Ask Cheasty: How Do Employers Figure Out Obligations to Insure Employees?
Dear Cheasty,I’ve heard about the Affordable Care Act and how small businesses don’t have to provide insurance, but large employers do have to, or they'll pay a penalty. I run a business with 16 full-time office employees (whom we insure) and over 250 part-time employees (who don’t get insurance), and I’m curious whether that means I’m a small or large employer. I heard you speak at a presentation last week and you said that it would be based on FTE’s. Also, I’d like to know the effect on part-time employees. Will I have to provide insurance for all of my employees? I would love to know the answer when you get a chance.
Trying to Get My Ducks in a Row
I take my hat off to you for doing your best to understand one of the more complicated aspects of the Affordable Care Act – determining whether large employers have to pay a penalty if they don’t insure their full-time employees. OK, first let’s sketch out the broad regulations, and then I’ll talk about your case in particular.
Starting in 2014, the ACA essentially requires large employers to provide full-time employees with affordable health coverage. Small employers (fewer than 50 employees) have no obligation to provide insurance, will face no penalties if they do not, and may even qualify for tax credits to help them afford coverage.
The difference between a small employer (no obligation to provide insurance) and a large employer (obligation to provide insurance) hinges on the magic number 50. Fifty FTEs (full-time equivalent positions – keep in mind that the limit for “full time” in the ACA is 30 hours a week) is the line between small and large. In other words, if you have 51 or more FTE employees, you are a large employer, and therefore required to provide insurance to all full-time employees (only those employees who work 30 hours a week or more, on average).
So here’s where the penalty comes into play. If you choose not to provide insurance for your employees, and any of your full-time workers get subsidized health coverage in the exchange (relatively likely if you are a large employer that doesn’t provide insurance), you will pay the tax penalty. That tax penalty is $2,000 a year for your total number of full-time employees minus 30. In other words, if you have 70 full-time employees and choose not to insure them, you’ll pay $2,000 a year on each of those 40 employees (broken into 12 monthly payments).
Confused yet? Great! Let’s keep going.
Let’s say that you DO provide health insurance, but it’s not very good insurance. If the insurance you provide either (a) costs the employee more than 9.5% of his/her household income, or (b) offers exceptionally poor coverage (e.g., it fails to cover at least 60% of the cost of covered benefits, on average) then those employees may seek out and qualify for subsidized health insurance on the Health Insurance Exchange. If any of your employees does that, then we go through another set of questions.
Ready for the next set of qualifiers and if/then statements? OK! Let’s say that you offer your employees an expensive health insurance plan, or one with poor benefits. If one or more of your employees qualifies for subsidies and enrolls in an Exchange plan, you will have to pay the shared responsibility penalty.
But this penalty may be less than the flat fee assessed at the “I don’t offer insurance at all” level, described earlier. Instead, here you’d pay the lower of the following two amounts: EITHER $2,000 a year for each full-time employee (minus the first 30), OR $3,000 a year for just the number of full time employees who receive government subsidies for insurance on the Health Insurance Exchange.
OK, how are you doing, Ducks. Still with me? You are? Wow, I’m impressed. This is dizzying stuff! OK, now let’s look at your scenario.
You employ 16 full-time and 275 part-time employees. By any calculation, you, Ducks, are a large employer and would be obligated to provide insurance for all full-time employees (30+ hours/week). But I’m not sure how many hours a week your part-time staff work, so I’ll just assume that each part-timer works an average of 20 hours a week.
You already provide insurance (and you’re probably a good boss, so I’ll assume it’s fairly decent insurance) for your 16 employees, so none of them will qualify for or seek out subsidized coverage on the Exchange. You are only obligated to insure those employees that work 30 hours a week or more (on average), so chances are good that you are all ready for full ACA implementation in 2014, Ducks. You will not have to offer coverage to previously uncovered employees, and you won’t have to pay a penalty because you are already providing insurance to your full-time (remember: 30+ hours a week!) staff.
If you (or anybody out there) have more questions about their status relative to insuring employees, feel free to write me, but I also recommend you consult with your tax guy or an attorney who understands the regulations, just to make sure all relevant details get taken into consideration.
To a well and healthy Texas,
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