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Are employers required by the Affordable Care Act to purchase group insurance for their employees?

Q: Are employers required by the Affordable Care Act to purchase group insurance for their employees?

A: Yes, depending on their size. The Affordable Care Act requires large employers to provide coverage to full-time employees or pay a penalty. This provision, called the “play or pay” rule, or employer mandate, was initially scheduled to go into effect Jan. 1, 2014, but was postponed until 2015/2016.

Small employers – in this case, those with fewer than 50 full-time equivalent (FTE) employees – are exempt from the coverage requirement and penalty.

The employer mandate took effect January 1, 2015 for businesses with at least 100 FTE employees – they are required to cover at least 70 percent of their full-time employees in 2015, and 95 percent in 2016. For businesses with 50 – 99 FTE employees, the employer mandate doesn’t take effect until 2016.

In addition to the employer mandate that requires employers with 50 or more FTE employees to offer health insurance to all full-time employees, the ACA also has provisions that apply to small group plans in terms of plan designs and covered benefits. Employers with under 50 FTE employees are not required to offer health insurance at all. But if they do, it has to be compliant with the ACA’s requirements for small group plans, including the requirement to cover all essential health benefits with no annual or lifetime benefit maximums.

Starting in 2016, the plan was for the definition of “small group” to expand to include businesses with up to 100 FTE employees.  Employers with 50 – 100 employees will be required to provide coverage as of 2016, per the employer mandate. And it was going to have to be compliant with the ACA’s small group requirements too.

But on October 7, 2015, President Obama signed HR1624 into law. The legislation reverses the provision in the ACA that expands “small group” up to 100 FTE employees, and instead leaves that decision up to each state. So employers with 50 – 100 FTE employees will still have to offer health insurance as of 2016. But they will not have to offer coverage that’s compliant with the ACA’s small group requirements, unless their state opts to change the definition. They will be able to continue to offer “large group” coverage, which is exempt from the ACA regulations that apply to individual and small group plans.

So while the definition of “small group” for benefits purposes is impacted by HR1624 (and will essentially remain unchanged from 2015, since the new legislation was designed to prevent a change), the legislation has no bearing on the employer mandate; it still applies only to groups with 50 or more employees, and will apply to all such groups as of 2016.