Whether an employer has to offer health insurance is set almost entirely by federal law, and the answer turns on how many employees you have. This article covers the ACA employer mandate, the coverage standards a large employer has to meet, the penalties, who is exempt, and what still applies to small employers in Michigan.
The short answer: No federal or Michigan law requires a business with fewer than 50 full-time employees, including full-time equivalents, to offer health insurance. At 50 or more you are an applicable large employer (ALE) under the ACA, and you must offer affordable, minimum value coverage to at least 95% of your full-time employees and their dependents, or risk an IRS penalty. Michigan has no state employer mandate, so for a Michigan business the federal rules are the whole test.
If rising premiums are the concern, our health and cost strategy shows where cost can move between renewals.
| Employer size | Required to offer coverage? | What applies if you do offer a plan |
|---|---|---|
| Fewer than 20 employees | No | Plan document and SPD, Medicare Part D notice and CMS disclosure, gag clause attestation |
| 20 to 49 employees | No | All of the above, plus federal COBRA |
| 50 or more full-time employees, including FTEs | Yes, or risk a penalty | All of the above, plus Forms 1094-C and 1095-C every year, and FMLA where 50 employees work within 75 miles |
The ACA Employer Mandate: What Applicable Large Employers Must Know
The ACA employer mandate, formally the Employer Shared Responsibility Provision in Section 4980H of the tax code, does not order anyone to buy insurance. It sets a penalty that an applicable large employer owes if it does not offer qualifying coverage and a full-time employee then gets a premium tax credit on the marketplace. So the first question is always whether you are an ALE.
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How to Count Toward 50
- Full-time employees: anyone averaging 30 or more hours of service a week counts as one.
- Part-time hours: hours worked by part-time employees are combined and converted into full-time equivalents using the IRS formula, so a business with fewer than 50 full-time staff and a large part-time crew can still be an ALE.
- The lookback: ALE status for a year is based on the average across the months of the prior calendar year, so a business whose monthly counts averaged 50 or more across 2026 is an ALE for 2027, while one that crossed 50 late in the year may not be.
- Related companies: businesses under common ownership (a controlled group) are counted together. Two companies that each sit under 50 but share an owner can be one ALE, although each company’s own penalty is figured separately.
- Seasonal workers: a narrow exception applies when a business crosses 50 only because of seasonal workers for a short part of the year. Check the exact test before relying on it.
If you are close to the line, run the count every month rather than once a year. Our page on what changes when you have just crossed fifty employees walks through the first year as an ALE.
ACA Employer Mandate: Key Legal Requirements for Employers
An ALE meets the mandate when its offer passes four tests:
- Who gets the offer: at least 95% of full-time employees, and their dependent children. Spouses do not have to be offered coverage for mandate purposes.
- Minimum essential coverage: an employer group health plan qualifies. A fixed indemnity plan or another excepted benefit on its own does not.
- Minimum value: the plan pays at least 60% of total allowed costs. Carriers state this for each plan; confirm it for any plan you design yourself.
- Affordability: the employee’s share of the premium for the lowest-cost self-only option that meets minimum value cannot exceed 9.96% of pay for 2026 plan years, or 10.22% for 2027 plan years. Because you do not know household income, you test it with one of three IRS safe harbors: W-2 wages, rate of pay, or the federal poverty line.
Affordability is the test that catches employers out, because it is measured on the cheapest self-only option and against your lowest-paid full-time employees, not on the plan most people pick. Family and spouse premiums do not enter the test at all. When a renewal raises the employee share, rerun the test before you set contributions.
An ALE also files Forms 1094-C and 1095-C with the IRS every year to show what it offered each full-time employee, month by month. Those forms are how the IRS decides whether to propose a penalty, so the reporting matters as much as the offer. We can help you with the filing, and our page on ACA reporting explains what goes into the forms.
What Penalties Do Employers Face for Not Offering Health Insurance?
Only an ALE can owe the employer mandate penalty, and only after at least one full-time employee buys marketplace coverage with a premium tax credit. There are two versions, and an employer owes one or the other for a given month, not both.
| Penalty | When it applies | 2026 amount | 2027 amount |
|---|---|---|---|
| Section 4980H(a): no offer | Coverage offered to fewer than 95% of full-time employees | $3,340 per full-time employee, minus the first 30 | $3,780 per full-time employee, minus the first 30 |
| Section 4980H(b): unaffordable or below minimum value | Coverage offered, but not affordable or not minimum value | $5,010 per full-time employee who receives a subsidy | $5,670 per full-time employee who receives a subsidy |
The difference in scale is the point. The (a) penalty is multiplied across your entire full-time workforce, less 30, even if only one person received a subsidy. The (b) penalty counts only the employees who actually received a subsidy, and it can never exceed what the (a) penalty would have been. The amounts are annual, assessed month by month, and not tax deductible.
The IRS enforces the mandate, not the state. It matches your Forms 1095-C against marketplace subsidy records and, where they point to a penalty, sends Letter 226-J proposing the amount. The letter carries a response deadline, and a documented reply can reduce or remove a proposed payment when the forms were coded wrong. Our page on DOL and IRS audits covers what to gather.
Separate penalties apply, per form, for failing to file or furnish correct Forms 1094-C and 1095-C. Michigan adds no state penalty, and the federal individual mandate penalty has been $0 since 2019.
Annual Filing and Notice Deadlines
The mandate is one test, but offering a plan brings a set of recurring dates. The main ones:
- Forms 1095-C to employees: by March 2. Instead of mailing every form, you may post a notice that forms are available on request, keep it up through October 15, and furnish a copy within 30 days of any request.
- Forms 1094-C and 1095-C to the IRS: electronic filing is required once you file 10 or more information returns of any kind in a year, which, counting W-2s, covers every ALE.
- CMS creditable coverage disclosure: within 60 days of the start of the plan year.
- Medicare Part D notice: to Medicare-eligible individuals before October 15.
- Gag clause attestation: every December 31, for fully insured and self-funded plans.
- Form 5500: generally required for health plans with 100 or more participants at the start of the plan year.
A missed date can usually still be corrected, and it costs less to fix early. The full year, month by month, is in our guide to employer healthcare compliance services.
Common Mistakes That Create Penalty Exposure
- Counting only full-time staff. Part-time hours and related companies both count toward 50, and they are the usual reason an employer learns after the fact that it was an ALE.
- Testing affordability on the wrong plan. The test uses the cheapest self-only option that meets minimum value. If that option changes at renewal, the test changes with it.
- Leaving out variable-hour employees. Someone hired as part-time who averages 30 hours a week over your measurement period is full-time for mandate purposes and needs an offer.
- Forms that do not match the offer. A 1095-C coded as no offer for an employee who was offered coverage can produce a penalty letter for a penalty you do not owe.
- Assuming tax-exempt status is an exemption. Nonprofits, schools and churches are counted the same way as any other employer.
Who Is Exempt from the Employer Health Insurance Mandate?
The only real exemption is size. An employer below 50 full-time employees, including full-time equivalents, is not subject to the mandate. There is no separate exemption for nonprofits, churches, schools or governmental employers: once they reach 50, the same offer-or-pay rule and the same reporting apply. States cannot create exemptions from the federal mandate.
Two situations are often mistaken for exemptions. A business under 50 that shares ownership with other companies may be part of a larger ALE once they are counted together. And a business that crosses 50 only because of seasonal hires may qualify for the seasonal worker exception, which is narrow.
What Still Applies to Small Employers That Offer Coverage
Small business health insurance is optional below 50 employees, but once you offer a plan it comes with rules of its own:
- Plan document and Summary Plan Description. Required for private employers of any size. A fully insured plan with fewer than 100 participants is exempt from filing Form 5500, but not from the SPD requirement, and a benefits guide is not the same as a plan document.
- COBRA once you have 20 or more employees. Michigan has no state continuation (mini-COBRA) law for small employers.
- Medicare Part D notice, CMS disclosure and the gag clause attestation, which apply to plans of every size.
- A Section 125 plan document if employees pay their share of premium pre-tax.
- No informal premium reimbursement. Paying employees’ individual premiums outside a QSEHRA or ICHRA can violate federal market reform rules.
In Michigan, small group coverage can start on the first of any month with as few as one W-2 employee, and the employer is not required to contribute toward it. It is also what job candidates compare you against: 84% of Michigan workers are at firms that offer health insurance (AHIP, 2026).
If a group plan is more than you need, a QSEHRA lets an employer under 50 full-time equivalents with no group plan reimburse employees’ individual coverage, up to $6,450 self-only and $13,100 family for 2026.
ACA Employer Mandate and Employer Health Insurance Requirements in Michigan
Michigan Applicable Large Employers (ALEs): Michigan employers with 50 or more full-time employees, including full-time equivalents (FTEs), are subject to the ACA employer mandate, also called the Employer Shared Responsibility Provision (ESRP). They must offer minimum essential coverage that meets minimum value (at least 60% of total allowed costs) and is affordable (the employee’s share of the lowest-cost self-only option stays at or below 9.96% of pay for 2026 plan years and 10.22% for 2027) to at least 95% of full-time employees (30+ hours/week) and their dependents.
Michigan Small Employers (under 50 FTEs): Michigan employers with fewer than 50 FTEs are not subject to the ACA employer mandate and are not required to offer health insurance. Those that do offer group coverage may qualify for the Small Business Health Care Tax Credit (up to 50% of premiums) if they have fewer than 25 FTEs, pay average wages under a limit the IRS adjusts each year, pay a uniform share of at least half of the premium for employee-only coverage, and buy coverage through the SHOP Marketplace. The credit is available only for a limited number of years, so confirm current eligibility before counting on it.
Michigan DIFS Regulation: Fully insured group health plans sold in Michigan are regulated by the Michigan Department of Insurance and Financial Services (DIFS), while self-funded plans fall under federal ERISA rules. Michigan has no state employer mandate, no state individual mandate and no state continuation (mini-COBRA) law for small employers, so federal COBRA at 20 or more employees is the continuation rule that applies. For 2027, Michigan small group carriers proposed an average increase of 9.6% (proposed, not final). If you are an ALE, rerun the affordability test whenever a renewal raises the employee share.
How we help: We work with Michigan employers on both sides of the line: confirming whether you are an ALE, testing affordability at every renewal, and building a fully insured, level-funded, self-funded or ICHRA option that meets the rules. For proper coverage of an account we work in teams of five. We help keep you ERISA compliant, and we can help you with the ACA reporting filing. See how our compliance support works.
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Send Us Your RenewalFrequently Asked Questions: Are Employers Required to Offer Health Insurance?
Are employers required to offer health insurance under the ACA?
It depends on employer size. Under the ACA employer mandate, Applicable Large Employers (ALEs) — those with 50 or more full-time equivalent employees — are required to offer minimum essential coverage that meets minimum value and affordability standards to full-time employees and their dependents, or face potential penalties. Employers with fewer than 50 FTEs are not required to offer health insurance under federal law, though some states have additional requirements.
What are the ACA employer mandate affordability requirements for 2026?
For 2026, employer-sponsored health coverage is considered “affordable” under the ACA employer mandate if the employee’s required contribution for employee-only coverage does not exceed 9.96% of the employee’s household income. Because employers typically don’t know employees’ household incomes, the IRS provides three affordability safe harbors: the W-2 wages safe harbor, the rate of pay safe harbor, and the federal poverty line safe harbor.
What is the ACA employer mandate penalty for 2026?
Michigan ALEs face two potential ACA employer mandate penalties in 2026: (1) Section 4980H(a) — failing to offer MEC to at least 95% of full-time employees — $3,340 per full-time employee (minus the first 30); (2) Section 4980H(b) — offering coverage that fails minimum value or affordability — $5,010 per full-time employee who receives a premium tax credit on the Exchange. These penalties are triggered only when at least one full-time employee receives a premium tax credit.
Can Michigan employers use an ICHRA to satisfy the ACA employer mandate?
Yes — an Individual Coverage HRA (ICHRA) can satisfy the ACA employer mandate for Michigan ALEs if it is offered to all full-time employees and meets the ACA affordability standard. An ICHRA is considered affordable if the remaining premium an employee would pay for the lowest-cost silver plan on the Michigan Exchange does not exceed 9.96% of their household income (using the applicable safe harbor). Michigan employers considering ICHRA as an ACA compliance strategy should work with a licensed benefits consultant to model affordability.
Are Michigan employers required to offer health insurance?
Only if they are applicable large employers under federal law. Michigan has no state employer mandate, so a Michigan business with fewer than 50 full-time employees, including full-time equivalents, is not required to offer coverage. At 50 or more, the ACA requires an offer of affordable, minimum value coverage to at least 95% of full-time employees and their dependents, or the employer risks an IRS penalty once a full-time employee receives a marketplace subsidy.
When are employers required to provide health insurance?
An employer is subject to the ACA mandate for a calendar year if it averaged 50 or more full-time employees, including full-time equivalents, across the months of the prior calendar year. Full-time means averaging 30 or more hours of service a week, and companies under common ownership are counted together. From then on, the offer is tested month by month, so new full-time hires need an offer too.
What are the ACA affordability percentage and employer penalties for 2027?
For 2027 plan years, coverage is affordable if the employee’s share of the lowest-cost self-only option that meets minimum value is no more than 10.22% of pay, up from 9.96% for 2026. The 2027 penalties are $3,780 per full-time employee after the first 30 for not offering coverage to at least 95% of full-time employees, and $5,670 per full-time employee who receives a subsidy when coverage is unaffordable or lacks minimum value.
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