What are the employer requirements?
The Affordable Care Act (ACA) does not require employers to offer insurance coverage to their employees, but it imposes a penalty on businesses that fail to insure their employees in certain circumstances. Small employers with fewer than 50 employees are exempt from any penalties. Beginning January 1, 2014, large employers can be assessed a free rider penalty if their workers receive premium subsidies through the Exchanges.
In addition, an employer with more than 200 employees who offers at least one health plan must automatically enroll employees into one of the plans offered, though employees may opt out. This approach to enrolling in employer-sponsored coverage is expected to increase employee participation.
What is the small business tax credit?
Certain small businesses with low-wage workers are eligible to receive a tax credit toward their cost of health insurance. Credits are available to small businesses with no more than 25 employees who have average annual wages of $50,000 or less, and who contribute at least 50 percent of the premium for a plan in an Exchange.
In 2010 through 2013, the tax credit will cover up to 35 percent of an eligible, for-profit small employer's contribution to health insurance, and 25 percent of a nonprofit employer's premium contribution. Beginning in 2014, for-profit employers can receive a maximum tax credit of 50 percent of the employer's contribution to premiums, and 35 percent of premium contributions for nonprofits employers. Employers with 10 or fewer full time employees with an average annual taxable wage of $25,000 are eligible for the full tax credit. Beginning in 2014, the employee average annual wage limit of $50,000 will be indexed by the cost of living.
Why do only small, low-wage businesses qualify for tax credits to help insure their employees?
In 2008, a survey of large and small employers found that, on average, low-income employees working for small employers are the least likely to receive health benefits from their employer. Only about half (49 percent) of those with 3-9 employees offer health insurance, a stark contrast to the 95 percent of large employers with more than 50 employees. The small business tax credit is targeted at small employers with low-income workers to encourage more of those firms to offer their employees insurance.
What happens if employers don't meet the requirements in insuring their employees?
There are two situations where large employers may face a penalty for workers who get subsidized coverage in an Exchange:
- Large employers that do not offer coverage and have at least one full-time employee receiving subsidized coverage are assessed an annual fee of $2,000 per full-time employee, but the first 30 employees are excluded in calculating the assessment.
- Large employers who offer coverage that is either unaffordable or inadequate and who have at least one full-time employee receiving subsidized coverage in the Exchange must pay an annual fee of $3,000 for each full-time employee receiving a premium credit, with a maximum penalty equal to $2,000 for each full-time employee, excluding the first 30 employees from the assessment. (Coverage is considered unaffordable if the employee must contribute more than 9.5 percent of their household income for their premium. Coverage is considered inadequate if the plan's does not coverage at least 60 percent of a person's medical costs on average - referred to as actuarial values.)
Are employers required to share information with their employees?
The ACA places three requirements on employers to disclose information to employees either at the time of hire or by March 1, 2013 for current employees:
- Employers must provide written notice informing employees about the state's Exchange, including a description of how the employee may contact the Exchange for assistance.
- The employer must notify employees if the plan offered by the employer is inadequate, meaning it does not meet the actuarial value of 60 percent. The employer must let employees know that they may be eligible for a premium tax credit and a cost-sharing reduction if they purchase a health plan through the Exchange.
- Employers must notify employees that if they purchase a health plan through the Exchange, the employee may lose the employer's contribution to health benefits offered by the employer.