Small business owners and managers may be asking you whether they are required offer Health Insurance to their employees – especially in light of the new 2020 employer mandate in California.
Here are answers to five frequently asked questions from employers:
1. Is my business required to offer Health Insurance to employees?
That depends on the size of the employer’s workforce. Currently, the “employer mandate” of the Affordable Care Act (ACA) is still in place, which requires all “Applicable Large Employers” (ALEs) to offer affordable health coverage to their Full Time (FT) employees and their dependents. Under the mandate, the health coverage must be considered at least “Minimum Essential Coverage” (MEC); it must also provide a “Minimum Value,” which is a Bronze tier or better health plan.
To determine whether the employer is an ALE, your client must calculate its employee count on January 1st annually, by averaging the workforce count for all 12 months of the preceding tax year. The employer’s result will remain in place for the entire proceeding tax year, regardless of fluctuations in workforce throughout the year.
If your client averaged 50 or more FT and “Full Time Equivalent” (FTE) employees, then the company is considered an ALE that must comply with the mandate.
If your client averaged less than 50 FT and FTE, then it is not an ALE and is not required to offer coverage. Of course, many smaller employers still elect to extend such benefits to their employees in an effort to both attract and retain top-quality talent, and remain a competitive employer.
Word & Brown offers group size and FTE calculators on our website. (If you don’t have login credentials, contact a Word & Brown sales representative.) California brokers can access them here; Nevada brokers can find them here.
2. What is the maximum Waiting Period?
If your employer client (of any size) offers health insurance to employees, it may not apply any waiting period that exceeds 90 days. All eligible employees’ coverage must begin no later than 91 days after employment begins, unless an employee is a variable-hour employee in an ACA-compliant lookback measurement period, which is used to determine eligibility for the health plan.
Because of the 90 day waiting period maximum, employers can choose either a “first of the month following 60-days of employment” or “first of the month following 30-days of employment” waiting period, so that coverage can be in place by the 91st day in accordance with ACA law. For example, if an employee starts on May 15 and the employer has a “first of the month following 30 days of employment” waiting period, his coverage would go in effect on July 1. More information on California carrier waiting period options is available here. IRS guidance on the 90-day waiting period limitation is available here.
3. Is there a minimum required employer contribution for Health Insurance?
Yes. In many states (including California and Nevada), carriers have contribution rules that require employers to contribute a certain percentage of premium costs for all employees to obtain health coverage. Contribution ratios requirements vary by carrier and market segment.
Note: All carriers must allow Small Group employers to enroll for coverage during the ACA’s annual Special Open Enrollment Window during 11/15 – 12/15, for coverage effective 1/1, without having to meet standard employer contribution and/or employee participation requirements. Click here to read our related Newsroom article.
Furthermore, if the employer is an ALE, it must offer affordable ACA-compliant health insurance coverage to its FT employees and their dependents. For the coverage to be considered affordable for plan years beginning in 2020, the lowest-cost ACA-compliant plan offered to the employee, at the employee-only rate, must not exceed 9.78% of:
- The employee’s W-2 Box 1 Income for the corresponding tax year,
- The employee’s Rate of Pay (lowest rate of pay, if it fluctuates throughout the year), or,
- The Federal Poverty Line
The employer must make the same contribution for all similarly situated employees, which means employer contribution ratios cannot fluctuate based on an employee’s age or premium, because of an employee’s age. These ACA affordability requirements are in addition to carrier contribution requirements, though meeting one requirement usually meets the other requirement.
You can access Word & Brown’s calculators for California and Nevada, which can be useful in helping employers determine affordability. Contact your Word & Brown representative for more information on carrier contribution and underwriting requirements.
4. What are my ACA reporting requirements?
The ACA requires ALEs to report to the IRS annually on health insurance coverage offered – or not offered – to eligible employees and dependents.
If an employer determines it is an ALE on 1/1/2020, it must offer ACA-compliant coverage to all eligible FT employees and their dependents for all of 2020. Then, in the first quarter of 2021, it must report on the coverage it offered (or did not offer) to any person employed FT for one or more full calendar months of 2020.
The ACA further requires reporting by all employers of any size that sponsor self-insured coverage or a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement).
Word & Brown annually hosts a series of webinars for brokers and employers on ACA reporting to the IRS. Click here to visit our website for more details on the Don’t Fear the Forms! webinars scheduled in December 2019 and January 2020.
5. What about the California 2020 Individual Mandate?
The new 2020 California state individual mandate requires all California residents to maintain Minimum Essential Coverage (MEC) insurance coverage for themselves and their dependents beginning January 1, 2020. It does not impose a new state employer mandate, nor does it change the federal employer mandate.
Some carriers are allowing a special enrollment period ahead of the new mandate, which gives eligible employees who previously waived coverage the opportunity to enroll for coverage effective January 1, 2020, outside the employer’s usual open enrollment. Details are available here.
Read our article, California’s Individual Mandate 2020: What You Need to Know, for more information.
Help When You Need It
Clients depend on you to provide them with answers to their questions on Health Insurance and other employee benefits.
You can count on the Word & Brown team to be here to help deliver the right answers. We have been helping brokers for more than 30 years, and we are committed to providing you with valuable tools and resources to make your job easier – backed by our legendary Service of Unequalled Excellence.
If you need any assistance, call or email your Word & Brown representative, or contact any of our six regional offices in California and Nevada.