Requirement for Companies to Cover Workers
Starting in 2015, large companies must provide health insurance for their full-time workers under the Affordable Care Act.
As a business owner with 50 or more workers, you must offer reasonably priced coverage to each of your full-time equivalent employees (FTEs) or pay a penalty tax.
Health plans must have minimum value, or cover at least 60 percent of total costs to meet the requirement.
FTEs are defined as workers who put in an average of 30 hours per week over the course of a month, as opposed to the traditional definition of full-time, which consists of a 40-hour work week. “Affordable” coverage is defined by the law as costing less than 9.5 percent of W-2 wages, monthly wages (hourly rate x 130 hours per month), or federal poverty level for one person. Minimum value means the group insurance plan covers at least 60 percent of covered costs after deductible. You can estimate the amount of your potential penalty and find out if you’re required to offer coverage with the employer mandate calculator.
About the Employer Penalty
Like the individual mandate, employers who could but don’t provide their workers the option of coverage must pay a penalty when filing taxes each year.
The penalty amounts will change in later years, but the chart below offers a summary of the requirements for the first year that the mandate is in place. If any employee purchases coverage on the health insurance exchange and qualifies for financial assistance through subsidies, the employer must pay a penalty if they are not offered “affordable” coverage or any coverage at all.
How to Avoid the Penalty
As an employer, you can prevent losing several thousand dollars per year by investing in a basic health plan for your workers, which covers at least 60 percent of covered medical expenses, including deductibles, coinsurance and copays). You’ll have to contribute enough for premiums so that workers don’t pay more than 9.5 percent of their income on coverage.
While employers have the option of covering employee’s dependent children, the guidelines for what kind of coverage, if any, should be offered to dependents have not been established. Some say that there is no requirement to offer coverage to dependents, which the law defines as children up to age 26 in this case, while others say employers must cover dependent children.
To find out if your plan provides minimum value, you can use the minimum value calculator developed by the Department of Health and Human Services.
You can estimate whether your coverage is affordable, according to the law, by three different measures:
- 9.5% of a worker’s W-2 wages
- 9.5% of a worker’s monthly wages (hourly rate x 130 hours per month)
- 9.5% of the current federal poverty line for an individual
Employers will be notified if they are required to pay the penalty in advance — it won’t just come as a last-minute tax time surprise. If a full-time worker enrolls in subsidized coverage through the marketplace, their employer will be sent a notice and be able to respond before the IRS asks them to pay.
Full-Time or Part-Time?
Employees working at least 30 hours per week on average throughout the month are considered full-time according to this law. Business owners must determine if they have 50 of more full-time or “full-time equivalent” employees during the 2014 calendar year. Only workers based in the U.S. can be considered, and if a company hires more than 50 seasonal workers for up to 120 days, their work force is not considered full-time.
Average 30 hours of work each week or 130 hours per month, including vacation and leaves of absence.
Hours are used to determine whether the employer mandate applies. The total hours worked in a month by all part-time employees are divided by 120 to find the number of FTEs in that month.
- A company had 35 full-time workers, and 20 part-time workers who worked 24 hours per week (96 hours per month)
- 20 part-time workers x 96 hours per month per employee = 1,920 hours
- 1,920 divided by 120 = 16 FTEs
- 35 full-time employees + 16 FTEs = 51 full-time or full-time equivalent employees
Determining full-time status can get complicated, and employers should carefully review the hours of their workers with a legal consultant in order the get the best idea of what the law requires of them.
90-Day Waiting Period
Another provision of the Affordable Care Act, but separate from the employer mandate, the 90-day waiting period is required for all reformed health plans, with effective dates in January 2014 or later. A majority of group plans already meet this requirement.
This rule puts a cap on the waiting period that group plans can impose for employees enrolling in coverage. Before the waiting period provision, employer plans could make workers wait up to 6 months in certain cases until their plan became effective.
The waiting period starts when the employee has met all of the plan eligibility criteria, such as being in a qualifying job classification or working the required number of hours per week. If a company has a 90-day waiting period, the plan must become effective the 91st day. Employers cannot make coverage effective on the first day of the month after the 90-day waiting period.
Part-time workers become eligible for coverage after they have worked a total of 1,200 hours. After a part-time worker has completed 1,200 hours of services, their coverage must start no later than the 91st day following that amount of time.