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 were required to cover at least 70 percent of their full-time employees in 2015, and 95 percent starting in 2016. For businesses with 50 – 99 FTE employees, the employer mandate didn’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 at least 95 percent of their full-time employees (those who work 30+ hours per week), 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 were 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 (the PACE Act) into law. The legislation reversed the ACA provision that would have expanded “small group” up to 100 FTE employees, and instead left that decision up to each state. So employers with 50 – 100 FTE employees still had to offer health insurance to their full-time employees starting in 2016, or else they risked a penalty under the employer mandate. But they continue to have access to large group coverage (which has fewer ACA regulations than small group coverage), unless their state opted to change the definition of small group.

Ultimately, only four states opted to expand the definition of small group to include businesses with up to 100 employees: California, Colorado, New York, and Vermont. In those four states, businesses with up to 100 employees purchase insurance in the small group market. In the rest of the states, businesses with up to 50 employees purchase coverage in the small group market, and businesses with 51+ employees purchase coverage in the large group market (or self-insure).

So while the definition of “small group” for benefits purposes was impacted by HR1624, the legislation had no bearing on the employer mandate; it still applies only to groups with 50 or more employees. And although the GOP tax bill (H.R.1) that was enacted in late 2017 will eventually repeal the individual mandate (as of 2019; people who are uninsured in 2018 will face a tax penalty on their returns filed in early 2019, but people uninsured in 2019 will not face a penalty), the employer mandate remains unchanged.