No. While the ACA requires applicable large employers to offer their full-time employees (and dependents) the opportunity to enroll in affordable minimum value coverage under an eligible employer-sponsored plan, this requirement does not apply to independent contractors, assuming they are properly classified as such.

The analysis used for purposes of the ACA is similar to but not precisely the same as that used for other employment classifications such as that used for determining worker status under the Fair Labor Standards Act (FLSA), which were discussed in the January 17, 2024, Compliance Corner article.

ACA rules define an “employee” as any individual performing services if the relationship between the employee and the person for whom the employee performs such services is the legal relationship of employer and employee, which exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished.

If an individual who works for the employer is properly classified as an independent contractor, then that individual would not be an employee of the employer. Accordingly, employers should not be offering ACA coverage to those who are truly independent contractors.

Note that if the health benefits are offered through a Section 125 cafeteria plan, there are specific limitations as to which individuals can participate. One such requirement is that participants are employees. So, generally, a cafeteria plan may extend participation only to current and former employees of the employer who are considered common-law employees. Accordingly, offering benefits to an ineligible class such as independent contractors could present tax qualification issues for the plan.

Additionally, from an ERISA standpoint, it is generally not advisable to extend benefit plan coverage to independent contractors or other workers who are not the employer’s common-law employees, former common-law employees, or their dependents. Allowing 1099 workers to participate in an ERISA group health plan contrary to the plan document terms would likely be a fiduciary violation. Additionally, the employer could end up self-funding the benefits if the insurer or stop-loss carrier, as applicable, learned ineligible individuals were enrolled in the coverage.

Another potential risk is inadvertently creating a multiple employer welfare arrangement (MEWA) if the employer is essentially letting individuals who are self-employed (i.e., employed by another employer) participate in the plan. MEWAs may be subject to significant state insurance-law regulation and are subject to additional ERISA reporting requirements.

So, when an employer is considering whether the group health coverage should be offered to independent contractors, it is advisable for the employer to engage employment law counsel and review their relationship with the independent contractors to ensure they are properly classified as such. The determination is based upon the specific facts and circumstances of the parties’ relationship. Proper classification of workers has been an ongoing focus of regulators, and misclassification can give rise to potential claims and liabilities for an employer.