Jeffrey Wade
In the United States, employers are not mandated to subsidize medical insurance for their employees. However, they are encouraged to do so through tax incentives. If an employer does not offer affordable health insurance, employees may be eligible for subsidies or premium tax credits on the Marketplace. Employees should be mindful that they may lose certain benefits if they opt for an individual market plan.
| Characteristics | Values |
|---|---|
| Employer mandate | Employers with 50-99 employees were not required to offer coverage before January 2016. |
| Employers with 100 or more employees complied if they offered coverage to at least 70% of their full-time or FTE employees. | |
| Employers must offer coverage to at least 95% of full-time employees and dependents. | |
| Employers must offer at least one plan that provides "minimum value" (pays at least 60% of the cost of covered services). | |
| Employers must offer at least one plan that is considered "affordable" (≤9.78% in 2020, 9.83% in 2021, and 9.02% in 2025). | |
| Employers that offer health insurance pay an average of about 83% of the cost of employees' coverage and 73% of premiums for family coverage. | |
| Employees pay the remaining 17% or 27% for employee and family coverage, respectively. | |
| Employers face penalties for non-compliance with the employer mandate. | |
| Employees can decline employer-sponsored coverage and purchase individual-market plans, but they will likely lose the benefit of subsidized premiums. | |
| Employees with employer-sponsored coverage that is not considered affordable may be eligible for premium subsidies in the exchange/marketplace. | |
| Employees with employer-sponsored coverage that is considered affordable won't qualify for premium tax credits if they buy a marketplace insurance plan instead. | |
| Employees without spousal coverage may purchase insurance in the ACA marketplace and qualify for a premium tax credit if all other eligibility rules are met. | |
| Employees can deduct total medical expenses, including self-purchased health insurance, that exceed 7.5% of their income if they itemize their deductions. | |
| Self-employed people can deduct the full cost of self-purchased health insurance if they are not eligible for coverage under an employer-sponsored plan. |
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What You'll Learn
- Employers are not obligated to subsidize employee medical insurance
- Employees can decline employer-sponsored insurance
- Employees can apply for subsidies in the Marketplace exchange
- Employers face penalties for non-compliance with the Affordable Care Act (ACA)
- Employees can qualify for premium tax credits if insurance is unaffordable
Employers are not obligated to subsidize employee medical insurance
Employers are not legally obligated to subsidize their employees' medical insurance. However, they are encouraged to do so through tax incentives. Employer-paid premiums for health insurance are exempt from federal income and payroll taxes, and the portion of premiums that employees pay is typically excluded from taxable income. This tax subsidy is a significant factor in why most American families have health insurance coverage through their employers.
Before January 2016, employers with 50-99 employees were not required to offer coverage, and employers with 100 or more employees complied if they offered coverage to at least 70% of their full-time or FTE employees. Since 2016, applicable large employers are required to offer coverage to at least 95% of full-time employees and dependents. If an employer does not offer coverage, or does not offer at least one medical plan option that provides "affordable," "minimum value" coverage, they may be subject to penalties.
The affordability of employer-sponsored coverage is determined by comparing the cost of the coverage to the household income. If an employer offers family coverage, it is considered affordable if the employee's required contribution is less than 9.02% of the household income for coverage. However, it is important to note that the affordability determination has changed over the years. From 2014 to 2022, the determination was based only on the cost of the employee's coverage, regardless of the cost to add family members. This situation, known as the "family glitch," has since been addressed with rule changes that allow for separate affordability determinations for the employee and their family.
While employers are not obligated to subsidize employee medical insurance, it is worth noting that the cost of health insurance is often shared between employers and employees. Employers that offer health insurance typically pay a significant portion of the cost, with employees contributing the remaining percentage.
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Employees can decline employer-sponsored insurance
Another factor to consider is that most insurance companies require a certain percentage of employees to join a group plan, typically around 75%. If an employee does not have a valid reason for declining coverage, such as existing coverage under their spouse's plan, their decision may affect the participation calculation for the employer's plan. Additionally, if an employer contributes 100% towards the employee's health plan and the insurance carrier stipulates that 100% enrollment is necessary, the employee may not be able to decline the employer's plan.
It is also worth noting that employees can only decline employer-sponsored insurance during an open enrollment period. If they miss this window, they will have to wait for the next enrollment period unless they experience a qualifying life event, such as getting married or having a child. Furthermore, once an employee enrolls in employer-sponsored coverage and agrees to have premiums deducted from their paycheck, they generally cannot cancel their coverage mid-year unless there is a qualifying life event.
While it is an option to decline employer-sponsored insurance, it is important to remember that doing so may result in losing the benefit of partial employer-funded premiums and pre-tax payment of premiums. Additionally, in most cases, employees who decline employer-sponsored insurance will not be eligible for a subsidy in the exchange, which means they will pay the full price for an individual-market plan. Therefore, it is crucial to consider provider networks, out-of-pocket costs, and family coverage needs before making a decision.
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Employees can apply for subsidies in the Marketplace exchange
However, if the employer's coverage is not considered affordable, or it does not provide minimum value, the employee may have access to premium subsidies in the exchange, provided they meet other eligibility criteria. These criteria include having a household income at least equal to the Federal Poverty Level (FPL) and not being eligible for coverage through Medicare, Medicaid, or the Children's Health Insurance Program (CHIP). Additionally, only legal residents or citizens of the country can apply for subsidies.
It is worth noting that the affordability determination has changed over time. Before 2023, the determination was based solely on the cost of the employee's coverage, but now, separate affordability determinations are made for the employee and their family. This change addressed the "'family glitch,'" which previously made some families ineligible for subsidies.
The Marketplace exchange offers two types of financial assistance: premium tax credits and cost-sharing reductions (CSR). Premium tax credits reduce the enrollee's monthly payments, while CSRs lower deductibles and other out-of-pocket costs. Employees can benefit from these subsidies if they meet the eligibility requirements and their employer's coverage is not affordable or does not provide minimum value.
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Employers face penalties for non-compliance with the Affordable Care Act (ACA)
The Affordable Care Act (ACA) mandates that employers with 50 or more full-time employees (including full-time equivalents or FTEs) must provide affordable, minimum-value health insurance to at least 95% of their full-time employees and their children until the end of the month in which they turn 26. Employers who fail to comply with this mandate face penalties.
The definition of "affordable" in this context is that employee contributions for employee-only coverage should not exceed a certain percentage of an employee's household income. This percentage is adjusted annually; for example, it was 8.39% in 2024 and increased to 9.02% in 2025.
If an employer does not offer health insurance or fails to provide at least one medical plan option that meets the "affordable" and "minimum value" criteria, they may be subject to penalties if any full-time employee purchases coverage on the Marketplace and receives a federal premium subsidy. The penalty amount is $2,570 per full-time employee, excluding the first 30 employees.
Additionally, employers must offer at least one plan that provides "minimum value," meaning it pays at least 60% of the cost of covered services. If an employer fails to do so, the penalty is the lesser of $3,860 per full-time employee receiving a federal subsidy for Marketplace coverage or $2,570 per full-time employee, excluding the first 30.
It is important to note that these penalties are designed to encourage employers to provide adequate and affordable health insurance to their employees. The ACA's employer mandate aims to ensure that employees have access to essential health coverage, and employers who do not comply may face financial consequences.
Prior to 2016, smaller businesses with 50-99 employees were not required to offer health insurance coverage. However, larger businesses with 100 or more employees were expected to provide coverage to at least 70% of their full-time staff.
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Employees can qualify for premium tax credits if insurance is unaffordable
Employees can qualify for premium tax credits if the insurance offered by their employer is unaffordable or fails to meet the "minimum value". This means that the insurance costs more than 9.02% of the employee's household income or covers less than 60% of the expected costs. In this case, the employee can turn down the insurance offered by their employer and may be eligible for a premium tax credit for coverage purchased in the ACA marketplace.
The affordability and adequacy of an employee's health plan are measured in the same way, regardless of whether the employee is designated as full-time or part-time. However, small employers (those with fewer than 50 full-time employees) are not required to offer health insurance coverage or make a shared responsibility payment. If a small employer does offer coverage to their part-time workers, those workers will only be eligible for premium tax credits if the employer's offer of coverage is unaffordable or does not meet the "minimum value".
It is important to note that if an employee is enrolled in an employer-sponsored plan that is considered minimum essential coverage, they are generally not eligible for the Premium Tax Credit for their Marketplace coverage, even if the employer's plan is unaffordable. However, they may be eligible for a Premium Tax Credit for coverage of another family member who enrolls in Marketplace coverage and is not enrolled in the employer's plan.
The size of the Premium Tax Credit is based on a sliding scale, with those who have a lower income receiving a larger credit to help cover the cost of their insurance. The credit is designed to help eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace.
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Frequently asked questions
You can decline your employer's insurance and purchase an individual-market plan, but you will likely lose the benefit of your employer subsidizing your insurance. You may also lose the benefit of paying for premiums on a pre-tax basis.
In 2025, a job-based health plan is considered "affordable" if your share of the monthly premium in the lowest-cost plan offered by the employer is less than 9.02% of your household income.
Employers with 50-99 employees are not required to offer coverage. Employers with 100 or more employees must offer coverage to at least 95% of full-time employees and dependents.
You may no longer qualify for savings on your Marketplace plan, even if you don’t accept the job-based coverage offer.
