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What is Employer Sponsored Coverage?

Updated for Tax Year 2018


OVERVIEW

The term "employer-sponsored coverage" refers to health insurance obtained through an employer—the most common way Americans get insurance. Employer-sponsored coverage includes not only insurance for current employees and their families, but can also include retired employees. Further, federal law gives former employees the right to stay on their employer's health insurance, at their own expense, for a time after leaving a job. That, too, is employer-sponsored coverage.


Defined as minimum essential coverage

Under the Affordable Care Act, also known as Obamacare, most Americans are required to maintain a basic level of health insurance referred to as minimum essential coverage. Those who do not have this level of coverage may be subject to tax penalties under the law’s "shared responsibility" provisions through 2018. Beginning in 2019, the shared responsibility provision is no longer in effect. According to the Department of Health and Human Services, employer-sponsored coverage provides minimum essential coverage by definition.

what is employer sponsored coverage

Requirements for sponsoring coverage

The Affordable Care Act, also known as Obamacare, requires employers to provide health coverage to their workers if they have at least 50 full-time employees or "full-time equivalents." When two or more part-time employees’ work hours add up to a full-time load (40 hours/week), then those workers represent one full-time equivalent (FTE).

A company with fewer than 50 full-time employees and equivalents is not required to provide coverage, although it may qualify for the Tax Credit for Small Employer Health Insurance Premiums if it chooses to sponsor coverage for its workers.

Failure to provide coverage

Employers that have enough workers to trigger the coverage requirement are referred to as "applicable large employers" or ALEs. The law calls for penalties on applicable large employers that fail to sponsor coverage as required, just as it fines individuals who fail to have basic health coverage.

Like many other elements of the Affordable Care Act, these penalties take effect over time. For 2016 and beyond, penalties will apply to those with 50 to 99 employees.

Notification requirements

Companies that sponsor coverage for their employees are required to report the cost of that coverage on W-2 forms, the annual wage statements that employees use to file their taxes. Health benefits are not taxed; the Internal Revenue Service (IRS) requires that this information appear on the W-2 just so workers can better understand the value of their coverage.

People with employer-sponsored coverage typically receive annual statements detailing their coverage. Depending on how a company structures its coverage, employees may receive this information on Form 1095-B, Form 1095-C or may receive both forms.

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