Access to medical care is critical for individuals and families. In the United States, employer-sponsored healthcare is a common way for people to obtain coverage. According to Statista1, more than 54% of the U.S. population had employment-based health insurance coverage in 2022.
Health coverage is also one of the most important benefits employers can offer their workers. Our 2022 Employee Benefits Survey Report found that 87% of employees value health benefits, such as health insurance.
However, not all employers provide healthcare benefits, and the reasons behind this vary.
In this article, we'll dive into the details of health insurance requirements for employers.
Mandated health insurance laws for employers
You may have heard of the Affordable Care Act's (ACA) employer mandate, the “play or pay” requirement, or the employer shared responsibility provisions (ESRP). These terms refer to the same legal requirement that dictates whether an organization must offer affordable health benefits with minimum essential coverage (MEC) to at least 95% of its full-time employees.
According to the ACA, only applicable large employers (ALEs)—or employers with at least 50 full-time equivalent employees (FTEs)—are subject to the employer mandate. ALEs must provide health coverage to eligible employees and their dependents. But if you have less than 50 FTEs, you're not legally required to offer health insurance benefits to your employees.
However, offering health benefits is important for organizations of all sizes. Health benefits can boost employee satisfaction, contributing to a higher retention rate.
Health plans that satisfy the employer mandate
There are a variety of health plan options that offer MEC, including group health insurance policies like high deductible health plans (HDHPs), preferred provider organization (PPO) plans, health maintenance organization (HMO) plans, and more. You can work with an insurance agent or broker to find the right health insurance company for your organization.
While group health insurance is the traditional option for employers, it may be unaffordable or too time-consuming to manage.
According to KFF2, the average annual cost of employer-sponsored health insurance premiums per employee was $22,463 for family coverage and $7,911 for single coverage in 2022. Additionally, KFF found the average employer contribution towards group health insurance premium costs was 73% for family coverage and 83% for single coverage. This resulted in an annual cost of $16,357 for family coverage and $6,584 for single coverage per employee.
If you want to avoid the penalties for not offering health insurance benefits but aren't sure you can afford to offer a traditional group health insurance plan, a health reimbursement arrangement (HRA) can help. An HRA is a formal, IRS-approved health coverage solution. With this option, employees purchase their own policy through a health insurance marketplace instead of relying on employer-provided health insurance.
With an HRA, you choose a monthly allowance of tax-free money for your employees to spend on their individual health insurance premiums and more than 200 qualifying medical expenses. Your employees submit proof of their qualifying expenses, and you reimburse them up to their available allowance amount. Any unused funds stay with you at the end of the year. This makes it easier to control healthcare costs since you don't have to worry about annual rate hikes.
For an ALE who needs to satisfy the employer mandate, the individual coverage HRA (ICHRA) is a great solution. The ICHRA works for employers of all sizes. You can offer it as a stand-alone benefit to all your employees or as a separate benefit for your employees who don’t qualify for your group health insurance coverage (such as remote employees in states beyond your main office or part-time employees). With the ICHRA, there are no minimum or maximum employer contribution limits, so you can offer your employees as little or as much as you choose.
Other health benefits to consider
While it's not an ACA-compliant health benefit, a taxable health stipend can cover your employees’ healthcare costs. Small businesses that can't afford traditional group health insurance may find that a health stipend is a way to help employees pay for their own individual health plans and medical care.
A health stipend can cover expenses related to:
- Monthly healthcare premiums
- Doctor's appointments
- Over-the-counter (OTC) medicines
- Emergency care
However, you can’t require employees to submit receipts or invoices to prove they're spending this stipend as intended. You also can’t ask them for proof of health insurance coverage.
Organizations with fewer than 50 FTEs can also use the tax-free qualified small employer HRA (QSEHRA). With this health benefit, your employees must submit proof of their qualifying expenses listed in IRS Publication 502.
The penalty for not offering health insurance to employees
While the ACA requires all ALEs to offer affordable coverage to employees, only ALEs with at least 30 full-time employees (not full-time equivalent) will actually be subject to penalties for noncompliance.
Penalty for not offering MEC to 95% of full-time employees
$2,970 per full-time employee
Penalty for offering MEC that is unaffordable or doesn't provide MV
$4,460 per full-time employee
Note: This figure represents the 2024 penalty3.
An organization only triggers this penalty if one or more of its 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, equaling 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.
Not every organization has to provide employer-sponsored health coverage. If you're an ALE, you must provide health insurance to employees. While offering health benefits may seem costly at first, the cost of not offering coverage for employees can come out to be even more, both in penalties and the high cost of employee turnover.
Even though small businesses don't have to satisfy the ACA's employer mandate, offering healthcare coverage as part of a comprehensive benefits package can help boost employee retention and recruitment.
Luckily, offering health benefits that are affordable for both you and your employees is actually easier than it seems, especially if you have health benefits administration software and an award-winning customer support team like PeopleKeep on your side.
This blog article was originally published on November 10, 2021. It was last updated on October 10, 2023.