Applicable Large Employer Insurance

Since Applicable Large Employers (ALEs) must meet specific obligations that smaller employers aren’t required to, it’s crucial to understand the insurance options at hand. Doing so will ensure that your business and employees are both protected and legally compliant. This guide will break down all of the essential information that ALEs need to know about health insurance requirements, additional recommended business insurance policies, coverage options and legal responsibilities. 

 

Jump To:

• What is an Applicable Large Employer (ALE)?

• Does My Business Qualify as an Applicable Large Employer?

• What Are the Insurance Requirements for an ALE?

• What Types of Business Insurance do ALEs Need?

• What Happens if an ALE Fails to Provide Health Insurance?

• How Much Does Group Health Insurance Cost for an ALE?

• FAQs

• Get ALE Insurance Today!

What is an Applicable Large Employer (ALE)?

An Applicable Large Employer (ALE) is a term that refers to businesses containing 50 or more full-time equivalent (FTE) employees. The Affordable Care Act (ACA) states that ALEs are required by law to provide at least 95% of their full-time employees with minimum essential health coverage that is affordable. ALEs who fail to do so can face major penalties. 

Does My Business Qualify as an Applicable Large Employer?

It’s pretty simple to figure out whether or not your company is defined as an Applicable Large Employer, because there’s really only one requirement— your business has 50 or more full-time equivalent (FTE) employees. This brings up the question, what exactly is a full-time equivalent (FTE) employee?

What is a Full-Time Equivalent Employee?

A full-time equivalent (FTE) employee is simply a way to measure the number of full-time and part-time employees based on the total number of hours worked. The Internal Revenue Service (IRS) defines full-time employees as individuals who on average work at least 30 hours per week during the calendar month. Anything less than 30 hours is considered a part-time employee. The term full-time equivalent employee combines the hours of multiple part-time employees to be equivalent to a full time employee. To determine the number of full-time equivalent employees for a month follow these steps:

 

1. Combine the total number of service hours for all part-time employees in a month (don’t include more than 120 hours per part-time employee).
2. Dive the total by 120.

Example Situation

Let’s say your company has 45 full-time employees and 15 part-time employees, and each part-time employee works 60 hours per month. To get a total number of hours for the part-time employees per month, you’d calculate 60×15 which equals 900. Then, you’d simply divide 900 by 120, to equal the company’s number of full-time equivalent employees—7.5. When adding these 7.5 full-time equivalents to the 45 full-time employees, you get a total of 52.5 full-time equivalent employees. In particular, this company would qualify as an Applicable large employer. 

 

For more in-depth examples and explanations to help determine if your company qualifies as an ALE, check out the IRS’s applicable large employer guide. 

What Are the Insurance Requirements for an ALE? 

According to the Affordable Care Act, all ALEs must provide at least 95% of their full-time employees and their dependents with affordable, minimum essential health coverage. Let’s take a look, at what exactly this means: 

 

• Minimum Essential Coverage (MEC): Group health insurance plans must meet the ACA minimum essential coverage standard. In essence this means that plans must provide sufficient coverage for hospital and physician services, and essential health benefits cannot have annual or lifetime limits.
• Affordable Coverage: Employee contributions for the lowest-cost, self-only plan can’t go over 9.02% of their total household income for 2025. 
• Minimum Value (MV): The employer plan must cover at least 60% of the average costs for a standard population.

What Types of Business Insurance Do ALEs Need?

While group health insurance is the only coverage that Applicable Large Employers are required by law to offer to employees, there are a number of other types of business insurance worth considering including: 

 

• General Liability Insurance: Protects businesses against claims relating to third-party injury, property damage or advertising damage. 
• Workers’ Compensation: If employees are injured or get sick due to work-related factors, this policy provides coverage, paying for medical expenses and lost wages. Additionally, workers’ compensation is legally required for businesses with employees in all states except for Texas.
• Professional Liability Insurance (Errors and Omissions): Protects businesses that provide professional services, against claims involving negligence, errors or failure to deliver promised services. This coverage is commonly purchased by doctors offices, accounting firms and law firms.
• Product Liability Insurance: Necessary for any ALE that sells, manufactures or distributes products. It works by protecting companies against claims of injury or damage caused by defective products or mislabeling. 
• Cyber Liability Insurance: Covers the costs to recover data, pay legal fees and alert clients if a cyberattack or data breach occurs. 
• Commercial Auto Insurance: Legally required in all states except New Hampshire for any business using vehicles in their day-to-day operations. 
• Commercial Property Insurance: Covers the costs of physical assets such as buildings, offices, equipment, inventory and furniture if damage is caused by natural disasters, fires, theft, or vandalism. 
• Business Owners’ Policy: A combination policy that provides both general liability and commercial property insurance, for a discounted rate.  
• Business Interruption Insurance: Provides funds to cover lost income and other expenses if a business is forced to shut down temporarily. 
• Directors and Officers (D&O) Insurance: Protects company leaders from personal loss if they are sued over wrongful management decisions, misuse of company funds, fraud, or breach of fiduciary duties. 

 

 

What Happens If an ALE Fails to Provide Health Insurance? 

If an Applicable Large Employer fails to offer health insurance that’s ACA-compliant and affordable, they will face major financial penalties. There are two types of penalties associated with failure to provide adequate health coverage: 

 

• Penalty A: If an ALE fails to offer coverage to at least 95% of its full-time employees, they can be fined $2,900 per full-time employee, minus the first 30 employees in 2025. This amount is adjusted annually by the IRS.
• Penalty B: If an ALE provides health coverage but it’s not affordable or doesn’t comply with the minimum value requirement, businesses will face fines of $4,350 for each employee who obtains subsidized coverage through the ACA Marketplace.

To ensure that your ALE remains legally compliant, be sure to work with a licensed insurance expert when insuring your team. 

How Much Does Group Health Insurance Cost for an ALE? 

The cost of a group health insurance policy for an ALE can vary greatly depending on multiple factors. These include the size of your business, desired coverage level, contribution amounts, location, and employee demographics. With that being said, in 2024 the average costs of employee-sponsored health coverage are:

 

• Individual Coverage: Employers pay an average of $8,435 per year per employee.
• Family Coverage: Employers pay an average of $23,968 per year per employee (and their dependents). 
• Average Contributions: Employers cover an average of 83% of individual coverage premiums and 72% of family coverage premiums. 

In addition to choosing to offer a standard, fully-insured group health plan, ALEs can also consider alternative options that satisfy ACA requirements such as level-funded plans, self-funded plans and ICHRAs. 

FAQs

What is considered an Applicable Large Employer?

The Affordable Care Act considers any business with 50 or more full-time equivalent (FTE) employees to be an Applicable Large Employer.

 

Do ALEs have to offer health insurance to part-time employees?

No. Under the Affordable Care Act, Applicable Large Employers are only required to provide coverage to at least 95% of full-time employees (30+ hours per week). With that said, offering health insurance to part-time employees is a great way to keep employees satisfied and healthy. 

 

Can ALEs offer alternative health plans and still remain compliant?

Yes. In addition to traditional fully-insured group health plans, ALEs can offer Individual Coverage Health Reimbursement Arrangements (ICHRAs), level-funded plans, and self-funded plans. 

 

How can an ALE lower their health insurance costs?

To lower the cost of healthcare, it’s always recommended to compare multiple plans and carriers. The easiest way to do this is by working with an insurance broker like EZ.Insure. Additionally, businesses looking to cut costs can consider alternative healthcare options like self-funded and level-funded plans, adjust contribution percentages, and implement wellness programs. 

Get ALE Insurance Today with EZ.Insure!

If you’re an Applicable Large Employer, not only does health insurance provide employees with essential benefits and peace of mind, but it’s also legally required in compliance with the ACA. 

 

At EZ.Insure we make the process of finding the best health coverage for your team quick and simple. Additionally, if you’re looking to protect your business from damaging claims, we also provide a variety of commercial insurance policies!

 

To get started, click the button below to receive your free, no-obligation quote, or call us directly at (844)-770-0876 to speak with a licensed agent.