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When Are Companies Legally Required to Provide Employee Health Insurance?

T.L. Bodine
Employee health coverage application

The Affordable Care Act mandates that all companies of a certain size must offer health care of a sufficient quality standard to their employees. Failure to do so will result in tax penalties. Business owners need to familiarize themselves with ACA requirements in order to understand what's expected of them and how to avoid penalties.

Does Your Business Need to Offer Health Insurance?

There is a lot of confusion surrounding exactly what the Affordable Care Act means for small businesses. While the law does require some employers to offer health benefits to their workers, this mandate does not apply to every company.

  • Small businesses with fewer than 50 full-time employees are not required to provide health insurance to their employees.
  • The 50-employee cap applies to businesses that operate under a shared owner. This means that if you are part of a business with multiple locations, the total number of employees for all locations is taken into account.
  • The mandate only applies to full-time employees. For purposes of the law, full-time is defined as working more than 30 hours per week or 130 hours per month.

If you're not sure whether your business meets these requirements, you can check the IRS website FAQ for a more in-depth explanation.

ACA Compliant Health Insurance Requirements

Businesses who wish to avoid tax penalties must offer health insurance that meets standards of quality and cost laid out by the Affordable Care Act. The group plans must offer essential benefits and coverages for maternity care, pediatric care, mental wellness and more. Additionally, the policy must be affordable, with premiums not exceeding 9.5% of the employee's income.

Buying Insurance as a Small Business

As a small business owner, you might be interested in offering insurance benefits even if you are not legally required to do so. You can purchase affordable group plans through The Small Business Health Options Program (SHOP) Marketplace.

The government offers subsidies to small businesses to make these plans more affordable. SHOP is only available to small businesses with fewer than 50 employees. Larger businesses would purchase group health plans directly from insurers or self-insure their employees.

Employer Shared Responsibility Provisions

If you meet the criteria above for needing to offer benefits and do not offer health insurance to your employees, you will be subject to a fine. This fee is called Employer Shared Responsibility Provisions, and it's equal to $2,000 per uninsured full-time employee. This fee is gathered annually as part of the company's taxes.

The Employer Shared Responsibility Provision fee does not take effect until 2015, when businesses with 50 - 100 employees will begin being taxed. Employers with more than 100 full-time employees will not be assessed a fee until 2016 as long as at least 70% of their workers are insured by that time. Further details are available on the IRS website.

Keeping Your Business in Compliance

In general, only businesses with 50 or more employees need to worry about offering insurance benefits to their employees. Small family businesses are generally exempt, and exemptions can be made for businesses that employ only part-time employees. If you're still unsure whether your business might qualify for an exemption or whether you'll owe a fee at the end of the year, check with the IRS for guidance.

When Are Companies Legally Required to Provide Employee Health Insurance?