Are Employers Required To Provide Health Insurance?

Updated on October 20th, 2020

Reviewed by Garrett Ball

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As a small business owner, you’re already juggling a lot. And because healthcare laws can and do change, it can be hard to keep up with your obligations when it comes to health coverage for your employees. 

Group health insurance has been around since the early 1900s, when mail-order company Montgomery Ward & Co. instituted an insurance policy for its employees that covered illness and injury. The Stabilization Act of 1942 had limited how much companies could increase workers’ pay–but the law did allow companies to adopt employee insurance plans. Not only did more businesses offer insurance, but many expanded coverage to include supplemental medical, dental and vision care. 

Between 1979 and 1989, at least 90% of full-time employees at medium and large private companies had health insurance through work. The numbers aren’t that different today, although workers now bear more of the cost of their premiums. Today, 87% of full-time staff have access to healthcare benefits at their job. 

In a competitive job market, offering these benefits to your employees is likely to give you an edge in attracting and retaining talent. More than half of Americans with employer-sponsored health benefits say good health coverage is key in staying at their current job, according to a survey from America’s Health Insurance Plans (AHIP). And 46% say it played a role in choosing where to work. 


If your business has 50 or more full-time employees, you must offer affordable health coverage to most of your employees.

If you have fewer than 50 workers, you don’t have to offer insurance.

Larger employers have to report information about employee health coverage to the IRS and share that information with employees, too.

Currently, five states and the District of Columbia require individuals to maintain health insurance at all times – and require some form of reporting from employers.

Does the Affordable Care Act Require Businesses to Offer Health Insurance?

Businesses don’t have to provide health coverage, but companies of a certain size may face penalties if they don’t. Under the Affordable Care Act (ACA), businesses with at least 50 full-time equivalent employees may have to pay fees if they don’t offer affordable health insurance. And if they do offer coverage, it must meet “minimum value” standards and be considered“affordable coverage,” as defined by the ACA.

Affordable coverage means that the cost of coverage must not exceed a certain percentage of a worker’s household income; that figure is 9.78% for 2020 and 9.83% for 2021. And a minimum value plan must pay at least 60% of the cost of covered services. 

If you have 50 or more full-time employees, you must offer health coverage that’s affordable and pay for most of the cost to cover your staff.

What Must Employer Plans Include? 

Under the ACA, there’s something called the “employer mandate,” which says that employers with 50 or more full-time employees (defined as anyone who works 30 or more hours a week) must offer minimum essential coverage that is both affordable and provides minimum value to 95% of their full-time employees and their children (dependents). 

If the employee has a child(ren), the coverage must last until to the end of the month in which the child(ren) turns 26 years old. (Dependent children don’t include stepchildren or foster children, and companies aren’t required to cover spouses or partners.)

When Can a Company Be Penalized?

First, only businesses with at least 50 full-time employees or equivalents can incur a penalty for not following the ACA employer mandate. There are two major types of penalties: coverage penalties and filing penalties.

 A penalty could be in order if an employer fails to:

  • offer coverage to at least 95% of their full-time workers and dependent children.
  • provide insurance that pays at least 60% of the covered healthcare expenses for a standard population.
  • ensure that employees are paying no more than 9.78% (2020) or 9.83% (2021) of their household income for coverage. 

If a company doesn’t meet all three of these requirements and at least one full-time employee  receives a tax credit or subsidy through the state or federal Health Insurance Marketplace, the employer will owe a penalty. 


If your business has fewer than 50 full-time employees, you’re not obligated to offer health insurance and you can’t be penalized for not offering it.

When Is a Company Exempt from Coverage Penalties?

If an employer doesn’t have at least 50 full-time employees or full-time equivalents (FTEs), they are not subject to a penalty. And, of course, if a company meets all requirements above, they won’t be penalized. 

However, even if an employer doesn’t meet any of the ACA requirements, if not even one full-time employee receives a premium tax credit (subsidy) to help pay for their Marketplace coverage, there is also no penalty. 

What Are Coverage Penalties? 

If an employer fails to offer minimum essential coverage to 95% of full-time workers and their dependents and at least one employee receives a premium tax credit for Marketplace coverage, the penalty in 2020 is $2,570 for every full-time worker except the first 30. 

Separately, if an employer offers coverage that’s deemed unaffordable or doesn’t provide minimum value, and if at least one employee receives a premium tax credit for Marketplace coverage, the employer will owe $3,860 for each full-time worker who receives a federal subsidy for coverage they got through the Marketplace. 

That said, the penalty may not exceed the monthly penalty that would be levied if a company offers no coverage ($2,570 per full-time employee), not including the first 30 workers. And only full-time employees are used for this calculation, not include full-time equivalents. 

What Do Companies Have to Report? 

Larger employers in every U.S. state must report their health coverage status to the Internal Revenue Service (IRS) to prove they’re holding up their end of the bargain. This means filing an annual report (IRS form 1094-C) that includes information on all employees who were offered and accepted coverage and the cost of the insurance on a month-by-month basis. 

Companies with 50 or more full-time workers must also give each employee a statement with the same information that was given to the IRS (IRS form 1095-C). 

If you have fewer full-time employees, you’re generally not required to file the 1094-C and 1095-C forms. An exception: if you’re a member of what’s called a “controlled or affiliated service group” of businesses that collectively have at least 50 FTEs. 

Smaller employers may still have to report the value of the health insurance coverage provided to each employee on their W2 form. And those who self-insure are required to file forms 1095-B and 1094-B with the IRS and give full-time employees a copy of form 1095-B. 

To determine how many full-time or full-time equivalent employees you have, use this calculator. The IRS also has more information on identifying full-time employees using two methods. There are filing deadlines for all paperwork, but these depend on the type of plan you offer your workers and how you opt to file (by paper or electronically). 

The penalties for failing to file correct returns or not providing correct 1095-C forms to employees can be steep: The penalty for not filing each required statement is $270, up to a limit of $3,275,500 in a calendar year. 

The same fee applies for each failure to provide a correct 1095-C form to payees, up to an additional $3,275,500 in a calendar year. 

These fines may be even higher if the IRS finds that your business intentionally disregarded the requirements. 

Which States Require Reporting for Individuals and Companies?

In addition to federalL requirements, some states have an individual mandate requiring residents to have health coverage or pay a tax penalty. These currently include: 

  • California
  • District of Columbia
  • Massachusetts
  • New Jersey
  • Rhode Island
  • Vermont (The state has an individual mandate, but no tax penalty.)

In those states, employers must submit reports on the coverage of their employees to the state and must give statements to covered employees, much like federal reporting. Forms and requirements vary by state, so it’s important to look up the rules where you live. 


What you have to report to the IRS (and, in some cases, the state where you operate) depends on the size of your full-time staff; be sure you know the rules where you live.

Where Can I Buy Insurance to Cover Employees at a Small Business? 

As a smaller company, you’re eligible to get coverage for your workers through the Small Business Health Options Program (SHOP), and you may be able to claim a tax credit. 

SHOP allows smaller businesses (usually those with one to 50 employees) to provide health and/or dental insurance to their employees. You can start offering a SHOP insurance plan to your workers at any time; you’re not limited to the Open Enrollment Period. To find out if you qualify, fill out this eligibility form on the Centers for Medicare & Medicare Services site.

What’s the Small Business Health Care Tax Credit?

Smaller businesses that provide SHOP health insurance to their employees may be able to get a tax credit worth up to 50% of what they pay for their workers’ premiums. Nonprofits could receive a tax credit that covers up to 35%. 

To qualify, your business must meet these conditions:

  • You must have fewer than 25 full-time employees.
  • Your average employee pay is about $50,000 per year or less.
  • You pay at least 50% of your full-time employees’ premium costs.
  • You offer SHOP coverage to all full-time workers. 

The smaller your business, the larger your tax credit will be. Companies with fewer than 10 employees who are paid an average of $25,000 or less qualify for the highest credit. 

What Else Should Small Businesses Consider? 

  • You can offer employees an HRA. Even if a business doesn’t include health coverage as a benefit, it can offer employees a Health Reimbursement Arrangement, or HRA. In this arrangement, the employer reimburses workers for healthcare costs such as premiums or other expenses, up to whatever the employer can afford. Smaller employers with fewer than 50 employees can use a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). This allows businesses to contribute something toward their employees’ healthcare without providing full benefits. 
  • You can offer voluntary benefits. While there are strict rules about health insurance coverage, other benefits are optional, including dental, vision, life and disability insurance, pet insurance, critical illness coverage, hospital indemnity, and student loan assistance. In many cases, employers can offer these at little to no cost, facilitating a group plan for employees who benefit from group rates. 
  • You can charge a fee for spouses who can get coverage elsewhere. In 2019, 38% of companies charged an additional fee for spousal coverage when the spouse had the option of getting health insurance through their own employer. The average annual spousal surcharge was $1,200. 
  • You have the option to cover domestic partners. Although employers aren’t required to include domestic partners (or spouses) in employee benefit plans, they can choose to do so. 

Keeping on Top of Your Obligations

Staying current on federal and state obligations for businesses of all sizes can help you steer clear of costly penalties. For more guidance on the Affordable Care Act and employer health insurance requirements, visit the IRS to learn more about the ACA, or consult a tax professional. 

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