Do Employers Have to Offer Health Insurance?
The requirement to offer health benefits to employees depends on the size of the company. According to the Affordable Care Act (ACA) mandate, all companies with over 50 full-time or full-time equivalent workers must provide healthcare coverage that meets basic standards for qualified employees and their dependents. Larger companies that fail to comply with ACA regulations must pay significant fines.
While no laws exist requiring smaller businesses to provide health insurance, many still do to attract workers. If one of these companies does decide to extend health benefits to their employees, they must do so according to specific ACA guidelines.
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Why Employer-Sponsored Health Insurance Matters
With medical costs and insurance rates at an all-time high and rising, many American workers prioritize finding jobs with a group health insurance plan. In group coverage, employers often split the cost of premiums and do all the work of policy selection and management, saving workers time and money.
The federal government will not tax employer premium contributions and also allows employees to distribute payments pretax, meaning securing benefits through your company would lower your taxable income. More than half of insured individuals and families in the United States receive healthcare benefits through their employers. On average, private businesses paid about 67% of the final premium rate on affiliated employee plans.
How Does Employer-Sponsored Health Insurance Work?
Employers that offer health insurance do so through group health plans that pool together premium payments from all members of a labor organization or company. Spreading risk across this insured population incentivizes carriers to charge lower premiums. Most employers will then offer to pay a significant percentage of employee premiums, encouraging workers to enroll in coverage and keep their jobs.
ACA-compliant plans must provide all ten essential health benefits, including preventative care, doctors’ services, prescription drugs, mental health coverage, and more. Some group policies may also include additional benefits like dental or vision insurance. Workers must work at least 30 hours a week to qualify for employer coverage, though some companies also offer policies to part-time workers.
Employee Rights and Protections
All individuals with ACA-compliant healthcare have a right to free preventative care, coverage for preexisting conditions, and zero lifetime or annual dollar limits on essential benefits. Employees on group health plans have additional rights and protections, including:
- Anti-discrimination: Employers cannot make benefit distinctions based on gender, race, age, disability, pregnancy status, or other demographic factors.
- Access to information: According to the Employee Retirement Income Security Act (ERISA), employers must notify employees of eligibility standards, claim procedures, and upcoming coverage changes. Employers must also manage policies in the best interest of their workers.
- Family and medical leave: The Family and Medical Leave Act (FMLA) prevents employers from terminating workers for family or health-related absences.
ACA Requirements for Employers
Congress passed the Affordable Care Act in 2010 to increase national access to quality healthcare, introducing premium tax subsidies for lower-income households and imposing protective regulations. According to the ACA “employer mandate,” all businesses with over 50 full-time employees must offer affordable, comprehensive coverage to at least 95% of these workers.
Large companies with few coverage options must pay a $2,880 fine for every uninsured full-time employee after the first 30 counted. Similarly, employers providing unaffordable policies with below-minimum essential coverage get penalized for each employee eligible for an ACA tax credit.
ACA and Large Employers
The ACA considers any company with 50 or more full-time employees an applicable large employer (ALE). To qualify as a full-time employee, you must work an average of 30 hours a week or more. Two part-time employees working at least 20 hours get counted together as a single full-time worker, also known as a full-time equivalent (FTE).
ALEs can consist of one single entity or a group of related businesses. These institutions must provide employees with minimum essential coverage or make “employer shared responsibility payments” to the IRS. Minimum essential coverage must meet the following standards:
- Affordability: Employers must use a combination of an employee’s W-2 tax forms, rate of pay, and the federal poverty line to set employee premium shares of less than 9.12% of their household income.
- Minimum Value: Employers must cover at least 60% of the expected cost of benefits available through their plans.
ACA-approved policies must also cover preexisting conditions, offer the ten essential health benefits, and provide coverage without annual or lifetime limits.
ACA and Small Businesses
The ACA does not legally require small businesses with less than 50 full-time equivalent (FTE) employees to provide health insurance unless agreed upon in their contracts. However, considering the appeal of quality healthcare, many small businesses will still sponsor benefit packages to attract, retain, and motivate workers.
Some smaller companies will qualify for group coverage through the Small Business Health Options Program (SHOP), a standalone marketplace offering flexible benefit choices, consolidation of healthcare management, and services from certified agents and brokers. Companies with fewer than 25 FTE employees making less than $56,000 a year can also qualify for a Small Business Health Care tax credit by enrolling in SHOP.
If a small business does decide to provide health insurance, it must make coverage available to all full-time employees. Similarly, if one part-time employee gains access to benefits, all other part-time workers must have the same privileges.
Exceptions and Exemptions
Along with the leniencies offered to small businesses, ACA requirements for employers include other notable exceptions. For example, both large and small companies can withhold health insurance from part-time employees, volunteers, and student workers. However, to avoid penalties, employers must offer full-time temps and interns health insurance and treat them equally to regular full-time hires.
Employer-Sponsored Health Insurance by State
States can set additional rules requiring mandatory employer-sponsored coverage and impose penalties independent of federal ACA regulations. As of 2023, only four states have such measures:
- California: Companies with five or more FTE employees can choose between providing them with health insurance or contributing to the state’s Health Insurance Premium Payment program (HIPP), an institution designed to expand Medi-Cal benefits.
- Hawaii: All companies with one or more employees must provide Prepaid Healthcare Act coverage to those working 20 or more hours a week for four consecutive weeks.
- Massachusetts: Companies with 11 or more FTE employees must contribute to each one’s health insurance or make a Fair Share Contribution (FSC) to the state department for every uninsured worker. These employees must also receive paid earned sick time.
- New York: Because health insurance premiums in New York trend notably higher than in other states, the SHOP marketplace expands eligibility to regionally-based companies with up to 100 FTE employees.
State | Health Insurance Requirements |
|---|---|
Alabama | No state-level employer health insurance requirements. |
Alaska | No state-level employer health insurance requirements. |
Arizona | No state-level employer health insurance requirements. |
Arkansas | No state-level employer health insurance requirements. |
California | Employers with five or more full-time employees must offer health insurance or contribute to the state’s Health Insurance Premium Payment (HIPP) program. |
Colorado | No state-level employer health insurance requirements. |
Connecticut | No state-level employer health insurance requirements. |
Delaware | No state-level employer health insurance requirements. |
Florida | No state-level employer health insurance requirements. |
Georgia | No state-level employer health insurance requirements. |
Hawaii | Employers must provide health insurance to employees who work 20 hours or more per week for four consecutive weeks. |
Idaho | No state-level employer health insurance requirements. |
Illinois | No state-level employer health insurance requirements. |
Indiana | No state-level employer health insurance requirements. |
Iowa | No state-level employer health insurance requirements. |
Kansas | No state-level employer health insurance requirements. |
Kentucky | No state-level employer health insurance requirements. |
Louisiana | No state-level employer health insurance requirements. |
Maine | No state-level employer health insurance requirements. |
Maryland | No state-level employer health insurance requirements. |
Massachusetts | Employers with 11 or more full-time equivalent employees must make a “fair and reasonable” contribution toward their employees’ health insurance. |
Michigan | No state-level employer health insurance requirements. |
Minnesota | No state-level employer health insurance requirements. |
Mississippi | No state-level employer health insurance requirements. |
Missouri | No state-level employer health insurance requirements. |
Montana | No state-level employer health insurance requirements. |
Nebraska | No state-level employer health insurance requirements. |
Nevada | No state-level employer health insurance requirements. |
New Hampshire | No state-level employer health insurance requirements. |
New Jersey | No state-level employer health insurance requirements. |
New Mexico | No state-level employer health insurance requirements. |
New York | Employers with 100 or more full-time equivalent employees are generally required to provide health insurance to their full-time employees. |
North Carolina | No state-level employer health insurance requirements. |
North Dakota | No state-level employer health insurance requirements. |
Ohio | No state-level employer health insurance requirements. |
Oklahoma | No state-level employer health insurance requirements. |
Oregon | No state-level employer health insurance requirements. |
Pennsylvania | No state-level employer health insurance requirements. |
Rhode Island | No state-level employer health insurance requirements. |
South Carolina | No state-level employer health insurance requirements. |
South Dakota | No state-level employer health insurance requirements. |
Tennessee | No state-level employer health insurance requirements. |
Texas | No state-level employer health insurance requirements. |
Utah | No state-level employer health insurance requirements. |
Vermont | No state-level employer health insurance requirements. |
Virginia | No state-level employer health insurance requirements. |
Washington | No state-level employer health insurance requirements. |
West Virginia | No state-level employer health insurance requirements. |
Wisconsin | No state-level employer health insurance requirements. |
Wyoming | No state-level employer health insurance requirements. |
Extending Coverage With COBRA
The Consolidated Omnibus Budget Reconciliation Act allows people who recently lost job-based coverage to continue receiving temporary benefits from their former employer for up to 18 months. These former employees must have had a group health plan covered by COBRA and personally experienced a qualifying life event (QLE). Relevant QLEs include voluntary or involuntary job loss, reduced hours, transitions between employment, divorce, and death.
Employers with 20 or more employees in the prior year must offer COBRA benefits, allowing qualified employees and their families to extend recently relinquished healthcare through “continuation coverage.” Though employers occasionally pay for some or all of these temporary benefits, some workers may have to pay the entire premium out-of-pocket for up to 102% of policy costs.
How Does FMLA Work With Employee-Sponsored Health Insurance?
The Family and Medical Leave Act (FMLA) protects employees from termination should they require a temporary absence from work for family or medical purposes. Likewise, the FMLA requires employers to continue funding and providing health insurance benefits under the same conditions that would occur if the employee were currently working.
Employees can utilize up to 12 FMLA-protected workweeks during a single calendar year. Eligible workers must continue making identical and timely premium contributions to maintain health insurance benefits for themselves and their families. Employers must also give employees ample notice of plan changes and time to transition coverages during their FMLA-protected leave.
Alternatives to Employer Health Insurance
If you cannot secure affordable health insurance through your employer, explore the following options:
- ACA Marketplace plans: The federal government requires all ACA-compliant policies to include the ten essential health benefits and cover preexisting conditions. Most notably, ACA plans can include tax subsidies that significantly lower premiums for households within 100-400% of the federal poverty level.
- Medicaid: This federally funded, state-operated program provides comprehensive healthcare benefits to households within 138% of the federal poverty level.
Putting It All Together
With medical expenses and insurance rates at an all-time high, many middle-class and lower-income Americans heavily rely on their employers to provide comprehensive and affordable healthcare benefits. While the ACA only requires businesses with over 50 full-time equivalent employees to provide minimal essential coverage, many smaller companies still offer insurance to attract and retain workers.
Before enrolling in a group health plan, educate yourself on your ACA-mandated employee rights, including access to health plan information, immunity to discrimination or retaliation, and protected leave for medical or family-related purposes.