Under the Affordable Care Act (ACA) or Obamacare, employers that have 50 or more full-time employees, or a similar combination of full-time and part-time workers, must either meet the minimum requirements stated in the ACA or pay a tax called the employer shared responsibility payment (ESRP).
It should be noted that the threshold number for employers can differ based on the state. For example, in Hawaii, all employers are required to provide Prepaid Health Care Act coverage to their eligible employees in Hawaii, irrespective of their employment status (full-time or part-time, permanent or temporary), as long as they do not fall into an excluded category.
Furthermore, the presence of employees in a different state, whether they are physically present or remotely working, can lead to various additional obligations in terms of compliance. These obligations may encompass fulfilling payroll requirements, meeting foreign qualifications, and adhering to other stipulations.
Pros and Cons of Offering Health Care Benefits
Advantages of Offering Health Care Insurance
Providing health benefits to your employees presents numerous advantages. Here are some of the key benefits:
- Attract and retain the most qualified employees. Whether health insurance is absolutely necessary to attract and retain the most qualified employees will depend upon factors such as whether your competitors or other similarly sized employers in your area are offering health insurance.
- Gain tax advantages. You can offer employees something that increases their compensation package and yet allows you an income tax deduction for the contribution so that your out-of-pocket cost is less than the value of the benefit to the employee. Self-employed individuals may be able to deduct 100 percent of their health insurance premium costs as a business expense. You can always deduct 100 percent of premiums for your employees. If the business is incorporated, all costs for your own insurance, as well as your employees, are deductible.
- Take advantage of the small business healthcare tax credit. Small businesses with fewer than 25 full-time employees may be eligible for a tax credit for purchasing health insurance for their employees.
- Avoid having to owe an employer shared responsibility payment. Employers that have a considerable workforce (typically those with 50 or more full-time employees) have the obligation to either provide their full-time employees with affordable minimum essential coverage that meets the minimum value standard (and includes coverage for their dependents) or face the possibility of incurring an employer shared responsibility payment.
- Offer employees group purchasing power. Even if you decide not to contribute anything toward your employees’ health insurance, you can offer them the opportunity to obtain group rates through your business. In addition, small businesses (generally, those with 50 or fewer full-time employees) may purchase health care coverage through a government-run insurance marketplace established specifically for them — the Small Business Health Options Program (SHOP).
- Ensure the wellness of your workers. Insurance plans offer preventative care that can keep employees healthy and working. If employees don’t get preventative care and yearly physicals (which they might not do if they don’t have insurance), you could end up having more employees out for long periods of time with serious illnesses.
Disadvantages of Offering Health Care Insurance
However, offering health benefits also has its drawbacks. A few of the disadvantages of providing health benefits include:
- The costs. Healthcare costs have risen enormously in recent years. As a result, not only are the costs draining valuable resources from many small employers, the uncertainty makes financial planning extremely difficult.
- The sometimes tense business of cost-sharing with employees. There is a way for a small employer to control costs and return certainty to the process: push any additional costs onto employees. While that may solve the financial problems, it creates many others. Even if you don’t want to push all the costs onto employees, pushing some of the costs onto them is inevitable.
- The administrative hassles. Even though the insurance company from whom you purchase the health insurance will usually act as plan administrator, you will have to choose the insurer and then spend part of your time filling out forms, remitting premiums, and acting as an intermediary between the employee and insurer, among many other tasks.
- Employee turnover: Small businesses may experience higher rates of employee turnover compared to larger businesses, resulting in increased administrative costs related to managing employee enrollments and terminations in health insurance plans.
Where to Buy a Health Plan
If your business consists of 1-50 employees, you can choose from various options.
- Small employer market: Any business with 1-50 employees can buy health insurance in the small employer market. You buy directly from an insurance company or from an insurance agent or broker.
- Association health plans: Small businesses can buy health insurance through an association.
- Don’t buy a health plan: You can decide to not buy group health insurance and let employees buy their own individual health plans.