What Small Businesses Need to Know About the Employer Mandate
Under the Affordable Care Act (ACA), businesses with 50 or more full-time equivalent (FTE) employees that do not offer health coverage, or that offer health coverage that does not meet certain minimum standards, may be subject to a financial penalty, referred to as the Employer Shared Responsibility payment. The Employer Shared Responsibility provisions, often referred to as the “employer mandate,” have been in effect since 2015 for businesses with 100 or more FTE employees. But, starting in 2016, the employer mandate will become effective for businesses with 50 or more FTE employees. The purpose of this summary is to provide a brief overview of the employer mandate provisions, and to inform your business about how you may be impacted by changes to the provisions made in 2016.
Overview of the Employer Mandate
Starting in 2016, the employer mandate will be enforced for businesses with 50 or more FTE employees. A business may have to pay a per-employee, per-month fee called the Employer Shared Responsibility Payment if the business:
- Does not offer coverage (to at least 95 percent of FTE employees) that complies with specified reforms under the Affordable Care Act.
- Does not offer coverage that meets minimum value. (The plan’s share of the total average cost of covered services is at least 60 percent).
- Does not offer coverage that is affordable. (The employee’s premium is more than 9.66 percent of that employee’s annual household income).
If a business does not offer coverage, the Employer Shared Responsibility Payment penalty is triggered when an employee who is not offered coverage purchases health insurance on an exchange and receives a federal subsidy to help pay for that coverage. The penalty is assessed monthly and is equal to the number of FTE employees (minus the first 30) multiplied by one-twelfth of $2,000.
If a business offers coverage, but that coverage does not meet minimum-value and affordability requirements, the penalty is triggered when an employee rejects offered coverage and purchases health insurance on an exchange and receives a federal subsidy to help pay for that coverage. The payment is assessed monthly and is the lesser of: one-twelfth of $3,000 per FTE employee receiving federal subsidies through the exchange, or one-twelfth of $2,000 per full-time employee (minus the first 30).
New IRS Tools to Estimate Full-time Equivalent Employees and ‘Shared Responsibility’ Payments
In January 2016, the marketplace for Covered California for Small Business expanded to include employers with 100 or fewer Full-time Equivalent (FTE) employees. Additionally, the Affordable Care Act required Applicable Large Employers, or employers with 50 or more FTE employees, to offer affordable health coverage that met a minimum standard or pay a “shared responsibility” penalty. Understanding whether you are required to offer health coverage is important for you to know as a business owner and can be confusing.
You might ask —
- What’s an FTE employee and how do I calculate how many I have?
- How do I determine whether the law requires me to offer health coverage?
- What is my “shared responsibility” payment if I do not offer coverage?
- How do I know if my company is eligible for Covered California for Small Business?
Covered California for Small Business is here to help. Recently, the IRS released multiple tools to assist employers in determining FTE employee counts, how to determine if you are an Applicable Large Employer, and what your shared responsibility would be for not offering ACA-compliant health benefits. Check out the following resources for more information:
View the IRS video Employer Shared Responsibility Payments to find out if you are subject to the employer shared responsibility provision of the health care law.
View the IRS video Are You an Applicable Large Employer to see what you need to know if you are an applicable large employer under the health care law.
To learn more about offering ACA-compliant health benefits through Covered California for Small Business, visit CoveredCA.com/ForSmallBusiness or call us at (844) 332-8384.
IRS Reporting Forms
Starting in 2016, employers with 50 or more employees have new reporting requirements as part of the employer mandate. That new reporting requirement is to complete one form 1095-C for each employee. The 1095-C form is a new tax form employers use to report their offers of coverage for the previous year. Specifically, the 1095-C form provides details about the coverage offered to the employee, the lowest-cost premium available to the employee, and the months of the year when coverage was available. The Internal Revenue Service (IRS) uses these forms, along with the 1094-C Transmittal form, to confirm that all businesses are complying with the mandate to offer affordable minimum essential coverage. All employees eligible for coverage should get a 1095-C, regardless of whether they actually participate in the employer’s health plan.
Additionally, employees who are offered affordable minimum essential coverage by their employers are not eligible for premium tax credits if they purchase a plan through Covered California. The IRS uses the information on form 1095-C to confirm that no employees who have been offered affordable minimum essential coverage by their employer are receiving tax subsidies to purchase coverage through Covered California.
Notices and Employer Response
The IRS will contact employers directly to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made.
An employer may appeal an employer notice if it asserts that it offers affordable minimum essential coverage to employees or that its employee is enrolled in employer coverage and therefore ineligible for premium tax credits. Employers have 90 days from the date of the notice it receives from Covered California to request an appeal. Employer appeals will be handled by the IRS.
Other Changes to Know in 2016
The definition of “small employer” is expanding. Due to changes in state law, starting in 2016, the definition of “small employer” is expanded to include businesses with 50 to 100 FTE employees. This means that Covered California for Small Business is available to small businesses with up to 100 FTE employees, whereas it had not been before. Through Covered California for Small Business, small employers can shop for coverage for their employees among multiple carriers across multiple levels of coverage. Covered California also relieves employers of administrative burden by handling much of the payment distribution to health plans across carriers and coverage levels. And, federal tax credits are available to those businesses that qualify.
New coverage requirements for large businesses. Starting in 2016, insurance carriers offering products in the large group market are prohibited from marketing, offering, amending or renewing a large group plan contract or policy that provides a minimum value of less than 60%. Large businesses purchasing a health coverage plan for their employees should confirm that the plan provides no less than 60% minimum value.
Businesses with 0-49 FTE Employees
Small business owners with fewer than 50 full-time employees are not required to offer health care coverage to their employees. However, you should know that if a small business with fewer than 50 full-time employees does offer coverage, then that coverage must comply with the requirements of the ACA. Such requirements include coverage of ten essential health benefits, no lifetime or annual benefit maximums, and adherence to consumer protections built into the ACA.
Additionally, small businesses that provide healthcare coverage through Covered California for Small Business may be eligible for tax credits if:
- They have fewer than 25 FTE employees for the tax year;
- The average annual wages paid are less than $50,000 per employee; and,
- The employer pays at least 50% of the employee's premium cost.
Small businesses have the option to offer dependent coverage through Covered California for Small Business. In the event that employers do not offer coverage for employees’ dependents, employees may be able to purchase coverage for their dependents through Covered California. However, if a business offers coverage for employees’ dependents, those dependents become ineligible to receive financial assistance for a Covered California health plan.
For additional information on the employer mandate, please visit: https://www.irs.gov/affordable-care-act/employers/affordable-care-act-tax-provisions-for-small-employers
Want More Information?
Talk to Covered California for Small Business, your plan representative, or your insurance agent to discuss your options.
For more information on Covered California for Small Business, visit: www.CoveredCA.com/ForSmallBusiness or call: (844) 332-8384.
For additional information on the employer mandate, please visit: https://www.irs.gov/Affordable-Care-Act/Employers/Employer-Shared-Responsibility-Provisions