As an employer or HR professional, you know that navigating complex Affordable Care Act (ACA) requirements can be challenging. From the employer mandate to market reform rules, you need to understand which health plans are ACA-compliant. Selecting the right health plan helps larger businesses avoid costly tax penalties and helps you provide your employees with essential coverage.
In this blog post, you’ll learn:
- How to determine if your organization is an applicable large employer (ALE) and what ACA requirements apply to you.
- What makes a health insurance plan ACA-compliant.
- The different types of ACA-compliant health benefits employers can offer.
Under the ACA’s employer mandate, public and private companies with at least 50 full-time equivalent employees (FTEs) must provide their workers with health insurance coverage. Organizations of this size are known as applicable large employers (ALEs).
Here’s a quick breakdown of the employer mandate:
ALEs must meet both the MEC and minimum value requirements. If they don’t and at least one employee buys health coverage with a subsidy through a public exchange, the IRS may impose one of two tax penalties. These are known as employer shared responsibility payments.
You’re not required to offer your employees health coverage if your company isn’t an ALE. Nor will you be subject to a penalty for failing to do so. But, there are many advantages to adding a health benefit to your compensation package, such as attracting quality job candidates and giving your business an edge over your competitors.
ACA-compliant health insurance plans must meet specific standards to ensure they offer individuals minimum but comprehensive coverage. But, the requirements vary depending on whether the plan is available on the individual, small group, or large group health insurance markets.
As the name suggests, the individual market sells individual health insurance. Consumers can buy these plans directly as they’re not tied to employment. They also aren’t a federal government program like Medicare. Individual health insurance plans include self-only and family coverage.
All individual health plans sold on the Marketplaces must meet the following ACA requirements:
Individuals can buy a self-only or family plan on a public or private health exchange. Public exchanges, like the federal Health Insurance Marketplace and state-based marketplaces, only offer ACA-compliant health plans. But, private exchanges can offer ACA-compliant and non-compliant plans.
The small group health insurance market is only available to small employers. In most states, a small group is any organization that employs between two and 50 workers. However, some states classify businesses with between two and 100 employees as small groups.
Like large group health insurance, employers can offer small group coverage at a reduced rate to their employees, their spouses, and their dependents.
All small group plans must meet the following ACA requirements:
Only employers can buy a small group health plan, as an individual isn’t a “group.” If you meet the qualifications for small group coverage, you can buy a policy for your employees through an insurance company, agent, or broker.
If you buy your plan on the Small Business Health Options Program (SHOP) marketplace, check your eligibility for the small business health care tax credit. If you qualify, this subsidy can help you save money on your plan’s premiums.
The large group market sells group health plans for larger companies. In most states, employers with 51 or more workers are large groups. However, some states consider organizations with 101 employees or more a large group.
Large group health plans have fewer ACA compliance requirements. For example, they don’t have to use metallic tiers or cover all of the essential health benefits.
All large group plans must meet the following ACA requirements:
Like small group health insurance, employers can buy a large group plan anytime during the year. Employees can join during the plan’s Open Enrollment or a special enrollment period. If there is a waiting period, it can’t be more than 90 days. Additionally, once coverage is active, the plan must cover an employee’s pre-existing conditions without a waiting period.
Suppose you’re an ALE subject to the employer mandate or want to ensure your benefits package includes an ACA-compliant plan for comprehensive coverage. In that case, there are a few benefits you can offer that may fit your needs.
With a fully-insured health plan, employers select a group health plan to offer their employees and eligible dependents. Then, the enrolled employees and the employer pay a set premium to the insurance company. In return, the company covers certain healthcare services and pays employees’ medical claims.
Insurers set their group plan premium rates annually using several factors. In most cases, the employer deducts the employee’s portion of the premium from their paycheck on a pre-tax basis. While the insurance company pays claims for covered services under the policy, the employee must pay for out-of-pocket medical costs, like deductibles and out-of-network care.
Fully-insured plans are the traditional health benefit option. But they come with some drawbacks. For example, they’re prone to annual rate hikes, have strict participation requirements, and can have limited plan choices. However, they offer lower financial risk and administrative duties for employers. This is because the insurer pays medical claims and deals with complex compliance regulations.
With a self-insured health plan, you create and manage your own policy. Instead of working with an insurance company and paying a monthly premium, you can craft a custom benefit that meets your employees’ diverse needs. This added flexibility can make a self-funded plan more appealing to employers than fully-insured policies.
However, this added customization comes with greater financial risk and administrative burden. With self-insured plans, you're responsible for calculating the plan's fixed and variable costs. This includes administrative costs or third-party administrator (TPA) fees if you want to outsource the task of managing your health plan.
You’re also responsible for paying your employees’ medical claims. Healthcare costs can add up depending on how frequently your staff receives healthcare. To reduce your risk, you can buy stop-loss insurance, which reimburses you for catastrophic medical claims. But, stop-loss coverage requires monthly premium payments, which you must consider before opting for a self-insured plan.
If you want the flexibility of a self-insured health plan without the financial risk or administrative headache, a health reimbursement arrangement (HRA) might be the answer. ALEs looking for an alternative to group health insurance may be especially interested in the individual coverage HRA (ICHRA).
An ICHRA is a health benefit for employers of all sizes. With an ICHRA, you set a monthly allowance that your employees can spend on out-of-pocket medical care, including individual health plans. Once an employee buys an eligible item and you approve it, you reimburse them tax-free up to their allowance limit. ICHRA reimbursements are payroll-tax-free for business owners and free of annual income taxes for participating employees.
Below are some other key features of the ICHRA:
Your employees must have a qualified form of individual health coverage to use the ICHRA.
Some examples of ICHRA-acceptable ACA-compliant policies include:
To continue using the benefit, your employees must regularly attest that they still have qualified individual health coverage.
While many plans comply with the ACA, not every plan does. Many individuals may choose a non-compliant ACA health plan because they have more affordable premiums than ACA plans. But there’s a reason for the lower prices.
Non-compliant ACA health plans don’t provide MEC. Their limited coverage also lacks many of the ACA’s consumer protections. For example, they can have annual maximums, use medical underwriting, and exclude individuals with pre-existing conditions.
However, these plans may be good additions to your benefits package in addition to a major medical ACA-compliant policy. Supplemental or ancillary health plans can make your employee health benefit offering more comprehensive.
Non-ACA-compliant plans include:
Employers can buy supplemental and ancillary coverage from a broker or insurance carrier.
Offering a health benefit with an ACA-compliant plan shouldn’t only be about avoiding costly penalties. It goes a long way toward attracting and retaining your best workers. Whether you choose a fully-insured plan, a self-funded option, or a customized ICHRA, complying with the ACA ensures you offer your employees essential coverage that keeps your workforce healthy and satisfied.