In the midst of deadlines being pushed back for the employer shared responsibility (or employer mandate), many business owners are confused whether or not they will pay a fee for not offering health insurance in 2015.
This article is a compilation of questions and answers business owners may have regarding the employer shared responsibility fee, who it applies to, and how transition relief is applicable to certain business owners.
Q: What is the employer shared responsibility?
A: The employer shared responsibility provision, also called ESR or the employer mandate, is the requirement for applicable large employers to either offer health insurance to employees, or pay a fee if an employee buys subsidized health insurance through the Marketplace.
Q: How do I know if I will have to pay a fee for not offering health insurance in 2015?
A: If a business has more than 100 full-time equivalent employees (FTE), and average annual wages above $25,000, they are required to insure at least 70% of their full-time workers by 2015 and 95% by 2016.
Small businesses with 50-99 FTE will need to insure full-time workers by 2016. It’s important to note that the mandate does not apply to employers with 49 employees or less FTE.
Q: What if I do not provide health insurance to my employees?
A: If the employer chooses not to provide minimum essential coverage to employees, or the coverage currently being offered is not affordable, the employer must pay the employer shared responsibility fee for each employee, every month. The IRS will provide employers with a notice for the payment.
Below are the definitions of what affordable coverage is and how the employer shared responsibility fee is calculated:
Affordable Coverage: For 2015, an employer’s coverage is considered unaffordable for any full-time employees who, in a given month, enroll in a health plan offered through their state exchange and are eligible to receive federal assistance. An employee is only eligible for federal assistance through the exchange if their required contributions for their employer's plan is greater than 9.56% (again, this percentage was revised from 9.5% in 2014).
Employer Shared Responsibility Fee: The Employer Shared Responsibility Fee is equal to the number of full-time employees the employer employed for the month (minus 80) multiplied by 1/12 of $2,000, provided that at least one full-time employee receives a premium tax credit/subsidy for that month.
Q: What is transition relief?
A: Transition relief means no employer shared responsibility payment under section 4890H (a) or (b) will apply during 2015 to employers who meet all three of the following:
1. Limited Workforce Size
The employer has between 50 and 99 full-time equivalent employees on business days during 2014. The number of FTE employees is determined in accordance with the otherwise applicable rules in the final regulations for determining status as an applicable large employer.
2. Maintenance of Workforce and Aggregate Hours of Service
During the period of February 9, 2014 to December 31, 2014, the employer may not reduce the size of its workforce or the overall hours of service for their employees in order to qualify for transition relief.
An employer that reduces workforce size or overall hours of service for bona fide business reasons is still eligible for transition relief.
3. Maintenance of Previously Offered Health Coverage
Employers may not eliminate or materially reduce health coverage offered as of February 9, 2014 during the period of February 9, 2014 to December 31, 2015.
For employers with non-calendar year plans, this ends on the last day of the 2015 plan year.
An employer will not be treated as eliminating or materially reducing health coverage if the employer continues to offer each eligible employee an employer contribution toward the cost of employee-only coverage. The coverage must be either:
95 percent of the dollar amount of the contribution toward such coverage that the employee was offering on February 9, 2014
At least the same percentage of the cost of coverage that the employer was offering to contribute toward coverage on February 9, 2014
In addition, the employer will not be treated as eliminating or materially reducing coverage in the event of a change in benefits under the employee-only coverage offered IF:
The new coverage provides minimum value after the change
The change in benefits does not alter the terms of its group health plans to narrow or reduce the class or classes of employees (or dependents of employees) to whom coverage was offered on February 9, 2014
Who will pay a fee for not offering health insurance in 2015? For now, businesses with more than 100 full-time equivalent employees and average annual wages above $25,000 - if minimum essential coverage or affordable coverage are not offered.
However, it’s important to understand that businesses with 50-99 employees are subjected to the fee in 2016, and employers with less than 50 employees are not subjected to the fee.
Do you know if you’re going to have to pay a fee in 2015 for not offering health insurance? If so, what questions do you have for us to help you avoid the fee? Comment below and let us know.