As a business owner, offering health benefits for the first time is an important milestone that will inevitably help you recruit and retain top talent. After all, health benefits consistently rank as the top most requested benefit by employees in the U.S.
While health benefits are important for organizations of all sizes, the Affordable Care Act (ACA) only legally requires a select few to offer it—or suffer potential consequences if they choose not to. So how do you know if the ACA regulation applies to your organization, and what happens if you don’t follow it?
In this article, we’ll cover:
- Mandated health insurance laws for employers
- The penalty for not offering health insurance
- What health plans satisfy the employer mandate
Want the quick version? Get our flowchart to see if your organization is required to offer health insurance
Mandated health insurance laws for employers
You may have heard of the ACA’s “employer mandate,” the “play or pay” requirement, or the “employer shared responsibility provisions.” All of these terms refer to the same legal requirement that dictates whether an organization is obligated to offer affordable minimum essential coverage (MEC) to at least 95% of its full-time equivalent employees.
According to the ACA, only applicable large employers (ALEs)—or employers with at least 50 full-time employees—are subject to the employer mandate. So if you have less than 50 employees, you’re not legally required to offer health benefits to your employees.
However, offering health benefits is important for organizations of all sizes. Find out how much not offering health benefits can cost you.
The penalty for not offering health insurance
While all ALEs are legally required to offer affordable MEC, only employers with at least 30 full-time employees (not full-time equivalent) will actually be subject to penalties for noncompliance.
There are two types of penalties an employer may have to pay—one for not offering MEC to 95% of FTEs, and one for offering MEC that is unaffordable or doesn’t provide minimum value (MV):
Penalty for not offering MEC to 95% of FTEs
$2,700 per employee*
Penalty for offering MEC that is unaffordable or doesn’t provide MV
$4,060 per employee*
*Note: This figure represents the 2021 penalty and is updated annually.
The penalty is triggered if one or more full-time employees enroll in coverage through a health insurance exchange and also qualify for a premium tax credit.
To determine the amount of the penalty, employers only have to include their full-time employees in excess of 30. For example, an organization employing 50 employees subtracts 30 from their total, equalling 20 employees, to calculate the penalty.
To get the monthly per employee penalty, employers can divide the annual penalty by 12. To get the total monthly penalty, employers should multiply the number of full-time employees employed during a given month minus 30 by the monthly per-employee penalty.
What health plans satisfy the employer mandate?
There are a variety of health plan options that offer MEC, including high deductible health plans (HDHPs), preferred provider organization (PPO) plans, health maintenance organization (HMO) plans, and more.
If you want to avoid the penalties for not offering health insurance, but aren’t sure you can afford to offer a traditional group health insurance plan, a health reimbursement arrangement (HRA) is a formal, IRS-approved health coverage solution.
With an HRA, you choose a monthly allowance of tax-free money for your employees to spend on their individual health insurance premiums and qualifying medical expenses. They’ll be reimbursed up to their monthly allowance amount, and any unused funds stay with you at the end of the year.
The best part? Offering an affordable HRA allowance satisfies the employer mandate for ALEs.
Take our quiz to see which HRA will work best for your organization
While offering health benefits may seem costly at first, the cost of not offering health benefits can come out to be even more, both in penalties and the high cost of employee turnover.
Luckily, offering health benefits that are affordable for both you and your employees is actually easier than it seems, especially if you have a health benefits administration software and award-winning customer support team like PeopleKeep’s on your side.
Schedule a call with a personalized benefits advisor to see how we can help you get started