How Does the Affordable Care Act Affect Small Businesses?

Affordable Care Act and Small Businesses

On the first day of 2015, the employer mandate under the Patient Protection and Affordable Care Act (ACA) went into effect. Here are six frequently asked questions about how its provisions affect small businesses.

1. For ACA purposes, is my company a “small business”?

Be careful here. Your definition of a small business may not match the ACA’s. The act’s Employer Shared Responsibility Rules apply only to “applicable large employers,” which, generally means an employer with 50 or more full-time employees and full-time equivalent employees (FTEs) on business days during the previous calendar year.

If your business falls into this category, then you are subject to the ACA’s employer shared responsibility (also known as “employer mandate” and “pay-or-play”) rules, which took effect on January 1, 2015. However, if you have between 50 and 100 full-time employees and FTEs that meet certain requirements, the effective date of the employer mandate has been pushed forward to January 1, 2016. Employers that are subject to the employer mandate must generally make an offer of group health plan coverage to at least 70 percent of all their full-time employees or face the prospect of a penalty. Where an employer does make an offer of coverage, but that coverage costs too much or is not sufficiently generous, a separate, and in most cases lesser, penalty may be imposed.

2. Are we eligible for a tax credit for offering coverage?

If your small business has fewer than 25 full-time employees or FTEs, you may be eligible for a tax credit of up to 50 percent of premium costs. Consult a professional benefits adviser to find out whether you qualify.

3. What if we already provide health insurance?

Did your plan exist before March 23, 2010? If so, it might be exempt from some ACA requirements, but only if it meets the Act’s procedural definitions. Again, be sure to consult a qualified benefits adviser. These rules can be complex.

4. If I determine that it is advantageous for my business to provide health insurance, am I on my own or is there any help the government is offering small businesses?

You’re not on your own. Under the ACA, “Public health insurance exchanges” were created to facilitate the purchase of health insurance coverage by individuals and small groups. One of the purposes of the exchanges is to put small businesses on a more equal footing with large companies in getting better choices and lower prices in obtaining health insurance for their employees. Specifically, the ACA encourages (but cannot require) each state to establish a “Small Business Health Options Program (SHOP)” exchange through which small employers can offer coverage under qualified health plans for their employees and their dependents.

For 2015, states may define a “small employer” as having fewer than 50 employees. Commencing in 2017, however, a small employer for this purpose is an employer with between one and 100 employees in both a calendar year and a benefits plan year.

5. Will our premiums go up or down?

Small businesses have had mixed experiences since the ACA went into effect. That’s because coverage is still provided by private insurers, who are free to raise or lower their rates as competitive conditions allow. The exchanges are designed to put small businesses on a more equal footing with large employers when buying group coverage. But each state has its own exchange, and conditions vary.

6. What are the penalties if we don’t comply?

If you don’t provide coverage, you must pay an average penalty of $2,000 per uncovered full-time employee or FTE — after the first 80 are excluded.

You must also pay penalties if you do provide coverage, but certain requirements aren’t met. For example, if employees’ costs exceed the maximum allowed, or the plan fails to provide “minimum value” — and if you have employees who qualify for federal premium subsidy under the ACA. In these instances, your penalty is $3,000 per full-time employee who qualifies for assistance.

Clearly, ACA compliance is complex. For help, consult Robert Half’s publication, What Every Business Needs to Know About the Patient Protection and Affordable Care Act. And talk with a professional benefits advisor to fully understand the details.

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