Am I required to provide insurance for my employees?

The Affordable Care Act, commonly referred to as ObamaCare places requirements on some businesses to offer health insurance for their employees.

The Affordable Care Act has become a highly debated topic and this article is not addressing the merits or drawbacks to the law, it is simply explaining what is required.

According to the ObamaCare Facts website, the mandate affects only 4% of all firms within the United States.  Two Hundred Thousand (200,000) out of 6 million total firms have over fifty (50) employees and can be penalized for choosing not to provide health coverage to their employees. 96% of those 200,000 firms already offer health coverage to their full time employees.

That means less than .2% of small businesses (10,000 out of 6,000,000) will actually have to provide insurance to full time employees or pay the shared responsibility fee due to ObamaCare.

To determine if you are one of the 10,000 employers that will now be required to offer health coverage to your full-time employees, we will now explore some of the requirements.

The Affordable Care Act requires that any employer that has a total of fifty (50) or more Full Time Equivalent employees (FTEs) is required to provide affordable health coverage and effective for the calendar year 2015, you may have to make a payment if you do not offer adequate affordable coverage to your full-time employees.  If you have fifty (50) or fewer FTEs, you can purchase insurance through the Small Business Health Options Program (SHOP) (some states may permit using (SHOP) with up to 100 employees).

The first question most people have is trying to understand the concept of what a FTE really is.  If you had one employee that worked full-time, you would have one FTE.  If you then hired three additional part-time employees, you would take the total weekly hours of those part time employees, divided by thirty (30) and add that number to your full time employees.  The reason for the thirty (30) hours is the Affordable Care Act was attempting to avoid employers from simply reducing the hours of employees to slightly under 40 hours per week.  The part time employees hours can be averaged anywhere between three and twelve months.  There are some exceptions to these numbers where seasonal employees, contractors, and business owners are not included in the final numbers.

If you are a small business with fifty (50) or fewer FTEs, your business is not subject to the Employer Mandate of the Affordable Care Act.  If you have 25 or fewer full-time employees and you pay at least 50% of your employees premiums AND their average annual wages are below $50,000, you may also apply for tax breaks of up to 50% of your contribution to their premiums.  The average costs to an employer in 2014 is approximately $5,100.  With a 50% tax credit, that would mean the average actual cost to the employer is only approximately $2,550.

One caveat to the Employer Mandate is that the first thirty (30) employees are exempt from the Employer Mandate of the Affordable Care Act.  To illustrate this more fully, if you have:

25 Full Time Employees

60 Part Time Employees that each work 15 hours per week (30 FTE)

You are subject to the Employer Mandate because you have 55 FTE, but since your first 30 Full Time Employees are exempt from the mandate fee, it likely wouldn’t cost you anything, since the first thirty (30) employees are exempt.

The current mandate requires that employers with 50-99 FTEs start insuring their employees by 2016 and those with 100 or more start providing insurance to at least 70% of their FTE by 2015 and 95% by 2016.

If you are one of the employers that is required to offer affordable health insurance and fails to, there is an annual fee of $2,000 per employee, per year (once again, the first 30 full-time employees are exempt).  If any of your full-time employees receives a premium tax credit because their coverage is not ‘affordable’ or the employer does not pay at least 60% of the total costs, instead of the $2,000 per employee, the employer must pay the lesser of $3,000 for each of those employees receiving a credit or $750 for each of their full-time employees.

The second question most people have is what is considered affordable.  If an employees premium is more than 9.5% of their yearly household income, the coverage is not considered affordable.  This creates an area where employers can’t determine an employees household income but it can impact the affordability of coverage.  To avoid potential issues, it is often recommended that the premium is no more than 9.5% of the wages of the individual employee as reported on their W-2 form.

In conclusion, the vast majority of employers are not subject to the Employer Mandate of the Affordable Care Act.  If you have fifty (50) or more FTE employees, then you need to provide affordable coverage that does not exceed 9.5% of the employees wages and covers at least 60% of their medical expenses.  If you are subject to the Employer Mandate and opt to not provide coverage, you can expect it to cost your business $2,000 to $3,000 per year, per full time employee (the first 30 are exempt).