Small and Large Business Health Insurance: State & Federal Roles

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Updated 9/12/2018

Over the past decade or more, state and federal laws generally required that health coverage providers accept small employers applying for coverage. With groups such as small businesses, the insurer has determined a premium price based on risk factors balanced over the entire group, using general information on members of the group, such as age or gender. Small businesses often pay more for employee health benefits because they don’t have the buying power of big employers. On average, small businesses paid about eight to 18 percent more than large firms for the same health insurance policy. Health coverage providers may charge different premiums to small employers based on the industry of the employer or on the employer’s prior health claims. As both workers and small employers feel the financial squeeze, fewer are able to afford to offer, or purchase, health insurance coverage. States most often review or approve policies that are offered directly to consumers or to small employers. Most states have had laws that require state-licensed health insuring organizations to provide coverage to small employers that want it, with some limitation on the rates that can be charged (e.g., restrictions on how premiums can vary based on age and health status).

The Patient Protection and Affordable Care Act or ACA (P.L. 111-148) assisted and affected small and large businesses in a number of ways.

Small Business Snapshot: Beginning in 2014, small businesses have been able to participate in small business health options programs or SHOP exchanges. These programs include new state-based health insurance purchasing pools or CO-OPs (in about one-half of the states) where small businesses are able to pool together to buy insurance. Small businesses are defined as those that have no more than 100 employees. States have had the option of limiting pools to companies with 50 or fewer employees. Companies that are currently defined as small businesses and grow beyond the size limit will be “grandfathered in” and treated like those still within the 100 or 50 maximum.

Employer Tax Exemption: The Hidden federal Subsidy That Helps Pay for Health Insurance. Read analysis by The New York Times, 7/7/2017.

POSTPONED: “Cadillac Tax” on High Cost Employer Plans.

On Dec. 18. 2015 an unusual bipartisan action by Congress and the President 2016 postponed the Affordable Care Act’s (ACA) “Cadillac” tax on high-cost health plans until 2020. While the delay signals bipartisan support and momentum toward full repeal of the tax, those discussions will continue through the transition to a new administration in 2016. In the meantime, this two-year delay will, at a minimum, provide employers additional time to consider appropriate measures to reduce excise tax exposure. The legislation also addresses certain excise tax features as follows:

  • The thresholds for triggering the tax will continue to be indexed until the tax goes into effect in 2020 (the thresholds for 2018 were slated to be $10,200 for self-only coverage and $27,500 for other than self-only coverage);
  • Replacing a “non-deductible” definition, Employers will be allowed to deduct any “Cadillac” tax payments; and
  • The Comptroller General, in consultation with the National Association of Insurance Commissioners, will study suitable benchmarks to use for age and gender adjustments to the thresholds triggering the tax.

Other ACA-related changes include a one-year moratorium on the ACA’s annual fee on health insurers’ net premiums (for US risks) and a two-year halt to the tax on sales of medical devices. These fees and taxes were likely to be passed on to employers through increased insured plan premiums and provider costs, and thus will be welcome relief to employers. [MORE]

NCSL explains public employer coverage: “ACA Requirements for Medium and Large Employers to Offer Health Coverage” – a 2016 updated report applicable to states, state legislatures and local governments as employers [download full report; 7 pages, PDF]

Small Business Health Care Tax Credit for Small Employers The SHOP law provisions assist small businesses and small tax-exempt organizations afford the cost of covering their employees’ health insurance. If a small business has fewer than 25 employees and provides health insurance it may qualify for a small business tax credit of up to 50 percent (up to 35 percent for non-profits) to offset the cost of insurance, starting with the 2010 federal tax year. This can make the cost of providing insurance significantly lower. Prior to 2014, the small business tax credit was 35 percent (up to 25 percent for non-profits) for qualifying businesses.

  • State-Run Small Business Health Options Programs: An Update Three Years Post ACA Implementation. Read the report on SHOP insurer participation, enrollment, and use of the online portals. Today, 17 states and the District of Columbia operate a state-run SHOP alongside an individual insurance marketplace, including Utah and Mississippi, which opted out of running an individual marketplace but built their own SHOP. Many states continue to face challenges in convincing small employers and their brokers that the program offers value not available elsewhere. More information about tax credit uptake and enrollment through the federally run SHOPs would help policymakers and states make a fair assessment of the benefits the SHOPs provide. Published by The Commonwealth Fund, July 29, 2016.

  • Small Business Health Care Tax Credit for Small Employers– IRS explanation of tax credit. Updated 1/15/2015

Eligibility Rules

  • Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
  • Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
  • Average annual wage. A qualifying employer must pay average annual wages below $50,000.
  • Both taxable (for profit) and tax-exempt firms qualify.
  • Small Business Health Care Tax Credit: Frequently Asked Questions – IRS guidance about Small Business Health Care Tax Credit.

Small Business Redefined: On October 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act. The PACE Act amends the definition of “small employer” in the Affordable Care Act (ACA) so that it would continue to apply to employers with one to 50 employees, rather than changing to one to 100 employees as of 2016 as provided in the original ACA; however, the new legislation also allows states to opt for the one-to-100 employee definition of small employer if they choose.

  • The Centers for Medicare and Medicaid Services (CMS) released a series of frequently asked questions explaining how it will implement the PACE Act (Dated October 19, 2015). States may elect to extend the definition of small employer to cover employers with up to 100 employees by any means that is legally binding under state law, as long as the definition applies to all insurers, including those in the Small Business Health Options Program (SHOP) program. 46 states and D.C. have retained the 1-50 definition; four states use the 1-100 option(See MAP below)

Small Business Health Options Program (SHOP) Exchanges.1

Small Business Exchanges have a framework set by federal rules, including options for how employers can provide contributions toward employee coverage that meet standards for small business tax credits. SHOP Exchanges are designed to serve as a marketplace for small employers’ with one to 100 workers, or up to 50 workers if a state chooses that approach. Small employers with less than 50 full-time equivalent employees are not required to offer health coverage.

The ACA reformed small group market underwriting and coverage, imposing the same guaranteed issue, modified community rating, and comprehensive coverage requirements on the small group market that it imposed on the individual market. The ACA further created the SHOP exchanges to pool the enrollment of small employers, potentially reducing administrative costs, and to offer individual employees a choice among health insurance plans. Finally, it created a new program to make tax credits available to small employers through the SHOP exchanges that would reimburse up to half of employer contributions towards premiums to pay for employee coverage.

Enrollment: July 2, 2015 update: (adopted/excerpted from Tim Jost, Esq, Health Affairs Blog; also Kevin Counihan, CEO of the Health Insurance Marketplaces, CMS Blog)

On July 2, 2015, CMS released for the first time numbers on effectuated enrollment in the SHOP exchange program.

With the troubled launch of the individual exchanges in the fall of 2013, however, the SHOP exchange took a back seat. The federally facilitated exchanges essentially delayed the launch of the SHOP exchange for 2014 (although they did offer the tax credits) and delayed offering employee choice in many states for 2015. The federally facilitated exchanges made online enrollment available to small employers in the 33 federally facilitated states beginning with the second open enrollment period in November of 2014. Many of the state exchanges offered SHOP exchanges from the time they opened enrollment in 2013.

As of May 2015, approximately 85,000 Americans had 2015 coverage through the SHOP marketplaces through approximately 10,700 small employers. These totals do not include employers that enrolled their employees in 2014 but had not renewed for 2015. Unlike the individual market, where open enrollment is only available once a year, employers can enroll in the SHOP exchange at any time. Approximately 500 employers have been enrolling each month since November 2014.

These are small numbers compared to the millions of enrollees in the individual exchange. They may reflect competition from private exchanges, which offer many of the same benefits of the SHOP exchange. Private exchanges cannot offer the tax credits, but the tight tax credit eligibility requirements have limited their usefulness to small employers. In any event, the SHOP exchanges are launched and growing, and continue to have potential for making better coverage available to small employers and their employees.

Large Employers (100+) mandated to offer health coverage

The Obama Administration has modified the ACA statutory requirement that large employers (initially applied to those with 100 or more full-time equivalent employees) have to offer health insurance or coverage, a one year date change from the original Jan. 1, 2014, now to Jan. 1, 2015. This change was announced July 2, 2013, and modified in February 2014, described below.

Employers with 50-99 workers given until 2016 to offer coverage. On Feb. 10, 2014, the Treasury Department extended by one additional year the requirement that employers with between 50-99 workers meet the mandate to offer health insurance, a category that includes about seven percent of the private workforce. The new rules also will require 70 percent of workers to be covered in that first year. Read the Treasury fact sheet here [2 pp.] and final rule here [227 pp.].

How the policy affects employers:

  • These substantive policy changes have an impact on states and employers in every region. Small Businesses with fewer than 50 employees: (about 96% of all employers): Under the Affordable Care Act, companies that have fewer than 50 employees are not required to provide coverage or fill out any forms in 2015, or in any year, under the Affordable Care Act.
  • Larger employers with 100 or more employees (about 2% of employers): The overwhelming majority of these companies with 100 or more employees already offer quality coverage. Today’s rules phase in the percentage of full-time workers that employers need to offer coverage to from 70 percent in 2015 to 95 percent in 2016 and beyond. Employers in this category that do not meet these standards will make an employer responsibility payment for 2015.

  • Employers with 50 to 99 employees (about 2% of employers): Companies with 50-99 employees that do not yet provide quality, affordable health insurance to their full-time workers were to report on their workers and coverage in 2015, but had until 2016 before any employer responsibility payments could apply.

POSTPONED Permanently?: “Cadillac Tax”

The So-Called “Cadillac Tax” on Employers with High-Cost Plans (2020 and beyond) Excerpt from Health Leaders magazine, October 13, 2014 The tax on high-cost health plans, which are often referred to as Cadillac plans, is expected to impact a considerable share of the plans provided by healthcare organizations for their own employees, as much as 39% by 2020. The implications are significant because the excess-benefits tax requires the employer to pay 40% on the value of the portion of the plan that exceeds thresholds set by the Patient Protection and Affordable Care Act. Employers also need to consider that the tax is measured as a direct function of plan cost, and not actuarial plan value, and that a number of factors can drive excise-tax exposure.

On Dec. 18. 2015 an unusual bipartisan action by Congress and the President 2016 postponed the Affordable Care Act’s (ACA) “Cadillac” tax on high-cost health plans until 2020. While the delay signals bipartisan support and momentum toward full repeal of the tax, those discussions will continue through the transition to a new administration in 2016. In the meantime, this two-year delay will, at a minimum, provide employers additional time to consider appropriate measures to reduce excise tax exposure. The legislation also addresses certain excise tax features as follows:

  • The thresholds for triggering the tax will continue to be indexed until the tax goes into effect in 2020 (the thresholds for 2018 were slated to be $10,200 for self-only coverage and $27,500 for other than self-only coverage);
  • Replacing a “non-deductible” definition, Employers will be allowed to deduct any “Cadillac” tax payments; and
  • The Comptroller General, in consultation with the National Association of Insurance Commissioners, will study suitable benchmarks to use for age and gender adjustments to the thresholds triggering the tax.

Other ACA-related changes include a one-year moratorium on the ACA’s annual fee on health insurers’ net premiums (for US risks) and a two-year halt to the tax on sales of medical devices. These fees and taxes were likely to be passed on to employers through increased insured plan premiums and provider costs, and thus will be welcome relief to employers.

Read More: “The Cadillac Tax: an Excise Tax on High Value Health Insurance Plans” – by Vermont Legislative Joint Fiscal Office. Online at: – 11/25/2014

“The Cost of Spousal Health Coverage”

A 2014 study examines what can happen when companies looking to save health costs in 2014 require working spouses to get health insurance through their own employer. Authors find the move has some unexpected consequences, according to a new study by the nonpartisan Employee Benefit Research Institute (EBRI).

The federal Patient Protection and Affordable Care Act (PPACA) requires that employers with 50 or more workers provide health coverage to workers and dependent children until they reach age 26. It does not, however, require employers to provide health coverage to spouses, whether or not they are eligible for other health insurance. In 2011, primary health insurance policyholders spent an average of $5,430 on health care services, compared with $6,609 for spouses. This can make them a target for employers looking to control their health benefit costs. [Full report online, 7 pp., PDF]

  • Description of ACA statutory requirements for employers, (detailed below) originally issued 2010.
  • U.S. . Treasury Department Announcement: “Continuing to Implement the ACA in a Careful, Thoughtful Manner” – blog post by Mark J. Mazur, Assistant Secretary for Tax Policy at the U.S.. Department of the Treasury. 7/2/2013.
  • “Why liberals are abandoning the Obamacare employer mandate” – article by Politico Pro, 7/15/2014 More and more liberal activists and policy experts who help shape Democratic thinking on health care have concluded that penalizing businesses if they don’t offer health insurance is an unnecessary element of the Affordable Care Act that may do more harm than good. Among them are experts at the Urban Institute and the Commonwealth Fund and prominent academics like legal scholar Tim Jost.
  • Implementing Health Reform: A One-Year Employer Mandate Delay – Health Affairs blog by Professor Tim Jost, 7/3/2013.>
  • Exemptions from the Individual Mandate to have health insurance – Cited from U.S.. Treasury Department, updated 6/23/2013.

Guidance on SHOP Exchanges – (Includes archive history 2013-14)

The Centers for Medicare and Medicaid Services (CMS) issued guidance in 2013 in the form of frequently-asked questions (FAQs) addressing Small Business Health Options Program SHOP)-Only Marketplaces. The first question asked addresses whether a state may operate a SHOP while the individual market Marketplace is operated as a Federally-facilitated Marketplace (FFM)? The guidance states that it is CMS’ intention to propose through rule that, for 2014, a state that submitted a Blueprint to operate a state-based marketplace and received conditional approval may request to operate a state-based SHOP while the individual market Marketplace is operated as an FFM. All states had the same option starting in 2015.

In 2013, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule outlining program integrity guidelines for the Health Insurance Marketplace (Marketplace) and premium stabilization programs. The policies offer clarity on oversight of various premium stabilization and affordability programs, build on state options regarding the Small Business Health Options Program, and provide technical clarifications. The HHS fact sheet is online here.

Small Business Health Options Program (SHOP): Some Features Delayed.

States Implementing or Delaying Employee Choice in 2015

On May 27, 2014, a final rule “taking the next step” in implementing “employee choice” in the Small Business Health Options Program (SHOP) was published by the Department of Health and Human Services (HHS). “Employee choice” provides employers the opportunity to allow employees to choose any health plan at the actuarial value, or “metal,” level selected by the employer. State Insurance Commissioners were given an opportunity to submit a written recommendation to the SHOP that employee choice not be implemented in that state in 2015 if the State Insurance Commissioner concluded that not implementing employee choice would be in the best interest of small group market consumers in his or her state.

An HHS table provides a tally: in total, 18 states with a Federally-facilitated SHOP will allow for this transition relief in 2015. The remaining 14 states with a Federally-facilitated SHOP will join most State-based SHOPs and have employee choice available to small businesses in 2015. In 2015, nearly two-thirds of Americans will live in states where small business workers can choose a health plan rather than have their employer do it for them.

The following states with federally-facilitated exchanges (FFMs) implemented Employee Choice in 2015: Arkansas, Florida, Georgia, Indiana, Iowa, Missouri, Nebraska, North Dakota, Ohio, Tennessee, Texas, Virginia, Wisconsin and Wyoming. Small-Employer (“SHOP”) Exchange Issues- Institute for Health Policy Solutions, 5/2011. A report “describes and assesses distinguishing dimensions important to the design of a successful SHOP Exchange program. SHOPping Around- Setting up State Health Care Exchanges for Small Businesses: A Roadmap- Center for American Progress, 7/2011.

1- The CBO estimates that 24 million people will purchase their own coverage through the Exchanges in 2019. An additional 5 million people are expected to receive health insurance through the Exchanges because they work for an employer who allows all of their workers to choose among health insurance plans offered from the Exchange (though these individuals are not eligible for subsidies). While this puts the projected total number of individuals receiving coverage through the Exchanges in 2019 at 29 million, the CBO estimates consider these 5 million individuals covered by employment-based insurance.

Early Retirees and Employer Incentives – The ACA provides financial assistance to employers that continue coverage for early retirees, age 55-64 [HHS Fact Sheet]

State Decisions on Allowing Mid-Sized Employers (51-100) to Delay a Move to the Small-Group Insurance Market (June 2015 update)

Beginning January 1, 2016, the ACA expands the definition of “small employer” to mean a business that employs between two and 100 employees. Experts fear this change could result in premium increases for some mid-sized employers with between 51 and 100 employees, which are currently included in the large-group market, because they will become newly subject to several small-group market reforms. A June 2015 analysis by The Commonwealth Fund describes states’ choices and deadlines. Requirements include applying coverage rating rules such as not charging people more for preexisting conditions and the requirement to cover a minimum set of essential health benefits. As a result, some policymakers and others have called for the delay or repeal of this provision.

State Options for Large Employers and Exchanges

States can choose to enact stronger consumer protections than these minimum standards for rating and selected other consumer protections. Starting in 2017, states have the option of allowing health insurance issuers that offer coverage in the large group market to offer such coverage through the ACA Marketplace. For states that choose this option, these rating rules also will apply to all large group health insurance coverage. These rules standardize how health insurance issuers can price products, bringing a new level of transparency and fairness to premium pricing. (Source: CCIIO/CMS Fact Sheet, February 2013)

Employer Requirements to Offer Coverage (Includes Archive References)

Medium and Large Employers (with 50 or more full time employees [FTEs]) [Note delayed deadlines, announced July 2, 2013 and Feb 10, 2014 by the Treasury Department]

Employers with 50 or more employees, including for-profit, non-profit and government entity employers, generally are required to offer health insurance to each full-time employee.A

  • For employers with 50-99 FTEs, this requirement has been delayed for two years, to January 1, 2016, based on Treasury Department rules released Feb 10, 2014. [linked above]
  • For employers with 100 or more FTEs, this requirement has been delayed for one year, to January 1, 2015, according to Treasury Department announcements in July 2013.

The offered insurance must meet the minimum essential coverage (MEC) requirement, defined as “Bronze level” where the health insurer plan will pay at least 60 percent of the cost of each health service or treatment; higher levels of coverage include “Silver” with 70% insurer payment, “Gold” at 80% insurer payment and “Platinum” at 90% are permitted. Such employers who do not offer coverage and do have at least one full-time employee who receives a premium tax credit will be assessed a fee of $2,000 per full-time employee, but this excludes the first 30 employees from the assessment. Such employers that offer coverage but that have at least one full-time employees receiving a premium tax credit (available up to 400% annual FPL) will be required to pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees. These provisions are effective January 1, 2014.

IRS Regulations, Issued December 28, 2012; released December 31, 2012: [Includes excerpts]

  • FAQs addressing Employer Health Care Arrangements, describing how market reforms apply to employer payment plans. The FAQs specifically address arrangements where an employer does not establish a health insurance plan for their employees, but reimburses them for premiums they pay for health insurance, and are considered to be a group health plan. Treasury updated April 2015.
  • Treasury Department and the IRS proposed regulations (REG-138006-12) on the Employer Shared Responsibility provisions [full text = 144 pages]
  • Starting in 2014 (but postponed until Jan. 1, 2015, or Jan 1. 2016), tax code Section 4980H, added by ACA, will require employers with at least 50 full-time and/or full-time equivalent employees to offer affordable health care coverage that provides a minimum level of coverage, or pay a penalty. According to Section 4980H, an employee is considered to be full time if he or she works at least 30 hours per week, and the proposed regulations “would treat 130 hours of service in a calendar month as the monthly equivalent of 30 hours of service per week.”
  • “Coverage for an employee under an employer-sponsored plan is affordable if the employee’s required contribution for self-only coverage does not exceed 9.5 percent of the employee’s household income.”
  • Under the rules, employers must offer coverage to employees (postponed until Jan. 1, 2015) and must offer coverage to dependents as well, starting in 2015. The proposed regulations define an employee’s dependents for purposes of section 4980H as an employee’s child who is under 26 years of age. “Dependent does not include the spouse of an employee.” [Source: Proposed Regs., p. 56] If an employer offers MEC under an eligible employer-sponsored plan to its full-time employees (and their dependents), it will not be subject to the penalty under section 4980H(a), regardless of whether the coverage it offers is affordable to the employees or provides minimum value.
  • “A number of employers currently offer coverage only to their employees, and not to dependents. For these employers, expanding their health plans to add dependent coverage will require substantial revisions to their plans.”
  • The IRS planned to grant a one-year reprieve to employers who fail to offer coverage to dependents of full-time employees, provided they take steps in 2014 to come into compliance. Sources & Commentary: IRS web report:, 12/28/2012.

    The NY Times published this analysis: “The rules, though labeled a proposal, are more significant than most proposed regulations. The Internal Revenue Service said employers could rely on them in making plans for 2014.” 1/1/2013 “IRS Releases Proposed ACA Rules on Employer Shared Responsibility” BNA Tax News, 12/31/2012.

Footnotes and explanations A – To be subject to the Employer Shared Responsibility provisions, an employer must employ at least 50 full-time employees or a combination of full-time and part-time employees that equals at least 50 (for example, 40 full-time employees employed 30 or more hours per week on average plus 20 half-time employees employed 15 hours per week on average are equivalent to 50 full-time employees). Employers will determine each year, based on their current number of employees, whether they will be considered a large employer for the next year. For example, if an employer has at least 50 full-time employees, (including full-time equivalents) for 2013, it will be considered a large employer for 2014. [Source: Q & A, Question #4, by IRS, 12/28/2012] Under 50 employees PPACA exempts all employers with up to 50 full-time employees from any of the penalties or taxes applied above to 50+ employers.

Over 200 Employees

ACA AUTOMATIC ENROLLMENT REPEALED. On Nov. 2, 2015 the President signed a congressional enacted provision to repeal section 1511 of the ACA. That provision required employers that employ more than 200 employees and that offer health insurance to automatically enroll new employees in a health plan. Section 1511 further requires employers to give employees notice that they can opt out of the plans in which they are auto-enrolled in at any time. This was meant to encourage enrollment in coverage by employees who might otherwise not do so if they had to initiate enrollment on their own.

Implementing the provision, which has been generally opposed by business interests, has been a very low priority for the administration, and its repeal will not seriously affect the general scheme of the ACA. The Department of Labor (DOL) guidance, issued in 2012, stated that it would not be ready to implement the provision given the need to coordinate implementation of the provision with other more important provisions such as the employer mandate and the ban on waiting periods exceeding 90 days. It projected no deadline for implementing the provision. DOL reiterated that employers did not need to comply with the provision until it issued rules.

According to the Health Affairs Blog, the Congressional Budget Office (CBO) projects that repeal of this provision would reduce the number of people covered by employer-sponsored insurance by 750,000 beginning in 2017 when the provision might first be enforced.# # CBO estimated that 90 percent of these people would remain uninsured. Repeal would reduce the budget deficit by $7.9 billion over the 2016-2025 period because employees would receive more taxable income rather than health benefits, which are not taxable, and because of increased individual responsibility penalty payments.

Sources: CMS/CCIIO notices and guidance, 7/2/2012, 2/10/2014; 6/2/2014; Summary of Health Reform Law, Kaiser Family Foundation 4/23/2013

ACA statutory exemptions from the requirement to obtain minimum essential coverage

There are statutory exemptions for nine categories of individuals, based on the definitions below. Additional exemptions have been added by regulations, issued 2012-2018. (#10 and above)

Sources: Treasury Department Questions and Answers on the Individual Shared Responsibility Provision – Updated 2015 Individual Shared Responsibility Provision – Exemptions: Claiming or Reporting – IRS – Updated 2015 The Individual Shared Responsibility Provision– A consumer and taxpayer explanation – IRS – Updated 2015

  1. Religious conscience: Persons who are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.
  2. Unaffordable coverage options: Persons who can’t afford coverage because the minimum amount that must be paid for the premiums is more than eight percent of their household incomes.
  3. Hardship: A Health Insurance Marketplace, also known as an Affordable Insurance Exchange, has certified that a person has suffered a hardship that makes him/her unable to obtain coverage. This category has recently been expanded to include those who are homeless, facing eviction or foreclosure, victims of domestic violence, and victims of floods, fires and other disasters.
  4. Health care sharing ministry: Persons who are a member of a recognized health care sharing ministry.
  5. Indian tribes: Persons who are a member of a federally recognized Indian tribe.
  6. No filing requirement: Persons whose household income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on a person’s filing status, age, and types and amounts of income. Requirements are detailed in the IRS Interactive Tax Assistant (ITA).
  7. Short coverage gap: Persons who went without coverage for less than three consecutive months during the year. In general, a gap in coverage that lasts less than three months qualifies as a short coverage gap. If an individual has two short coverage gaps during a year, the short coverage gap exemption only applies to the first or earlier gap.
  8. Incarceration: Persons who are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against them.
  9. Not lawfully present: Persons who are neither a U.S. citizen, a U.S. national, nor an alien lawfully present in the U.S. OTHER REGULATORY EXEMPTIONS
  10. Coverage gap due to Medicaid not expanded: Any person or family residing in a state that has declared it has not expanded the state Medicaid program to 138 percent of federal poverty (FPL), and having an annual income below 100 percent of that FPL.
  11. Canceled policies: People whose 2013-14 policies were canceled and consider the available alternative policies “unaffordable.”
  12. Other hardships: a more open-ended exemption for persons who have other, unspecified hardships in obtaining insurance. This requires a written appeal to HHS or an HHS-authorized state authority.

2017: Trump HHS List of Hardship Exemptions, with links to details, forms, and instructions. [Updated 7/22/2017]

1. You were homeless

2. You were evicted or were facing eviction or foreclosure

3. You received a shut-off notice from a utility company

4. You experienced domestic violence

5. You experienced the death of a family member

6. You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property

7. You filed for bankruptcy

8. You had medical expenses you couldn’t pay that resulted in substantial debt //

9. You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member

10. You claim a child as a tax dependent who’s been denied coverage for Medicaid and CHIP for 2017, and another person is required by court order to give medical support to the child. In this case you don’t have to pay the penalty for the child.

11. As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace in 2016

12. You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid in 2017 under the Affordable Care Act

13. Your “grandfathered” individual insurance plan (a plan you’ve had since March 23, 2010 or before) was canceled because it doesn’t meet the requirements of the Affordable Care Act and you believe other Marketplace plans are unaffordable

14. You had another hardship. If you experienced another hardship obtaining health insurance, use this form to describe your hardship and apply for an exemption.

2018-2019 Expedited Mandate Exemption Process by HHS/CMS On Sep. 12, 2018 “CMS/CCIIO announced a new way for consumers to claim a hardship exemption from the shared responsibility payment for 2018 on a federal income tax return without obtaining an exemption certificate number from the Exchange. Consumers can claim hardship exemptions either through the FFE (federal exchange) using the existing application processes or on a federal income tax return for circumstances like a natural disaster, deprivation of food, shelter, clothing, or other necessities, and/or other events the Secretary has determined constitute a hardship with regard to the capability to obtain health coverage. HHS will continue to process these exemptions under the current regulations for exemptions applied for through the FFE and for all State-based Exchanges (SBEs) that choose to have exemptions processed by HHS.” ♦ Press Release is live online ♦ Hardship Exemption Guidance:

Financial impact of the individual mandate (2017 data) (compiled 2017 by the Washington Post):

  • The current penalty for not having coverage is $695 per adult and $347.50 per child — up to $2,085 per family — or 2.5 percent of family income, whichever is greater. Roughly 6.5 million taxpayers paid a fine for being uninsured in 2015, according to the Internal Revenue Service, though the fine that year was $470 per adult.
  • The Congressional Budget Office projected in a December 2016 report that abolishing the individual mandate could leave an additional 15 million Americans uninsured by 2026, while saving the federal government $416 billion in subsidies to ACA consumers and Medicaid payments.

Rate Review Provides Savings for Small Business Health Policies

Small Group Market: In the small group market, analysis of the information from 35 states indicates that the implemented rate increases are approximately 19 percent lower than the rates originally requested by insurance companies.[6] This difference equates to approximately $866 million in savings to consumers based on 2012 small group market premium data. For the 35 states, 18.7 percent of total covered lives had rate requests reduced or denied. Extrapolating to the total number of 18.1 million covered lives in the small group market, an estimated 3.4 million individuals had rate requests reduced or denied. As with the individual market data, the small group premium data are based on MLR data from 50 states and the District of Columbia,[7] whereas the average difference between rate changes requested and rate changes implemented is taken from ASPE’s analysis of 35 states in the small group market using RRG data and data from Florida, a non-grant state. Again, the results were extrapolated to approximate a national savings total for the small group market as a result of rate review.

Rate Change Requested Versus Rate Change Implemented in the Small Group Market Archive Example: Small Group Market Rate Change, 2012 Requested Implemented Number of rate filings in 35 states 772 772 Number of covered lives affected by these rate filings 10,938,053 10,938,053 Average rate change for 35 states 5.8% 4.7% Average rate change when request >=10% for 35 states 16.3% 9.7% % filings with rate change requested >=10% for 35 states 14.0% 11.7% % covered lives with rate change requested >=10% for 35 states 14.7% 9.3% % covered lives with rate change request reduced or denied 18.7% Total covered lives with rate change request reduced or denied based on 18.1 million total covered lives for all states 3.4 million Total U.S. savings based on $78.7 billion total premiums for all states $866 million Sources: Revised State Rate Review Grant (RRG) data and data from state websites plus data from Florida (non-grant state)

Total premiums in the individual and small group markets were lower by an estimated $1.2 billion compared to the total premiums initially requested.

ARCHIVE: State Consumer Protection Examples and Initiatives from the Decade before the ACA

For more recent state examples, please visit NCSL’s Health Insurance Reform Enacted Laws Related to the ACA, 2011-2014.

  • Small Group Guaranteed Issue – 2013 [links verified 6/29/2017]
  • Small Group Rate Restrictions -2013
  • Small Group Pre-Ex Condition Exclusion – 2013
  • Individual Market Portability Rules.- includes pre-exising conditions-2013
  • Rate Review, Individual and Small Group -2012

Source for Small Group Tables: State Health Facts, Kaiser Family Foundation online.

State Description/ Additional Information Colorado Colorado enacted the Fair Accountable Insurance Rates Act, H 1389; it requires individual and small group health insurance carriers to file with the Commissioner of Insurance a detailed description of their rating, underwriting and renewal practices; requires approval by the commissioner for certain rate increases. It was signed June 5, 2008. Florida Florida Rolls Out Health Plan Comparison Web Site- Florida launched an insurance comparison Web site that allows residents to check the benefits and premiums for small employer health plans offered in the state, the South Florida Business Journal reported on June 26, 2006. Kansas Existing Kansas Tax Credit Complements New Federal Credit. Businesses may qualify for the state credit if they employ between two and 50 people and have not contributed to health insurance premiums or health savings accounts for their employees in the preceding two years. The credit can be worth $70 per month per employee for the first year, $50 for the second year and $35 for the third and final year of eligibility. This benefit can be added to the federal tax credit that eligible small businesses can claim starting this year. (Report by Kansas Health Institute News, 1/10/2011) Kentucky Kentucky’s House passed HB 445 & HB 380 in 2006, as the Insurance Coverage, Affordability and Relief to Small Employers (ICARE) Program to make health insurance more affordable for small employer groups; including state subsidies, aimed as a four-year pilot project for employer groups with 2 to 25 employees. Maryland On November 19, 2007, the Working Families and Small Business Health Coverage Act (Senate Bill 6) was signed into law, offering subsidies to small businesses to offset the cost of providing coverage to employers and expanding Medicaid eligibility to certain adult populations. Provisions included in the new law include:

  • The provision of subsidies to small employers and employees of small employers if the employer: a) has not offered a health benefit plan within the prior 12 months; b) has two to nine eligible employees; c) meets certain low-wage requirements to be established through regulation; d) establishes a Section 125 payroll deduction plan to allow for pre-tax premium contributions; and e) agrees to offer a wellness benefit that is designed to prevent disease, reduce poor clinical outcomes, and promote health behaviors and lifestyle choices.
  • The expansion of Medicaid eligibility up to 116 percent of the Federal Poverty Level (FPL) for parents and caretaker relatives with a dependent child living at home.
  • The phase-in over four years of Medicaid eligibility up to 116 percent FPL for childless adults—enrollment may be capped and benefits may be limited based on available funding; and
  • The legislation is financed through a combination of general funds, hospital uncompensated care savings, a one-time surplus from the state’s high risk pool, and federal funds. The availability of general funds for the childless adult expansion depends on the adoption, through public referendum, to add a new article to the Maryland Constitution to authorize video lottery terminal gaming (slot machines) in the state.
  • The state wanted to focus on its smallest businesses because that is where the lack of health insurance is most acute, says John Colmers, secretary of the Maryland Department of Health and Mental Hygiene. Reimbursement goes directly to the health insurer, so agents still get full commission on their sale, but the employer gets a bill that’s half the size it would otherwise be.
  • As of January 2009, about 550 individuals are enrolled; the department is hoping to enroll 1,500 businesses during the year.
  • In addition, the Governor, through an October 2007 executive order, created the Maryland Health Quality and Cost Council.

Health care help: New for 2009- CNN Money, 1/09. Montana Insure Montana is the program launched in January 2006 to begin addressing the problem of uninsured Montanans. This is a two part program that is designed to assist small businesses with the cost of health insurance, whether they have provided health insurance previously or not.

  1. Small businesses with 2-9 employees that are currently providing health insurance to their employees are eligible for refundable tax credits.
  2. For businesses that were previously unable to afford health insurance for their employees, Insure Montana provides health insurance coverage through a small business purchasing pool.

Over 1550 small businesses were enrolled and 10,000 lives were covered as of August 2007 and a new applicants waiting list was started due to funding constraints. As of January 2009, both the tax credit and purchasing pool programs were at full capacity because of limited funding. Small businesses applying for either are being put on a waiting list. The program is entirely funded through increases in Montana’s tobacco tax, but that’s not enough. The state auditor’s office has requested additional funding – about $12.5 million for the next two years to cover those waiting and new applicants. Health care help: New for 2009- CNN Money, 1/09. New Hampshire New Hampshire governor signs HealthFirst insurance plan. The HealthFirst initiative will require major insurance carriers to offer a standard wellness plan for businesses with up to 50 employees. Premium costs will be controlled by focusing on prevention, managing chronic conditions and promoting best practices. A committee whose members include small business owners will design the wellness plan with a target premium of 10 percent of the prior year’s median wage, currently about $262 a month. An actuary will assess whether the plan can be offered for the target price before insurers are asked to provide it, starting October 2009, 5/08. The New Hampshire Small Employer Health Reinsurance Pool selected Pool Administrators Inc. as the administrator for the New Hampshire Small Employer Health Reinsurance Pool. Small Employer Health Carriers are able to reinsure with the pool effective January 1, 2006. New Mexico New Mexico State Coverage Insurance- A 2005 law for uninsured employed adults. A unique public-private partnership that provides affordable health insurance products for small employers (with 50 or fewer employees) who have previously been unable to afford coverage for their employees. Employers are expected to contribute $75 per employee per month, and employees pay premiums up to $35 per month and copayments. 37,000 individuals were enrolled as of June 2009. “Small Business Participation in the New Mexico State Coverage Insurance Program: Evaluation Results.” – The Hilltop Institute (University of Maryland) Analysis Brief, 2/9/10. New York New York’s HealthPass offers small businesses and sole proprietors a wide range of attractive health insurance options that enable eligible employees to choose a plan that best fits their medical needs and budgets. HealthPass serves small businesses and non-profit organizations in New York City, Long Island, Westchester, Rockland, Orange, Dutchess, and Putnam counties. More than 2,500 employers currently offer HealthPass plans to their employees and families. It operates as a partnership among the New York Business Group on Health, the City of New York, and the health insurance industry; enrollment surpassed 20,000 members as of 7/9/2008. Healthy New York: a program to provide publicly-funded or other type of financed reinsurance for private coverage to assume a portion of insurer’s high-cost claims. The state subsidizes cost for high-cost people using more the $5,000 per year, with the goal of lowering premiums for all, based on the knowledge that 20 percent of people account for 80 percent of health care spending. The state requires all HMOs to offer the Healthy NY product. Applicants may now choose a benefit package with a limited prescription drug benefit or one without prescription drugs. Small firms with low-wage workers, low income self-employed and uninsured workers without access to employer sponsored insurance may enroll. Ohio Rep. Jim Raussen reported that SB 5 initially would have allowed small employers to offer health care plans that didn’t include all of the state’s coverage requirements, in hopes of creating a more affordable health insurance product for small businesses. Those so-called “mandate-lite” provisions have been removed from the bill because other states’ experience showed few businesses bought the product, and the savings were only about 3 to 5 percent, Raussen said. Senate Bill 5 now mostly includes provisions to allow small businesses to create alliances to buy health insurance. This bill became law in March 2007. Oklahoma Governor Henry signed a law on June 4, 2007, targeting working Oklahomans by expanding “Insure Oklahoma,” a program that helps small businesses provide health insurance for their employees. Under House bill 1225, the law expands eligibility in the program from businesses with 50 employees to those with 250 or fewer workers. Under the program, the state pays 60 percent of the insurance costs, the employer pays 25 percent and the employee pays the remaining 15 percent. The bill also would expand eligibility in the program to workers who earn 185 percent of the federal poverty level to a 250-percent threshold. As of September 2008, the program has about 10,000 employees enrolled — most of whom were uninsured before — that is far below expectations for a program that could accommodate four times that amount. The Oklahoma Employer/Employee Partnership for Insurance Coverage (O-EPIC) program was created to assist small businesses in offering their employees health insurance. Participating employers with 250 or fewer employees must contribute 25 percent of the employee’s premium and must offer a qualified O-EPIC plan. The state funds 60 percent of the insurance costs, and the employee pays the remaining 15 percent. Participating employees have incomes below 250 percent of poverty. Qualifying O-EPIC plans are required to cover state-defined basic benefits and have maximum out-of-pocket spending limits. Rhode Island On July 3, 2007 Senate Bill 448 was signed into law, establishing a state-wide requirement that employers offer employees the opportunity to buy health insurance with pre-tax income. The state Insurance Commissioner notes that 39 percent of Rhode Island workers do not have access to employer-sponsored insurance. Neither the state nor employers are required to contribute to the purchase price, but the state estimates a savings of “up to 40 percent” of the premium cost, depending on tax bracket. South Carolina Governor Mark Sanford on February 19, 2008 signed a bill, S.588 (Act No. 180), that gives small businesses more flexibility to provide health insurance for their employees. The bill allows a group of at least 10 small businesses to join together and negotiate cheaper insurance rates than an individual business. Current state law allowed businesses to join together for health insurance but sets a minimum of 1,000 employees. The new law defines small business as 2-50 employees, and permits an employer of one to qualify subject to separate pricing terms. Gov. Sanford Praises Passage of Small Business Healthcare Bill, News Release, 2/19/08. Tennessee In Tennessee, SB 4014 of 2008 allows small businesses of 2 to 50 employees to pool together for the purpose of negotiating better insurance rates, creating a small business cooperative. The bill is designed to encourage more small employers to purchase health insurance and to give them predictability and stability in health-insurance rates. It was signed May 28, 2008. CoverTennessee – A market based public/private partnership plan for small employers and uninsured workers with incomes below 250 percent of FPL. ($25.5k /yr for 1; $51.6k for family of 4). Cover Tennessee is guaranteed access to basic, major medical coverage for $150 a month with the cost shared equally by the individual, employer, and state government. Tennessee tripled its tax on cigarettes to produce $239 million in new revenue for FY 2008. The premium for coverage is shared among the employer, employee, and state, with each party contributing 1/3 of the costs of the premium. CoverTN plan benefits are “very limited in nature compared to traditional insurance. For instance, these plans do not have an out-of-pocket maximum, and therefore do not protect against the potential of catastrophic medical costs. In other words, there is no limit to the amount of medical bills a member might have to pay for a major illness or injury, such as disease treatment, or injuries sustained in an automobile accident for example. Therefore, CoverTN is not a low-cost alternative to traditional insurance coverage.” 2008 Expansion: Beginning Jan. 1, 2008, more Tennesseans will be eligible for CoverTN, the premium subsidy program for the working uninsured. When CoverTN was launched nearly six months ago, it covered workers who earned up to $41,000 in small businesses with 25 employees or less. The state pays one-third of the premiums, the employer may choose to pay one-third and the employee one-third. If the employer chooses not to participate, the employee may pay two-thirds. Premiums for the basic benefit plan are about $150 a month and coverage is portable. The state plans to expand the program by opening it to individuals with annual incomes of up to $43,000, and in companies with up to 50 employees. About 13,000 Tennesseans are currently enrolled, and administrators hope to increase enrollment to 100,000 by 2010. Texas In 2007, the Senate passed and a House committee gave favorable recommendation to SB 922, which would encourage counties to test models for small business coverage. Intended to maximize flexibility and local control, the legislation would enable county commissions to establish local or regional health-care programs, which could offer insurance or health services. The state Health and Human Services Commission would use general revenues to provide start-up grants to seven of these programs, which could include health savings accounts and high-deductible plans. The grants would average $150,000 each, for a total cost of $1.05 million in FY 2008. In addition, the local/regional programs could apply for additional funds from a “health opportunity pool,” created under an 1115 waiver from Medicaid. It is expected that employers, employees and the state would jointly share the cost of premiums or health-care services. The programs would be required to allow any individual who receives state premium assistance to enroll. The bill did not pass the House. Incentives could boost employee health care- Senate studies tax breaks to help small firms provide insurance. The incentive under consideration will probably be in the form of larger tax deductions for companies that offer health care plans to their employees. Dallas Morning News, 2/1/07. Utah Program Assists Uninsured to Get Health Coverage. Because of passage of HB276 in 2006, the Utah Department of Health launched a new rebate program for health insurance premiums that would reduce the number of uninsured citizens in Utah by helping workers pay for their employer- sponsored health insurance. Qualified workers can receive rebates up to $150 per adult and $100 per child to help pay the monthly premium of an employer-sponsored health care plan. HB276 provided $267,000 in state funding for the program and allows matching federal Medicaid money. Utah also created the Utah Health Exchange, an internet-based state program, comparing insurance options and providing greater transparency of insurance plan benefits, serving the individual and small group markets. The exchange allows employees to combine defined contributions from one or more employers along with pre-tax personal contributions to purchase insurance that also is portable. All small employers with two to 50 people will have access to the exchange January 1, while large employer groups will have to wait until 2012. Utah’s exchange differs from so-called health insurance purchasing cooperatives set up by groups of small employers in some states to use their collective purchasing power to reduce premiums. Many of those cooperatives remained small and did not last long. As report by Workforce Management, “As the premium went up and the good risk left the group, you’d end up in this death spiral and the group died,” says Larry Boress, president of the Midwest Business Group on Health. The Utah exchange is intended to do what the purchasing cooperatives could not—simplify health plan administration, offer employees more choice and keep health care costs fixed. “What’s revolutionary about the Utah exchange is the defined-contribution piece for business,” says Samuel C. Gibbs, a senior vice president with Mountain View, California-based eHealth, an online health insurance portal. Utah is using eHealth’s Internet platform for a similar insurance exchange for individuals. Utah’s law now allows employers to contribute a fixed-dollar amount to a person’s health insurance, enabling them to customize their contribution for each individual, and send one check once a month to the exchange administrator. A separate part of this reform creates NetCare, a low-cost mandate-free insurance option for insurers to offer to the individual and small-business markets and for those eligible for COBRA, mini-COBRA or conversion coverage.” Enrollment launched August 19, 2009, based on HB 188, enacted into law in March 2009. In the two-week enrollment period that closed at the end of August, 136 businesses employing a combined 2,333 workers signed up. The average size of companies enrolled is 17 employees. What Utah’s Health Reform Means to Small Business – BusinessWeek, 9/04/09. Utah Exchange May Offer New U.S. Health Care Insurance Model- Workforce Management, 9/17/09. Washington A 2007 law, HB 1569 established the Washington Health Insurance Partnership. Similar to the “Connector” mechanism created in Massachusetts, the Partnership will offer benefits administration to small employers that have at least one employee who earns less than 200 percent of the federal poverty level (FPL). The Partnership also will provide sliding-scale premium subsidies to individuals who earn less than 200 percent of the FPL. It also authorizes evaluating the inclusion of additional health insurance markets in the health insurance partnership and studying the impact of health insurance mandates. It became law 5/2/07 as Chapter No. 2007-260. Program implementation has been halted due to a budget deficit. (as of August 2009) West Virginia West Virginia Small Business Plan – A 2004 law (S.B. 143) intended to help uninsured small businesses provide coverage for their employees. This is a public-private partnership between the West Virginia Public Employees Insurance Agency (PEIA) and participating insurance carriers by allowing carriers access to PEIA’s provider reimbursement rates. The design of this plan included coverage in both primary care and major medical at a cost that is 20-25 percent lower than the retail rates.

State Subsidized Enrollment: Results Are Mixed In the summer of 2007, NCSL compiled an informal survey summary of actual numbers of residents who enrolled in state initiated small-business programs. Enrollment experience is different state-to-state. Historically, employer participation in government created subsidized programs has not been extensive. States have had more success with enrolling individuals at the employee level and not going through the employer. Participation is also very much related to outreach and marketing. For more information collected by NCSL’s Primary Care Project, please visit State Programs to Subsidize or Reduce the Cost of Health Insurance for Small Businesses.

NCSL Online Resources

  • State Legislation on Health Savings Accounts- NCSL report, updated 2014
  • State Legislation Relating to Disclosure of Hospital and Health Charges- NCSL Report, updated 2014


  • State Programs to Subsidize or Reduce the Cost of Health Insurance for Small Businesses and Individuals- NCSL’s Primary Care Project, 2009.
  • State COBRA Expansions for Small Businesses- 39 states and DC expand COBRA regulations to small businesses (2-19 employees). The 2009 federal stimulus law expanded benefits and offered new opportunities for state coordination, 12/2009.

NOTE: NCSL provides links to other Web sites from time to time for information purposes only. Providing these links does not necessarily indicate NCSL’s support or endorsement of the site.

Compiled by Richard Cauchi, NCSL Health Program-Denver. Earlier research conducted by Steve Landess (2012-13)

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