Healthcare reform mandates applicable large employers to either offer health insurance coverage or pay a tax penalty. A common question we receive from small business owners is, “Will I be fined if an employee declines our company provided health insurance?”
The answer is no. Employers will generally not pay a fee if an employee declines company health insurance coverage. In this article, we’ll delve into why and provide tips for understanding small business health insurance options in 2016.
Background on the Health Insurance Requirement
Under the Affordable Care Act (aka Obamacare or healthcare reform), applicable large employers are mandated to offer full-time employees qualified and affordable health insurance coverage. If they do not, employers may pay a tax penalty called the Employer Shared Responsibility Payment.
It sounds complicated (and yes, some of the calculations for understanding FTE and the fee are quite complicated), but the concept is fairly simple.
There is no requirement for small employers. Small employers with fewer than 50 full-time-equivalent (FTE) employees are not mandated to offer or report health insurance coverage. In other words, there are no penalties for small employers.
Large employers (with 50+ FTE) will only pay a fee if 1) they do not offer qualified, affordable coverage, and 2) if an employee purchases subsidized Marketplace coverage.
For large employers, the penalty is based on what the employer offers - not on what an employee accepts or declines.
So, back to our original question...
“Will I be fined if an employee declines our company provided health insurance?”
No. To summarize, the Employer Shared Responsibility Fees only apply to companies who:
- Are large employers (50+ FTE), and
- Do not offer qualified, affordable health insurance, and
- Have employees who purchase subsidized Marketplace coverage.
“Can employees who decline coverage access premium tax credits?”
In most cases, the answer is no. If employees have access to qualified, affordable coverage through an employer (or a spouse’s employer), they are disqualified from receiving premium tax credits for Marketplace coverage - even if an employee declines company coverage.
Employers of all sizes will not be fined if an employee declines the company provided health insurance coverage. It is becoming more and more common, however, for small business employees to decline the company provided insurance in favor of a more affordable Marketplace plan. As such, it is also becoming more and more common for small businesses to cancel their group health insurance policies and provide a formal reimbursement toward employees’ individual health insurance policies.
Do you have additional questions about the health insurance requirements and penalties? Leave a comment or question below and we’ll help answer!