Business Participation Requirements Under Health Reform

At a Glance
Small Business
Large Business
Enrollment Waiting Periods
Additional Resources

The Affordable Care Act (ACA) does not require any business to provide health insurance to employees or dependents, but does use incentives and penalties to encourage businesses to provide health coverage for employees. The rules vary depending on the size of the business.

At a Glance

This section explains the rules for participation, incentives and penalties for small and large business.Click on the following for more information:

Small Business defined as having fewer than 50 full-time equivalent (FTE) employees
Large Business defined as having at least 50 full-time equivalent (FTE) employees
Enrollment Waiting Periods
Additional Resources

Small Business

There is no requirement for small businesses with fewer than 50 full-time equivalent employees to participate in the Affordable Care Act, nor are there any penalties. Full-time is defined as 30 hours/week or more.

If a small business chooses to offer coverage, it is eligible to apply for the Small Business Healthcare Tax Credit which can go as high as 35% today. Beginning January 1, 2014, small businesses purchasing employee coverage through the California Health Benefits Exchange Small Business Health Options Program (SHOP) may be eligible for a tax credit up to 50%. Small non-profit businesses are also eligible at different tax credit rates of 25% today and 35% in 2014.

Large Business

There is no requirement for large businesses with 50 or more full-time equivalent employees to offer health insurance, but beginning in 2014:

If an employer does not offer coverage and a full-time employee purchases individual coverage through the California Health Benefits Exchange and receives a premium subsidy, the employer will be required to share responsibility by paying a penalty
If the employer offers coverage but it is unaffordable or inadequate as determined by federal guidelines, and the employee receives coverage and a premium subsidy through the Exchange, a penalty will also be applied
If an employer with more than 200 full-time employees offers coverage, then that employer must automatically enroll employees into a plan unless they opt out of coverage.

What is the definition of unaffordable coverage?

Insurance that covers less than 60% of the average annual medical expenses for the region
Insurance which costs more than 9.5% of an employee’s gross wages

How will the penalties be calculated?

If the business does not offer health coverage, and if at least one full-time employee purchases coverage through the exchange AND receives a premium subsidy, the employer is required to pay a penalty equal to $2,000 X the number of full-time employees minus the first 30 employees.

Example: Business has 65 FTE employees and at least one full-time employee receives coverage and a premium subsidy through the Exchange, the penalty will be:
$2,000 X 35 employees (65-30) = $70,000

If the business does offer health insurance, and at least one employee purchases coverage through the exchange because the insurance covers less than 60% of covered health care expenses for a typical population or costs more that 9.5% of the employee’s gross income, then the penalty is $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.

Example: Business has 65 full-time employees and 25 employees opt to purchase coverage through the Exchange and receive a premium subsidy, the employer must pay the lesser of the two calculations below:
$3,000 X 25 employees = $75,000

$2,000 X 35 (65-30) employees = $70,000

See the Kaiser Family Foundation Business Responsibility Chart

Enrollment Waiting Periods

Effective January 1, 2014, waiting periods for employee enrollment in employer sponsored health insurance may not exceed 90 days.