Are You Required to Provide Health Insurance Under the ACA?

As most employers know, many of the Affordable Care Act (ACA) provisions have already started to go into effect. Others, like penalties for employers, have been delayed. But in general, do you know whether you’re required to provide health insurance to employees? The answer may surprise you.

At the crux of the issue is this question: Are large employers required to provide health insurance? Actually, the answer is “no.” Rather than a mandate to provide coverage, the ACA actually gives these employers a choice of ways to remain in compliance. (And employers with fewer than 50 full-time-equivalent employees are not affected by this particular provision of the ACA.)

In essence, it is a choice to either provide affordable health insurance coverage that meets the ACA requirements OR pay a penalty. The portion of the ACA we’re discussing is called the Employer Shared Responsibility provision. It’s not as simple as a mandate to provide coverage; it’s a choice whether to provide affordable coverage that meets minimum requirements or to pay a penalty for not doing so.

Let’s take a look at this choice in more depth. The choice:

1. Provide affordable coverage that meets minimum standards under the ACA for full-time employees (assuming you’re an applicable large employer). The employer does not have to bear all costs associated with this coverage, but the employee portion (the premium payment) must not exceed 9.5 percent of income for it to be considered affordable. The minimum standards also state that the insurance must cover at least 60 percent of covered health      expenses.
2. Pay the penalty for not providing affordable minimum coverage. The penalty applies for an applicable large employer that does not provide an      insurance option, but only if one or more of the full-time employees goes on the exchange and gets a subsidy or premium tax credit. If this does not occur, the penalty does not apply; however, the employees have a strong incentive to go on the exchange because there are individual penalties for not having coverage as well. The employer penalty is $2,000 per employee who should have been offered coverage (minus a baseline of 30 employees), regardless of how many got insurance on the exchange. This penalty will increase in coming years.
3. Provide alternative coverage that does not meet the minimum requirements or is not affordable. In this case, a different penalty will apply if one or more of the full-time employees goes on the exchange and receives a subsidy or premium tax credit. This penalty is $3,000 per affected employee, but only applies for each employee who went on the exchange to get alternative coverage and got a subsidy or premium tax credit. This penalty will also increase in coming years.

Since these penalties begin to go into effect in 2015, many employers today are weighing this choice. But it’s not as simple as deciding whether the penalty costs more than the insurance benefit. There are other factors that come into play.

First, healthy employees are more productive employees. Preventive care now means fewer sick days later. And when employees do get sick, they can see a healthcare provider to get well faster in many cases. So it can be a prudent business decision to provide healthcare coverage as a benefit because it also helps the organization in the long run. Fewer illnesses mean reduced absenteeism. Fewer sicknesses can mean more productive employees over time.

It can also be a competitive advantage in terms of recruiting and retaining employees. Much like vacation time—which is not legally mandated but is still provided by most employers—health insurance is a benefit that most employees look for in an employer.

In the coming months and years, employers will be looking at this question in even more depth. Many had made up their minds before the ACA was even a question, but others will have to tackle the issue head-on as the ACA provisions all go into effect.
 

About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.