. If you had at least 50 employees who worked an average of 130 hours a month last year, you must provide “minimum essential coverage” (MEC) to 95 percent of FT employees and may provide the same to PT workers. However, if you believe this year you will have fewer you may use the predictive method available from the IRS on the Federal Register, here.

Employer mandate

Employers that do not provide the MEC to at least 95 percent of FT employees are subject to a tax penalty. This is oftentimes referred to as the “Employer Mandate.” The mandate doesn’t apply to employers with 49 or fewer FTE. If the employer does not provide any coverage the penalty is a flat $2,000 per employee (excluding 30 employees). There are other variables pertaining to minimum value and affordability.

What is “Minimum Essential Coverage” (MEC)?

There are two tests for the MEC, minimum value and affordability. Minimum value for employer-provided coverage provides a minimum actuarial value (AV) of 60 percent of the total cost of in-patient care.

An employer can use the previous year’s W-2 wages to determine the “safe-harbor” household income to conclude affordability for their employees.

Individual mandate or individual shared responsibility fee

The tax penalty for not having health insurance coverage could be as much as $695 per adult and $347.50 for each child. The full annual penalty could be $2085.00 for a family of four, or $173.75 per month for not having coverage. Another option is paying 2.5 percent of your income.

There are many exemptions from the Individual Shared Responsibility Fee for not having health care insurance, such as:

  • Federally recognized Native-American (Indian) tribe member.
  • Not a US citizen or resident alien but here legally.
  • You had one coverage gap of fewer than three months during the tax year.
  • Your state did not expand Medicaid benefits, therefore you do not qualify.
  • Claim religious exemption.
  • Incarcerated.
  • Qualified hardship.
  • When the lowest cost plan (bronze) costs more than 8 percent of your income.

When you do not have one of these exemptions, you should explore all of the following to find ways to reduce the health care costs.

Premium tax credits

A premium tax credit designed to assist eligible families and individuals who have a moderate- to low-income health care coverage is available through the Health Insurance Marketplace. This is a tax refund credit that requires the individual to file a tax return.

Cost-sharing subsidies

There are actual two subsidies available, the cost sharing subsidy and the premium subsidy. These subsidies can reduce a family or individuals out-of-pocket cost significantly, as little as 6 percent, depending on their income level as compared to the Federal Poverty Level (FPL) or $11,770.

Cost-sharing subsidies increase the actuarial value (AV) of the Silver plan, dependent on the household income:

  • A household income which is 100 – 150% of the FPL will pay about 6% out-of-pocket.
  • A household income which is 151 – 200% of the FPL will pay about 13% out-of-pocket.
  • A household income which is 201 – 250% of the FPL will pay about 27% out-of-pocket.

Tax credits for small and mid-sized businesses (SMB)

When you have 50 or fewer FTE, you can use the Small Business Health Options Program (SHOP) make options more affordable. The requirements vary from state to state, check Healthcare.gov.

What is an open enrollment period?

An open enrollment period is the only time you can buy health care coverage. The open enrollment period for 2017 is October 15, 2016 – December 7, 2016. If you have one of the following “life events,” you can buy health care insurance during a Special Enrollment Period:

  • Change in family size.
  • Loss of employment-based health insurance.
  • Premium tax credit eligibility change.
  • Citizenship status change.

You are normally eligible to purchase new health coverage for 60 days after the event. There are most likely other circumstances than these, check with the local Health and Human Services (HHS) office near you for expert advice.