Affordable Care Act Employer Requirements For Health Insurance

Does a company have to offer health insurance?

There’s a lot of confusion around this question and trying to find answers by sifting through thousands of pages of the Affordable Care Act (ACA) can be a bit overwhelming for many business owners. Here we’ll not only look at what is required, but what makes the most sense for your company and how to avoid getting into trouble with the IRS. 

The ACA requires companies with 50 or more “Full-Time Equivalent” (FTE) employees to offer group health insurance. What is important to note here is the difference between full time employees and Full-Time Equivalent employees. The ACA defines full time employment as 30 or more hours per week per employee (or 130 hours per month per employee).  Full-Time Equivalent, on the other hand, is about hours worked rather than the number of employees.

To calculate FTE, take the employee’s scheduled hours and divide that by the employer’s hours for a full time workweek. For example, if an employer has a 30-hour workweek, employees who are scheduled to work 30 hours per week are 1.0 FTEs. Employees scheduled to work 15 hours per week are 0.5 FTEs. So, if you have 2 part time employees each working 15 hours per week, then this would be counted as 1 Full-Time Equivalent employee.

Some employers try to get around having to provide health coverage by simply reducing hours worked by their full-time employees. However, this approach can backfire because a company could end up having a lot of part-time employees and still trigger health insurance requirements.

Companies with 49 or fewer Full-Time Equivalent employees may be exempt by law from having to offer health coverage, but not offering health insurance may not be the best decision for a business. The vast majority of companies that offer health insurance do so not because they are required, but because they understand the advantages while at the same time using strategies and techniques to keep the costs down.

Key reasons most companies offer group coverage

1.   Health insurance premiums are 100% tax deductible. Contributions you make to your employees’ premiums are considered a business expense and therefore are a write off. (Note: to be eligible for this deduction, you have to pay at least 50% of your employees’ premiums, though you aren’t required to make any payments toward dependent premiums). Employer contributions can also be a tax benefit to employees. Here’s how it works: by setting up your company's group health plan as a Section 125 Cafeteria plan, the dollars you commit toward employees’, their spouses’ and dependents’ premiums are an obvious financial plus for them and are not considered ‘wages’ by the government. Therefore these benefits are not taxed the same way. The employee is getting more for their money rather than if you had given them a raise instead.

2.  Health insurance premiums are tax exempt. This means they aren't subject to federal or state income tax withholding, social security, federal unemployment (FUTA) tax, Medicare or Railroad Retirement (RRTA) taxes. They are also not reported on Form W-2.

3.  It will help attract talent, retain employees and build trust between you and your workforce. Offering group health insurance goes a long way to combat turn over which will save on the cost to hire and train new employees. Employees that feel taken care of are more loyal and tend to stay with a company longer.

4.  Many group health plans have wide medical networks which provide easy access to care. Easy access to care means employees are more productive because they are more likely to seek care sooner if they’re sick or injured, which in turn reduces missed work days.

5.  Business owners and their families can also participate in the plan. Group health plans typically offer better coverage compared to the individual market and tend to be less expensive over all.