According to the ACA, eligible large employers (ALEs) must provide health insurance that satisfies minimum value and affordability requirements or else pay an IRS fine. Firms with 50 or more full-time workers or equivalents are subject to this rule.
Detecting the effects of any regulation on firm size with survey data is challenging, especially for the ACA’s employer mandate, which uses FTE measures. Nonetheless, the Mercatus-Mulligan sample has several measurement advantages that make it well-suited.
Requirement to Offer Coverage
The ACA employer shared responsibility provisions require employers to offer affordable health coverage with minimum value to their full-time employees or pay the penalty. These penalties are assessed if an employer has 50 or more FTEs, and at least one of their workers receives a premium tax credit.
Generally, the ESR Act applies to large employers, defined as having at least 50 full-time equivalent employees in the previous year. However, the law exempts small businesses with at most 50 employees from this requirement and other types of businesses.
The ESR Act also requires that small business owners be able to shop for group health insurance in their State’s marketplace. This gives them the same purchasing power as larger businesses, which will help reduce their overall costs.
Other aspects of the ACA improve access to insurance for small business employees by eliminating dollar caps on annual benefits, ending pre-existing condition exclusions, and expanding coverage of preventive services without cost sharing. According to federal estimates and private actuaries, these reforms are expected to increase insurance premiums by less than 5 percent.
Requirement to Offer Minimum Value Coverage
Under the ACA, employers classified as applicable large employers (ALEs) must offer health coverage that is affordable and provides minimum value to their full-time employees. An ALE that fails to follow this requirement can face an IRS penalty.
To avoid the penalties, a firm’s plan must be affordable for full-time workers, meaning that an employee’s share of the lowest cost premium cannot exceed 9.5 percent of their income, and the plan must reimburse, on average, at least 60 percent of covered expenses. These conditions should ensure that most ALEs offering coverage will not be penalized.
Furthermore, the ACA includes provisions for greater transparency and competition in small-group insurance markets through new marketplaces or exchanges designed to promote affordability and quality. As the ACA moves forward, these new markets are expected to drive down administrative costs and reduce prices for small-group coverage while helping to improve the availability of plans that meet a broader range of employee needs.
The ACA also made significant advancements in the accessibility and cost of individual health care, guaranteeing that younger employees may remain on their parent’s plan until they become 26 and facilitating the discovery of reasonably priced private insurance for those with pre-existing medical issues. Contrary to the forecasts of some detractors, it is anticipated that the overall cost of healthcare would stay unchanged or even significantly decrease.
Requirement to Offer Minimum Essential Coverage
According to the ACA, businesses with 50 or more full-time equivalent employees must provide employees with health insurance that complies with minimal requirements. If they don’t, they could be penalized. These employer mandate requirements, sometimes known as the “employer mandate” or “the individual insurance mandate,” have been in force since 2015 and resumed in 2016.
The law also requires that small businesses, like large ones, cover their employees’ dependents (up to three children per household) and offer plans with certain benefits, including pediatric dental and vision care and prescription drugs. The ACA also prevents insurers from denying or limiting coverage based on an employee’s health status, and it allows small business groups to negotiate lower premiums than large groups because the rates are not based on pre-existing conditions.
To determine whether you are an applicable large employer, add the number of your full-time and part-time employees — counting only those who work a minimum of 30 hours per week — to get your total workforce. Then, subtract the number of your full-time workforce who receives government-sponsored health coverage or veteran’s affairs coverage from that total. If the result is less than 50, you are not an ALE and do not have to offer coverage. Regardless of the size of your workforce, however, you must report information about the coverage you provide to your employees and the IRS.
Requirement to Offer Minimum Value Coverage
The ACA requires large firms to offer health insurance that is either affordable or provides minimum value to their full-time employees (workers who work at least 30 hours per week). Employers that don’t meet these requirements could face an employer mandate penalty.
The IRS defines affordable coverage as costing less than 9.12% of an employee’s household income. This is based on some factors, including how much a plan costs and how much it covers medical expenses, prescription drugs, mental health and substance abuse treatment, and hospitalization.
Coverage must also provide minimum value by ensuring that at least 60% of the total expected cost of benefits is covered. This complex calculation considers various factors, including how a plan is structured and the extent to which it meets actuarial standards.
The ACA’s new rating rules should reduce small business premiums in most markets. These rules and exchanges are expected to promote transparency and competition in the small-group market, resulting in lower costs for small and large employers.
Despite some critics’ claims, the evidence doesn’t support the idea that the ACA will burden small businesses or discourage them from offering coverage. Data show that offer rates for small firms have remained stable or dropped only slightly post-ACA, following trends that predated the law. The ACA also helps small businesses control costs through market reforms, exchanges, and tax credits that can help their workers afford health coverage.
