As a small business owner, you may be wondering what your requirements are when it comes to health insurance, especially since regulations seem to change regularly. California businesses with 1 to 49 full-time equivalent (FTE) employees aren’t legally required to provide health insurance, but many do choose to. However, if you do, you will be legally required to comply with California’s small group underwriting guidelines that include things such as having at least one W-2 employee who is not one of the business’s owners or the spouse of an owner, meeting specific minimum employer premium contributions (typically 50%), and meeting the minimum participation requirement (typically 70% of all eligible employees).
This may all sound confusing and overwhelming for those who have never dealt with group health benefits before. Many new business owners in California often worry that they will accidentally miss a requirement or miscalculate an employee’s full-time status.
The fear of choosing the wrong coverage, misinterpreting eligibility guidelines, or getting buried under paperwork can prevent business owners from offering health benefits, and that means they often fall behind competitors who do.
To eliminate these risks, we’ve put together a list of some of the most frequently asked questions about California health insurance. If you have additional questions, the team here at JC Lewis Insurance Services can help.
Do I Have to Offer Health Coverage to My Employees?
The first question many small business owners have is if they have to offer coverage, and as mentioned above, the answer is no. The Affordable Care Act (ACA) and its mandate only apply to businesses that are classified as Applicable Large Employers, which is an employer with 50 or more FTE employees. If you have 49 or fewer FTEs, then there are no state or federal penalties for not offering coverage.
Of course, you always have the option to do so. Offering benefits such as health coverage is a great incentive that can help you bring in talented new hires and retain your current team.
What Exactly Is a Full-Time Equivalent Employee?
Determining your group size isn’t quite as simple as counting every employee. It’s also important to note one major difference in the definition of a “small group” – the ACA defines it as 1 to 50 employees, while California law allows up to 100 employees.
Here’s what you need to consider when determining your actual FTE count:
- A full-time employee is any employee who works an average of 30 or more hours every week. Every employee who meets this definition is one FTE employee.
- With part-time employees, however, there isn’t a 1:1 equivalency. Instead, add up all of the monthly hours your part-time employees work and divide by 130 to determine the equivalent number of FTE employees.
The W-2 Rule also comes into effect here. For small group health insurance plans in California, you have to have at least one W2 employee enrolled in the plan who is not the owner, partner or spouse/partner of an owner. This means that sole proprietorships or businesses owned and operated only by spouses cannot purchase a small group policy and will need to look for insurance on the individual marketplace.
The Lookback Measurement Method
What if your part-time employees’ work fluctuating hours that, at times, do push more of them into FTE status? If you have too many part-time employees who suddenly have a spike in actual hours worked, you could suddenly become an Applicable Large Employer for a few months out of the year. Does this mean you suddenly have to offer coverage for a month?
Fortunately, the ACA includes the Lookback Measurement Method. This method is ideal for those who may have sudden spikes in their part-time hours. To use this method, you average the number of hours a part-time employee worked over a specific block of time, often a quarter or a year. If the average number of hours worked during that block is fewer than 30 per week/130 per month, they are classified as part-time. If it’s over that, they are a full-time employee for the purposes of FTE calculations.
Who Is Included in a Group Policy?
Typically, employees who work 30+ hours a week are considered full-time employees and are eligible for coverage. However, California does allow employers to expand eligibility downward to employees who work between 20 and 29 hours per week as long as the policy is applied to all employees who qualify. You cannot offer coverage to select employees who work 20 to 29 hours per week.
Can Part-Time Employees, 1099 Contractors, or Seasonal Staff Be Included?
One question a lot of employers ask is whether or not they can include employees who are not classified as full-time or who are under the 20 hour mark. The answer depends on how the worker is classified:
- Part-Time staff who work less than 20 hours a week are generally ineligible for traditional small group health plans.
- 1099 Independent Contractors who receive a Form 1099 are strictly ineligible from coverage. They are legally defined as non-employees, and including them violates California insurance law.
- Seasonal/Temporary workers are ineligible if they are hired for a temporary work period.
Contribution and Participation Rules
California insurance carriers do have two rules for group policies:
- The employer must pay at least half (50%) of each employee’s premium cost for the lowest-priced plan offered. Note this rule only applies to employees. You are NOT required to cover any of the premiums for dependents (spouses/children), though you may elect to.
- Most carriers require 70% of all eligible employees to participate in the plan. However, this does NOT include employees who formally decline to participate because they have valid healthcare coverage through an alternative method, such as a spouse’s plan, Medicare, or military benefits. We can help you determine which employees have valid waivers.
Note that California has what is called a Special Open Enrollment Window for businesses that cannot meet the 70% participation rule. This special period occurs every year and is typically held November 15 to December 15. During this time, carriers must accept all small group applications, including those that do not meet the 70% participation level.
What Documents Do You Need to Create a Small Group Policy?
When you apply for small business health insurance in California, insurance carriers are going to ask for documentation to verify your business standing, employee count, and other information. Here is what you’ll likely need to provide:
- California Form DE-9C: Quarterly Contribution Return and Report of Wages. This document verifies your W-2 employees and your payroll history.
- Articles of Incorporation, Operating Agreements, or other documents establishing your business as a legitimate company approved to operate in California.
- Ownership records documenting the business owners, their ownership percentages, and if they are choosing to enroll in coverage or opt out.
- Waiver forms for those eligible employees who choose not to participate in coverage due to having alternative insurance.
Avoid Setup Mistakes: Get Your Custom Quote Blueprint
Small business health insurance doesn’t have to be a headache. When you work with a licensed California broker like JC Lewis, you can rest easy knowing that you will be 100% compliant from day one.
If you’re ready to look at your policy options, we’re here for you. Reach out today to discuss your employee healthcare needs. Send us your employee count, payroll structure, and desired effective date. We’ll tell you what information is needed for a quote.
