If you were to launch a new startup with plans to employ people other than family members, you would have to consider offering some sort of health plan under provisions of the Affordable Care Act (ACA). All employers considered Applicable Large Employers (ALEs) under the ACA must offer an affordable health plan.
The big question for employers is this: what makes a company an ALE? Believe it or not, some of the smallest employers otherwise classified as small businesses for other regulatory purposes are still considered ALEs for health insurance purposes. The net effect of the ACA’s employer mandate is that most companies in the U.S. operating as anything other than sole proprietorships have to offer an affordable health plan.
An ALE Under the Law
An ALE under the law is subject to the ACAs ‘shared responsibility’ provision. Also known as ‘play or pay’, the shared responsibility provision is nothing more than a legal mandate. ALEs either offer affordable health plans or pay a significant penalty on a per-employee basis.
For purposes of administering and enforcing the ACA, an ALE is an employer with at least 50 full-time employees who work a minimum of 30 hours per week. Alternatively, an ALE’s workers might work the equivalent of 30 hours per week when adding together all their part-time hours over the course of a plan year.
ALEs must offer an affordable health plan to a minimum of 95% of all eligible employees as part of the shared responsibility provision. Whether or not employees choose to enroll in their respective health plans is up to them. Employees have the choice thanks to the elimination of the individual mandate in 2017.
Health Insurance Is the Standard
Employers tend to meet the shared responsibility requirement through either traditional insurance or a self-funded health plan. Traditional health insurance is just what its name implies: a health plan fully funded by an insurance company and covered by a group insurance policy.
Insurance companies must meet minimum essential coverage (MEC) requirements with their insurance policies. Simply put, there is a minimum amount of coverage every insurance plan has to offer.
As for self-funded plans, they still must meet the same MEC requirements established by the ACA. But as explained by Las Vegas-based StarMed Benefits, self-funded plans are not funded or supported by group insurance policies. Therefore, they are not insurance by definition.
How Self-Funding Works
StarMed explains that companies wanting to self-fund establish an account from which they will pay all employee healthcare claims. Where does the money for that account come from? It is sourced through a combination of employer contributions and employee payroll deductions.
Determining how much money should be put into the account every year requires estimating what the employer expects its healthcare expenses to be over the next 12 months. Employers typically take out stop-loss insurance to cover any shortfalls just in case their estimates are too low.
Some employees choose to self-fund and administer their plans in-house. Others leave administration to a third-party organization like StarMed. One way or the other, choosing to self-fund almost always means companies spend less on providing health plans to their eligible employees.
Knowing the Law Is Important
It should be apparent from this discussion on ALEs and qualifying health plans that knowing the law is important. Business owners hoping to employ workers above and beyond their immediate family members need to be aware of the ACA and its mandates. Running afoul of the law could mean stiff penalties levied on the basis of every employee not offered affordable healthcare.