Frequently Asked Questions
What is required to offer a group health insurance plan to employees?
You must have at least one non-owner W-2 employee for at least 50% of the preceding calendar year or preceding quarter. So, for example, if a business wants to start a group health plan April 1st, which is the start of the 2nd quarter, then the company must have had one W-2 employee no later than February 15th of the same year – this is the midway point of the 1st quarter. Also, the business cannot be formed primarily for the purpose of buying health coverage. See current small business health insurance requirements for more info.
Does a 1099 employee count as an eligible employee for health insurance purposes?
No. A “1099” person who works for you is NOT an eligible employee for health insurance purposes. A 1099 person is a self employed independent contractor who works for you and can work for other employers. No employer-employee relationship exists. 1099 employees aren’t eligible for your group health insurance plan, and will have to seek options for self employed health insurance.
Can I only offer health insurance to employees who work 40 hours per week?
No. If you’re wondering when an employer is required to offer health insurance, California state law considers any W-2 employee who averages 30 hours or more of work per week over the course of a month to be eligible for the group health insurance plan. This means that you can’t be more restrictive and, for example, only offer coverage to employees who work 32 hours per week – such a restriction would violate California State law (see: California Health and Safety Code Section 1357.500(c)(1)). On the other hand, you can be less restrictive and offer coverage to part-time employees who work as few as 20 hours per week.
Can just a few of my employees sign up for our group health plan?
Most California medical insurance companies require that at least 70 percent of the eligible employees actually enroll in the medical insurance plan offered by the employer. This requirement is called “participation” in the insurance world. Aetna and United Health Care require 75% participation. Participation ensures that the majority of the employees – healthy and unhealthy enroll in your small group medical insurance plan. In technical insurance-speak, this prevents “adverse selection,” where people more prone to using coverage sign up for coverage. Adverse selection causes the premium to increase for everyone, so the participation requirement prevents this problem. For more California health insurance laws for employers, please see our “small business health insurance requirements” page here.
Must I include employees who have coverage through a spouse or parent?
The guidelines for California small group health insurance allow an employer to omit certain employees from the participation calculation. Specifically, an insurance company allows employees to “waive” coverage if they obtain health insurance through a different source:
1. As a dependent through a spouse or parent’s employer’s group health plan, or
2. Individually through Medi-Care (usually for seniors age 65 or older), or
3. Individually through Medic-Aid (Medi-Cal in California which is for low income people).
These are valid “waivers” and the insurance company omits the employee from the calculation of eligible employees.
Must I include employees who have individual coverage through Covered California?
An insurance company will consider employees to have “declined” coverage, if the employee has:
1. No health insurance coverage, or
2. Individual health insurance plan through Covered California or an individual “off-exchange” plan.
These are “declines” and they DO count against the participation requirement. If too many employees decline coverage your company won’t meet the minimum participation requirement.
Can you give me an example of the employee participation requirement for small group coverage?
Imagine a company with 10 full time, eligible W-2 employees. One employee’s husband works for the telephone company and she is covered as a dependent on her husband’s plan. That’s a waiver. Another employee is covered by his parents through his mom’s employer. This is another valid waiver. A third employee is covered by his wife’s individual plan obtained through Covered California. This is a decline. In this example, we have 2 valid waivers which makes 8 eligible employees and we have 7 employees enrolling in the group plan. 7 divided by 8 is 87% (usually you round down.) This is above the 70% minimum and the group qualifies. However, if two employees decided that they wanted to enroll in individual plans and decline the group coverage, then we would only have 5 enrolling employees of the 8 eligible employees. Five divided by 8 is 62% and we wouldn’t be able to enroll with an insurance company that required 70% participation.
Does my company have to pay some or all of the cost (premium) for employee health insurance?
California health insurance companies require that an employer contribute at least 50 percent of the employee only monthly cost or “premium.” So, for example, if the monthly cost for one employee (not including dependents) is $300, then the employer must pay at least $150. Some insurance companies allow a lower employer contribution amount using a “defined contribution” arrangement. For example, Aetna allows employers to contribute as little as $80/employee/month. Anthem Blue Cross, Blue Shield and Health Net allow employers to contribute as little as $100/employee/month. Covered California SHOP, United Health Care and Kaiser require the employer to contribute 50% of the least expensive plan offered. These minimum requirements may change but they are accurate as of March 2015. For more information, see our page about small business health insurance in California.
The employer contribution is important for insurance companies because it ensures that a large number of employees will enroll, not just the unhealthy ones. The employer contribution is also important for employees because it determines the amount of premium that the employees must pay for their medical insurance. It’s like a teeter-totter: the more the employer pays, the less the employees pay. If employees are asked to pay too much for their coverage relative to their income, they will likely decline to enroll. This causes a problem for the “employee participation” requirement.Why do insurance companies require an employer to contribute to an employee’s health insurance plan?
Can I offer my employees a really low benefit and low cost plan?
The ACA (Affordable Care Act, “Obama Care”) put an end to skimpy benefit plans – ones that paid very little for medical services and left employees facing financial ruin. Beginning in 2014 all small group health insurance plans must have a minimum actuarial value of 60%. The actuarial value (AV) is “the percentage of total average costs for benefits that a plan covers.” A plan with 60% AV would require the member to pay 40% of the cost for medical services and the insurance company would pay 60%.
My company has fewer than 50 employees. Will I have to pay a penalty if I don’t offer my employees health insurance?
No. Employers with 50 or fewer employees face no penalty if they don’t sponsor a group health insurance plan or if their coverage is “unaffordable,” i.e., costs an employee more than 9.5% of her W-2 income.
I have more than 50 employees in my company. Will I have to pay a penalty if I don’t offer my employees health insurance?
Yes. The ACA places a “pay or play” penalty on employers with 51 or more full time “equivalent” employees (i.e., 2 part-timers equal one full time equivalent.) The government refers to this as “shared responsibility” because employers share the responsibility for offering coverage or they pay the penalty. The government waived the penalty for companies with 51-99 employees in 2015. However, the penalties will apply to companies with more than 50 employees beginning in 2016.
How do I calculate the penalty for not offering health insurance to my employees?
An employer with more than 50 employees is subject to a penalty if the company either 1) doesn’t offer any health insurance; or 2) the health insurance is unaffordable to employees (i.e., requires employees to pay more than 9.5% of their W-2 wage.) For a detailed description of how to calculate the employer pay or play penalty, view our ACA employer penalty calculator article
Which laws govern small group health insurance in California?
All of the medical insurance companies must follow guidelines established by the Federal government and the State of California. Some of these rules may not make sense but we’ll try to explain the purpose of the rules in this summary. If you want to check out the source regulations see California Health and Safety Code (HSC) Section 1357.500; and HSC Section 1357.600 and the California Insurance Code
(CIC) Section 10753, CIC Section 10753.05 and CIC section 10755. The Federal regulations are 42 US Code Section 18024; Affordable Care Act Section 1304; and 45 CFR Section 155.20.
Can I offer many different insurance plans to my employees or do we all have to enroll in the same one?
You can offer many different insurance plans to your employees. However, the government requires that you set up a system to treat all of the employees the same. That is you must have the same “new-hire waiting period” to start benefits (e.g., 60 days) and you must contribute the same dollar amount or percentage to each employee’s plan. You can offer 20 different health plans if you wanted to (HMO, PPO, high deductible, low/no deductible, HSA, etc.) Employees can take the employer contribution amount and apply it to the medical insurance plan that best fits their needs.