Some state and federal regulations may require companies or businesses to provide their employees with specific perks such as health insurance, sick leave, and short-term disability benefits. The Affordable Health Care Act (ACA) is one such regulation that requires employers with more than 50 employees to provide them with health care insurance.
Without a doubt, this is a decision point for many business owners and can affect your costs, employees’ health, and compliance with laws and regulations. In this discussion, we explore everything you need to know about health insurance for your employees. Keep Reading.
Do You Meet Legal Requirements?
According to the Affordable Care Act (ACA), employers must provide health coverage to employees working at least 30 hours/week or 130 hours/ month. Some laws may also apply to employers with part-time employees. To avoid penalties, you must check laws in the state where you operate to ensure you fully comply.
How Health Insurance For Employees Work
Typically, a business takes out a group insurance policy to support all employees. A group insurance policy provides the same protection to all employees regardless of their age, occupation, and gender,
Often, group policies are paid monthly, and premiums may depend on several factors, such as the number of employees, their ages, and location. Also, different carriers may have discounts for companies relying on multiple factors,
Any insurance plan you choose for your employees may have a deductible, which is the amount they may pay when seeking services. Some cheap policies may have low monthly premiums but high deductibles and multiple exclusions. It’s important to review each plan when shopping around so you can get a manageable plan for your business and employees.
Employers may still provide insurance to employees under Medicare; however, the law doesn’t allow you to pay for their premiums unless you use employees’ salaries under the 105 Reimbursement Plan.
What is the Cost of Health Insurance For Employees
A 2020 Kaiser Family Foundation(KFF) report reveals that employer-sponsored coverage protects up to 157 million Americans. In the same year, the annual cost of health insurance for employees averaged $21,342 for family coverage and $7,470 for single persons.
Significantly, the costs may vary depending on the following factors;
- The insurance company
- Type of insurance policy you choose
- Deductibles and out-of-pocket payments
- Your contribution if your employees bear the cost burden.
- Demographics or age bracket of the employees. For instance, older employees may have higher medical costs leading to higher incomes.
As a small business, how much you spend on employee health insurance may impact your overall revenue. The good thing is that you don’t have to pay 100% of the premium, as the ACA allows employers to cover at least 60% of employees’ health costs. Therefore, your employees can shoulder the cost burden of the premiums.
Are Monthly Premiums Tax Deductible?
As noted, health insurance premiums for your employees can affect your business revenue. Luckily, the premiums are tax-deductible for both federal and state taxes. Essentially, you can claim 100% tax-deductible for expenses related to health insurance for your employees and their dependents.
You can also be eligible for the Small Business Health Care Tax Credit of up to 50% of the health care premiums you pay for your employees. Under the Small Business Health Options Program(SHOP), you can apply if you meet the following requirements;
- Have less than 25 full-time employees equivalent (FTE)
- The average employee’s yearly income is less than or equal to $56,000
- You cover at least 50% of health insurance premiums for your full-time employees.
- You provide SHOP protection to all your full-time employees.
Whereas tax deductions reduce your overall tax burden by lowering your taxable income, tax credits or rebates reduce your overall taxes. For instance, if you pay $10000, you may get a tax credit of $1000 which reduces your tax payable by 10%, and in this case, you may owe $9000.
This is an example because the amount of premiums payable by a company varies depending on multiple factors explained earlier in this post.
How to Cut Down On Employee Health Insurance
Like any other insurance policy, you can take vital steps to reduce overall coverage costs. One way is to share the premium burden with the employees. As noted earlier, the eligibility is well laid down in the ACA act.
Nonetheless, it’s important to consider the cost implications for the employees because they could be paying for other types of coverage such as; auto, homeowners, and insurance with roommate, among others.
It is possible to also create a personalized insurance policy for your employees. For instance, you may spare some money for employees’ healthcare emergencies instead of taking out a group policy. However, this approach may be expensive in the long term if your company expands and increases the workforce.
Paying health insurance for your employees is not only a lawful and noble thing to do but also ensures your employees’ health is well taken care of. A healthy workforce is essential for any business because they can contribute more, increase productivity and overall revenue for the company.