Do Employers Have to Offer Health Insurance?

It’s no secret that employer-sponsored health plans, including dental and vision insurance, remain the most popular employee benefit. In fact, 88% of workers surveyed reported that they would consider or heavily consider a position with good insurance options. Likewise, according to survey data from the employment search engine Monster, employees consider group health insurance to be the most important benefit when considering a job offer.

However, employer-sponsored health insurance is costly. What are employers’ obligations when it comes to offering health coverage?

Are Employers Required to Offer Health Insurance?

For the most part, yes, certain employers are mandated to offer group health insurance to employees. The Affordable Care Act (ACA) requires every employer with 50 or more full-time employees working at least 30 hours per week to offer health insurance to its employees. 

These applicable large employers (ALE) can determine their status by calculating their number of full-time equivalent (FTE) employees per month, calculating the number of hours worked by non-FTEs per month, adding the subtotals together, and dividing that number by 12. 

• If the total is less than 50, the employer isn’t an ALE. 
• If the total is at least 50, the employer is an FTE and must offer health insurance to all qualifying employees. 

Another key provision in the ACA states that all ALEs must offer a health insurance plan that qualifies as minimum essential coverage (MEC), otherwise known as the employer mandate. When this first took effect in 2014, the penalties for organizations that failed to comply with MEC regulations were subject to charges of either:

• $2,000 per employee if no coverage was offered, minus the first 30 full-time employees; or 
• $3,000 per employee if covered was offered to at least 95% of employees, but the option didn’t meet MEC requirements, under § 4980H(c)(1) and (b)(1) of the ACA. 

These amounts have steadily increased each year since 2014. In 2021, the IRS announced the adjusted penalties are $2,700 and $4,060 per employee, respectively.

What Employment Laws Impact Health Insurance?

The Affordable Care Act states that employee benefits should not discriminate on the basis of race, color, sex, pregnancy, national origin, religion, or sexual orientation. These laws also prohibit the segmentation of benefits that favor highly compensated individuals.

Title VII established by The Equal Employment Opportunity Commission (EEOC), mandates that an individual’s eligibility for benefits, the number of benefits received, or the premium charged to participate in employer-offered benefits cannot be determined on the basis of race, color, sex, pregnancy, national origin, age, or religion.

Likewise, HIPAA prohibits employers from offering group benefits that discriminate against individuals based on health factors such as:

• Health status;
• Medical condition (including both physical and mental illnesses);
• Claims experience;
• Receipt of health care;
• Medical history;
• Genetic information;
• Evidence of insurability; or
• Disability

HIPAA also regulates discrimination in regards to Cafeteria Plans (Section 125 plans), plans that provide employers an opportunity choose “among at least one taxable benefit (such as cash) and one qualified benefit.” 

Under HIPAA, group benefits cannot discriminate in favor of highly compensated employees in terms of eligibility, contributions, and/or benefits. Because this is a tax-related law, the Internal Revenue Service (IRS) enforces these regulations.

Some states may also have laws in place that limit the employer’s ability to segment employee benefits by group. For instance, some states have paid sick leave laws in place that require employers with 50 or more employees to offer paid leave to all employees. Find employee discrimination laws for your state.

Can Employers Segment Employee Benefits?

So how can you segment employee benefits packages? Employers can legally offer different benefit plans to “similarly situated individuals” based on classes such as:

• Tenure
• Part-time or full-time status
• Exempt or nonexempt status
• Job group
• Department
• Union involvement
• Location

What is the Cost of Compliance?

The greatest “cost” of compliance with these laws is probably the time taken to examine your business and understand how it is affected by state and federal benefits regulations.

Employers can also pay a certified HR professional or a lawyer specializing in employment law to audit internal benefits practices. These audits range significantly in cost depending on the scope of the audit and the size of the organization. Some insurance providers offer compliance audits for free in order to encourage administrative best practices.

Certain cases of employee benefits discrimination are transparently legal or not legal. For instance, if an employer doesn’t offer equal benefits to male and female employees, that employer is clearly violating federal employment law.

However, some cases are more nuanced and less transparent. Given the scope of benefits that need to be regulated, the evolving nature of healthcare, and changing social climate in the United States, laws have continued to expand.

How Do Employers Choose Health Insurance?

Employers can work with benefits brokers to choose the right health insurance policy for their team. 

In some cases, organizations may opt to offer affordable plans for both the employer and the employee. In other instances, employers may select plans that offer more robust features. It’s important to note, however, that healthcare benefits play a critical role in employee retention.