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What Happens If Your Business Does Not Provide Insurance?

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Published On: May 21, 2021

There are more than 32.5 million businesses in the United States, operating in industries as vast as healthcare and manufacturing and as far-reaching as technology. Though the size and specifics of these businesses can vary immensely, all U.S. companies are legally required to obtain certain forms of insurance, namely employer-provided health insurance, worker’s compensation insurance, and unemployment insurance. These mandated types of insurance offer protection for employees against a myriad of risks and circumstances.

As a result of their mandated status, businesses can face serious consequences if they don’t provide sufficient coverage for their employees. Let’s take a look at each option to learn about what could potentially happen if a business doesn’t have insurance.

Health Insurance

The Affordable Care Act (ACA), more commonly known as Obamacare, plays a vital role in today’s world, especially when one considers the impact of COVID-19. It was designed to achieve three main goals: make affordable health insurance available to more people, expand the Medicaid program’s coverage, and support innovative medical care delivery methods in an attempt to lower overall health care costs. Employer-sponsored health insurance is an essential part of the first goal; it applies to companies with 50 or more full-time employees and/or full-time equivalents (FTEs).

The Law

Employer-provided health insurance must meet two fundamental requirements: it must provide “affordable” coverage and “minimum value”. Affordable coverage is calculated by looking at an employee’s contributions compared to their household income; if the contributions exceed a certain percentage of their income (9.78% in 2020 and 9.83% in 2021), the coverage is not considered affordable. A plan that provides minimum value must pay at least 60% of the cost of covered services, such as deductibles, copays, and coinsurance. This affordable, minimum value coverage must also apply to any dependents the employee has up to the age of 26.

The Consequences

If an employer does not offer any health insurance despite having 50 or more employees or does not offer at least one medical plan option that provides “affordable,” “minimum value” coverage, the business will incur the following penalties.

  • No coverage offered: 

    • $2,570 per full-time employee minus the first 30.

  • If coverage is offered but is not affordable: 

    • The lesser of: (1) $3,860 per full-time employee receiving a federal subsidy for coverage purchased on the Marketplace

    • or (2) $2,570 per full-time employee minus the first 30.

  • Covered offered, but does not provide minimum value: 

    • The lesser of: (1) $3,860 per full-time employee receiving a federal subsidy for coverage purchased on the Marketplace

    • or (2) $2,570 per full-time employee minus the first 30.

Depending on the size of the business, these penalties can add up to a considerable cost very quickly.

Workers’ Compensation

With the exception of Texas, workers' compensation insurance is legally required for businesses throughout the United States, although the threshold varies by state. For example, California requires workers’ comp insurance as soon as the first employee is hired, while Florida doesn’t require it until four or more employees have been brought on board. It was designed to provide wage replacement benefits, medical treatments, vocational rehabilitation, and various other benefits to employees who have been injured at work or have acquired an occupational disease.

Because the law isn’t federally mandated, each state is allowed to set its own base requirements. This varies primarily depending on industry and employee numbers, meaning that business owners should take the time to check their local laws if they want to protect themselves from the penalties.

The Consequences

Failing to provide adequate workers’ compensation insurance for your employees can result in significant ramifications, including jail time. These also vary by state, so let’s take a look at a few examples.

  • New Jersey 

    • Considered a criminal offense punishable by a fine of $10,000 or imprisonment for up to 18 months.

  • California

    • Considered a criminal offense punishable by fines that can reach up to $100,000.

  • Illinois

    • Carries misdemeanor charge, with the willful failure to obtain insurance categorized as a felony.

  • Pennsylvania

    • Intentional non-compliance is considered a third-degree felony, punishable by a fine of $15,000 and up to seven years in jail.

While fines alone can do a lot of damage to a business, imprisonment can sink it entirely.

Unemployment 

Unemployment insurance programs exist in all 50 states on both a federal and state level, serving to provide financial assistance to unemployed individuals who meet the following criteria: they are unemployed through no fault of their own, e.g., work simply isn’t available; they worked during a specified period, usually up to 18 months; they earned a minimum amount of wages as determined by each state, and they are actively seeking work each week they’re collecting benefits.

The Law

When an individual is approved for unemployment compensation, the money they receive comes from payroll taxes their company has paid to the government.

The Federal Unemployment Tax Act (FUTA) is an employer-only tax that costs 6% on the first $7,000 each employee earns per calendar year; this means the maximum amount a business will have to pay per employee is $420 per year. The State Unemployment Tax Act (SUTA) varies due to the fact that states are allowed to determine their own wage base and tax rates. Compliance with these acts results in a 5.4% tax credit, bringing down the FUTA tax rate to a much more affordable 0.6%.

The Consequences

Failing to pay unemployment taxes can result in penalties that are usually financial, including punitive fees or interest assessed on the money owed that was not paid. Fortunately, these penalties never extend to the company’s employees that are seeking unemployment support.

There are certain types of insurance that companies are simply required to pay into. While the details may vary from state to state, the consequences can be utterly ruinous. If a company is looking to save money, skimping on health insurance, workers’ compensation insurance, and unemployment insurance is the wrong way to do it; with penalties that can lead to bankruptcy and even imprisonment, it just isn’t worth the risk.

Want to read further? Read up on everything you need to know about compensation and employee benefits packages.

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Brian Freeman

Founder and CEO, Mployer Advisor

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