Is Medical Insurance for Large Businesses Mandatory Under the ACA?

Is Medical Insurance for Large Businesses Mandatory Under the ACA?

Did you know large businesses in the U.S. must follow specific rules about medical insurance? The Affordable Care Act (ACA) requires large businesses to provide health insurance to their employees. If you run a company with many workers, it’s important to know what this means for your business.

Let’s break it down simply so you can understand what the ACA requires and how it affects medical insurance for large businesses.

What Does the ACA Say About Medical Insurance?

The ACA has a rule called the Employer Mandate. This rule says that large businesses must: 

  • Offer medical insurance to full-time employees.
  • Make the insurance affordable for employees.
  • Provide minimum coverage that meets specific standards.

If a large business does not follow these rules, it may face penalties.

What is a Large Business Under the ACA?

A large business is any company with 50 or more full-time employees. If your business meets this size, you are required to offer medical insurance.

A full-time employee is someone who works 30 hours or more per week. If you have part-time employees, their hours are combined to calculate the full-time equivalent (FTE). For example:

  • Two part-time employees working 15 hours each count as one full-time employee.

What Happens If a Large Business Does Not Offer Medical Insurance?

If a large business does not provide medical insurance, it may face penalties. These penalties are called Employer Shared Responsibility Payments (ESRP).

The penalties include:

  • No Insurance Offered: 

If you don’t offer insurance to at least 95% of full-time employees, the penalty is $2,970 per employee per year (after the first 30 employees).

  • Insurance Not Affordable: 

If the insurance you offer is too expensive or doesn’t meet minimum coverage, the penalty is $4,460 per employee who gets insurance through the marketplace and qualifies for subsidies.

What Does “Affordable” Mean?

The ACA says medical insurance is affordable if the employee’s share of the premium for self-only coverage is less than 9.12% of their household income (2024 rate).

For example:

  • If an employee earns $50,000 per year, their premium must be less than $4,560 per year, or $380 per month, to be affordable.

What Does “Minimum Coverage” Include?

The ACA requires medical insurance to cover at least 60% of the total cost of medical services. This means the plan must pay for most of the covered expenses, leaving the employee with only a portion to pay.

The insurance must also include:

  • Preventive care (e.g., check-ups and vaccines)
  • Hospitalization
  • Prescription drugs
  • Emergency services

Why Is Medical Insurance Important for Large Businesses?

1. Legal Compliance

  • Following the ACA rules helps you avoid fines.

2. Attracts Employees

  • Workers value health benefits and are likelier to choose jobs that offer medical insurance.

3. Keeps Employees Healthy

  • Healthy employees are more productive and take fewer sick days.

4. Boosts Retention

  • Employees are more loyal to companies that care about their health.

How Does Medical Insurance for Large Businesses Work? 

  • Group Health Plans

      • Large businesses purchase a group plan that covers all eligible employees.
      • The cost is shared between the employer and the employees.
  • Employer Contributions

      • Most businesses pay 70–90% of the premium.
      • Employees pay the rest through payroll deductions. 
  • Dependent Coverage 

      • Employees can add family members, though they usually pay extra for this. 
  • Additional Benefits 

    • Many large businesses include dental, vision, or life insurance in their plans.

How to Set Up Medical Insurance for a Large Business 

  • Assess Employee Needs

      • Survey employees to find out what type of coverage they prefer.
  • Choose a Plan

      • Work with an insurance provider to select a group plan that meets ACA requirements. 
  • Set a Budget 

      • Decide how much your business can afford to contribute to premiums.
  • Educate Employees 

      • Help employees understand their options and how to use the plan.
  • Review Annually 

    • Revisit your insurance plan each year to ensure it meets employee needs and complies with the law.

Stay Compliant and Care for Your Team

Medical insurance is mandatory for large businesses under the ACA, but it’s more than a legal requirement. It’s an investment in your team and your company’s success. Offering medical insurance for large businesses helps you avoid fines, attract talent, and keep employees healthy.

Contact an insurance provider or a broker to explore your options. What steps will you take to meet ACA rules and support your employees? Start today and show your team you care!

FAQs About Medical Insurance for Large Businesses

1. Is it mandatory to provide medical insurance to all employees?

You must offer insurance to at least 95% of full-time employees. Part-time employees are not required to be covered under the ACA.

2. Can employees decline the insurance?

Yes, employees can opt out if they have other coverage, like a spouse’s plan.

3. What if I have employees in different states?

Your plan must comply with each state's insurance laws where employees work.

4. Are the penalties for non-compliance high?

Yes, the penalties can cost thousands of dollars per employee, so it’s important to meet the ACA requirements.

5. Can I offer more than one plan?

Yes, many businesses offer multiple plans, such as HMOs, PPOs, or high-deductible plans, to give employees options.

6. Are premiums tax-deductible?

Yes, the money you spend on employee medical insurance is tax-deductible as a business expense.

7. What is the difference between affordable and minimum coverage?

Affordable means the employee’s share of the cost is below 9.12% of their income. Minimum coverage means the plan covers at least 60% of medical costs.

8. Are wellness programs included in medical insurance?

Many large businesses add wellness programs to their health plans. These can include gym memberships or health screenings.

9. How do I calculate full-time equivalent employees?

Add the hours all part-time employees work in a month and divide by 120. This gives you the number of full-time equivalent employees.

10. What if my employee count changes during the year?

You must offer insurance if your business averages 50 or more full-time employees over the previous calendar year.

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