What is employer-sponsored health insurance in the United States?

Employer-sponsored health insurance, also known as employer-sponsored coverage, refers to health insurance provided by an employer to its employees. Employers typically pay a portion of the premium for this coverage, and employees may be responsible for paying the remaining portion. It can include health, dental, and vision coverage.

Are U.S. employers legally required to offer healthcare coverage to employees?

No, employers in the United States are not legally required to offer healthcare coverage to their employees. However, under the Affordable Care Act (ACA), applicable large employers (ALEs) with at least 50 full-time employees must provide "affordable" health insurance that offers "minimum value" to 95% of their full-time employees and their dependents.

What is the penalty for not providing affordable health insurance as an ALE?

The penalty for not providing affordable health insurance under the ACA is called the Employer Shared Responsibility Payment (ESRP). This payment is a fee to the IRS and is calculated by multiplying a per-employee fee by the number of full-time employees, excluding the first 30 employees. The per-employee fee is adjusted annually and varies based on the employer's specific circumstances.

What constitutes "affordable coverage" under the ACA?

Coverage is considered "affordable" if the employee's required contribution for health insurance does not exceed a certain percentage of their household income. In 2023, the affordability threshold is set at 9.12%. Employers, who do not know their employees' household incomes, can use an affordability safe harbor, which includes three different methods for determining affordability: Form W-2 wages, pay rate, and the federal poverty line.

When does employer-provided coverage provide "minimum value" under the ACA?

Health coverage offered by an employer provides a "minimum value" under the ACA if it covers at least 60% of the cost of covered services, including deductibles, co-pays, and coinsurance. Additionally, it must provide substantial coverage of inpatient hospital services and physician services.

Are employers required to report the cost of health coverage to employees?

Yes, the ACA requires employers to report the cost of coverage under an employer-sponsored group health plan. This reporting is done on employees' W-2 forms and is intended to provide them with information about the cost of their healthcare coverage.

Is the cost of health care coverage taxable to employees?

No, the value of the employer's contribution to health coverage is excluded from the employee's income and is not taxable.