Evaluating health insurance requirements can quickly become a full-time job on its own, and we know if you’re running a business, you don’t have the luxury of endless exploration time. So, if you’re looking for a comprehensive (yet concise) summary of small business health insurance, we’ve got you covered. Here’s what you need to know.
5 Important Requirements to Know
1. Small businesses with fewer than 50 full-time employees don’t have to provide health insurance under the Affordable Care Act (ACA).
The ACA is directed at “applicable large employers” (ALEs), which it defines as companies with at least 50 full-time employees (or full-time equivalents). Full-time employees work at least 30 hours per week or 130 hours per month. So if you’re right on the edge of the 50-employee minimum, keep in mind that full-time employees are calculated on a monthly average.
One important caveat to this exemption: if small businesses with fewer than 50 full-time employees choose to provide health insurance, it must still comply with ACA guidelines. Offering coverage in the first place isn’t mandated by the ACA, but if coverage is offered, the ACA requirements still apply.
2. Companies with more than 50 full-time employees (or full-time equivalent employees) in the previous calendar year may be subject to the employer-shared responsibility provisions of the ACA.
The ACA (Affordable Care Act), also known as Obamacare, introduced several key terms related to health insurance coverage, including Minimum Essential Coverage (MEC) and Minimum Value (MV).
While they are both essential concepts within the ACA framework, they represent different aspects of health insurance coverage. Here’s a breakdown of their differences:
Minimum Essential Coverage (MEC):
MEC refers to the minimum level of health insurance coverage that individuals must have to meet the individual mandate requirements of the ACA. Under the individual mandate, most individuals must have health insurance or face a tax penalty. MEC ensures that individuals have a basic level of coverage to help protect against catastrophic medical expenses.
MEC includes various types of coverage, such as employer-sponsored plans, individual market plans, government-sponsored programs like Medicaid and Medicare, TRICARE (military health coverage), and certain other types of coverage. MEC requirements focus on the scope of coverage, ensuring that it provides essential health benefits and meets specific standards set by the ACA.
Minimum Value (MV):
Minimum Value, on the other hand, refers to a specific measure of the generosity of employer-sponsored health insurance plans. It assesses whether an employer-sponsored program provides a minimum level of coverage required under the ACA.
To meet the MV standard, an employer-sponsored plan must cover at least 60% of the total allowed benefit costs provided to a standard population. This means that the plan must pay for, on average, at least 60% of covered healthcare expenses, while the remaining 40% can be paid by the plan member in the form of deductibles, copayments, and coinsurance.
Minimum Value is important for determining whether an employer-sponsored plan is considered affordable and adequate under the ACA. If an employer offers a plan that meets the MV standard, employees are generally not eligible for premium tax credits or other cost-sharing reductions if they choose to seek coverage through the ACA marketplace instead.
In summary, Minimum Essential Coverage (MEC) refers to the minimum level of coverage required for individuals under the ACA, ensuring essential benefits and meeting specific standards. Minimum Value (MV), on the other hand, is a measure of the generosity of employer-sponsored plans, ensuring they cover at least 60% of allowed costs.
Unlike MEC and MV, regulated by the ACA, employer contributions are dictated by the health carrier. They depend on many variables, but MOST are at least 50% of the employee-only plan.
Under the Affordable Care Act (ACA), Applicable Large Employers (ALEs) are penalized if they fail to offer coverage or do not offer adequate or affordable coverage.
3. Employers must provide all employees a summary of benefits and coverage, explaining health plan coverage and associated costs.
This requirement is straightforward: any coverage offered must be explained to employees along with their coverage details and associated costs. The summary document is called a “Summary of Benefits and Coverage” form or an SBC.
4. Employers are required to report the coverage costs of employer-sponsored health insurance plans on all employees’ W-2s.
Another specific requirement is that employers must indicate the coverage cost under their group health plan on each employee’s W-2. That information goes in Box 12 using code DD, and it should include both the portion paid by the employer and the portion paid by the employee.
5. Small businesses that offer health insurance plans must make them available to all eligible employees when they become eligible for coverage, and that eligibility period should be at most 90 days.
Last but not least, small businesses that are required to offer health insurance plans (or that elect to offer them anyway) must make them available to employees anytime they become eligible for coverage. In most cases, eligibility opens up when employees are first hired, when they have a “qualifying event,” and at the beginning of each calendar year.
5 Health Insurance Options to Consider in 2023
If your business has fewer than 50 full-time employees and you won’t directly offer a health care coverage plan, here are a few alternative paths to consider.
QSEHRA stands for “Qualified Small Employer Health Reimbursement Arrangement,” and it allows employers to set aside a specified monthly amount for employee premiums and medical expenses. Employees retain responsibility for their bills and premiums, and then they request reimbursement from you as the employer. These funds aren’t taxed, so QSEHRA plans are common for small businesses.
ICHRA stands for “Individual Coverage Health Reimbursement Arrangement,” it allows employers to provide a specific amount of money each month for employees to use on health coverage. An individual health plan is similar to a QSEHRA in that the money is tax-free and helps support costs employees may have to cover independently.
3. Traditional Group Health Insurance
As the name implies, “traditional” group health insurance is what you associate with employer-sponsored coverage. As the employer, you can provide traditional group health insurance through an insurance company or broker. (Learn how MBS can support below)
4. Group Coverage HRA (GCHRA)
A Group Coverage HRA is another employer-funded reimbursement option that works differently from the options above. Rather than covering insurance premiums, GCHRA funds can cover other healthcare purchases beyond their direct coverage. Therefore, a GCHRA can only be offered alongside a group health insurance plan.
5. Medical Cost-Sharing Plan
Finally, medical cost-sharing plans let multiple entities (in this case, groups of small businesses) pool their money together to bargain for better healthcare rates. Larger group coverage often becomes more affordable this way, especially for small businesses that may have little leverage on their own.
Tailored Support from Merritt Business Solutions
Merritt Business Solutions is a full-service health broker that understands your business, insurance budget, and benefits goals. We offer customized and á la carte options to fit your business and administer all benefits under one platform. We specialize in working with small businesses and provide a budget-friendly benefits program that saves employees money on healthcare costs.
If you can’t fund Major Medical insurance for your employees, we can still offer a benefits program that saves your employees money on healthcare costs. This option doesn’t require employer contributions but still promotes affordability for employees. It’s a middle-ground solution for small businesses that want to help without subsidizing insurance plans.
We take on the responsibility of explaining benefits to your employees, ensuring they understand their options. They can contact our team for direct assistance in using their benefits effectively. Outsourcing these tasks protects your time for strategic thinking and leadership.
Want more information regarding MBS benefits? We’d love to offer a free consultation to help care for your greatest asset: your employees. Contact us today to learn more and explore your options.