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Low-Wage Employees Fall Through ACA Gap

Small businesses may be concerned that adding employees to their health plan will put them under, yet research reveals that their actual costs are far less than anticipated because many employees are declining coverage completely.

Several months after the Affordable Care Act’s (ACA) employer mandate took effect, business owners with 100 or more employees, who must offer health insurance to full-time employees, are finding that very few of those employees are willing to buy health coverage. This trend is especially prevalent among smaller and midsize businesses with low-wage hourly workers.

“Affordable” is a relative term

The ACA has reduced the number of uninsured Americans; around 14 million adults have gained coverage in the last two years, but most of that is a result of Medicaid expansion and ACA subsidies that provide insurance through state or federal exchanges.

For low-wage earners, an employer-sponsored plan that is deemed “affordable” still can seem out of reach, which explains why many are choosing to decline coverage.

For some tipped employees making $2.13 an hour plus tips, paying $65 every two weeks for insurance is a significant hit.

However, those who choose to decline coverage through an employer-sponsored plan must qualify for subsidies in order to purchase insurance through a state or federal exchange.

Under the ACA, employees are eligible to pursue health insurance through the marketplace exchanges only if they fall between 100 and 400 percent of the federal poverty level and their employer either offers unaffordable insurance or doesn’t offer it at all.

What is “affordable?”

According to ACA guidelines, determining whether a company’s insurance is “affordable” is based on two main questions:

  • Does the plan pay at least 60 percent of covered health costs?
  • Must an employee pay more than 9.5 percent of W-2 income for self-only coverage?

Even though small to midsize employers see such a small rate of return on the coverage they offer, they must continue to comply with ACA provisions by offering affordable insurance or face steep fines for noncompliance.

Companies that fail to offer affordable coverage could be fined an annual penalty of up to $3,000 per full-time employee receiving a credit or subsidy, or $2,000 per total number of full-time employees, not counting the first 80, whichever is less. For many businesses, paying a fine this big is unaffordable.

The content of this blog is intended to keep interested parties informed of legal and industry developments for educational purposes only.  It is not intended as legal opinion or tax advice and should not be regarded as a substitute for legal or tax advice.