Beginning in 2016, employers who have 50 or more full-time or full-time-equivalent employees are required to offer health insurance to their full-time employees under the Affordable Care Act. Employees, however, do not have to accept the insurance, and inevitably, some will turn it down. The consequences for a business if an employee declines the employer-sponsored coverage depend on the nature of the health insurance offered and what employees do instead.
Plan Coverage Requirements
The Affordable Care Act requires health plans to cover at least 60 percent of the cost of services on average in order to qualify as minimum coverage (also known as the Bronze plan), according to Kaiser Family Foundation. In addition, coverage needs to be affordable, meaning that employee contributions are limited to 9.5 percent or less of household income, and plans must be offered to at least 95 percent of full-time employees. Employers whose plans pass these requirements will not be subject to penalties, even if their employees turn down health insurance from the company.
What Situations Do Not Trigger Penalties?
Regardless of your plan type, some scenarios will never trigger penalties. If you have employees who join their spouses’ plans, you will not be penalized. It’s also not a problem if you have employees who are Medicare-eligible and who choose to decline employer coverage in favor of Medicare. You may have chosen to offer insurance benefits to part-time employees as well as full-timers, but there is no penalty if part-timers turn down coverage.
If your plan is affordable and meets minimum essential coverage requirements, you will not be penalized if your employees decline your coverage and choose to buy insurance through the marketplace. If they have been offered affordable, minimum essential coverage, your employees will not qualify for government subsidies, although they may choose coverage through the marketplace for their own reasons. As long as insurance is offered to at least 95 percent of your full-time employees, you will not face penalties if some choose not to accept it.
What Causes a Company to Incur a Penalty?
The real difficulties arise if your company doesn’t offer minimum essential coverage and full-time employees end up qualifying for government subsidies when seeking coverage at federal or state health insurance marketplaces (sometimes called “exchanges”). Starting in 2016, businesses with at least 50 full-time employees will be subject to penalties if even one of their employees receives a subsidy, according to the IRS.
Employers that offer high-quality, affordable coverage to essentially all of their full-time employees can be confident that they will not face penalties, even if some employees decide not to participate in the plan. Organizations with less generous health coverage offerings, however, will incur ACA-mandated penalties from the government if employees seek coverage at federal or state exchanges.
This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.
David E. Williams is president of Health Business Group, a strategy consulting firm serving clients in technology-enabled health care services, pharmaceuticals, biotech, medical devices and software. He is frequently quoted in the media on the business of health care and is the author of the Health Business Blog. David sits on the board of both private health care companies and nonprofits.