What Every Business Needs to Know About the Affordable Health Care Act

Employers and the group health plans they sponsor are key components of the Affordable Health Care Act, yet many employers — especially small businesses — are challenged by the act’s complex and still-changing regulations and deadlines.

Though I don’t claim to be an expert, I’ve studied the Affordable Health Care Act extensively and have had an opportunity to ask questions of professionals who are, in fact, experts on the act. Let me summarize for you some of the most important things to know:

  • The rules. Beginning January 1, 2015, businesses with 50 or more full-time and full-time equivalent employees (FTEs) must offer health insurance coverage to their full-time employees and their eligible dependents or face the prospect of a penalty. (FTEs are a combination of your employees who do not work for you full time but whom the act requires to be counted.)
  • Penalties. There is a penalty for not offering coverage and also for offering coverage that is considered either unaffordable or insufficient by the act’s standards. The penalty for the former (no-coverage) is determined by multiplying the number of all of your full-time employees (excluding the first 30) by $2,000. The latter penalty (coverage) is determined by multiplying the number of your full-time employees who qualify for a premium-assistance tax credit or cost-sharing reduction by $3,000. Neither penalty is tax deductible. No-coverage penalties can add up quickly: For example, the annual penalty for a firm with 50 full-time employees could be $40,000.
  • Plan options to avoid the no-coverage penalty. There are situations in which there may be an advantage to offering coverage the act considers unaffordable or insufficient. These plans are inexpensive, and they get the employer out from under the no-coverage penalty, which is generally acknowledged as being far more onerous than the coverage penalty.
  • Counting to 50. You do not have to count temporary or contract workers whom you retain through a third-party staffing firm for legitimate business reasons because they are considered employees of the staffing firm. The staffing firm is responsible for complying with the mandates of the act for these employees.
  • Tax credits. The Affordable Health Care Act provides a tax credit to certain small businesses with no more than 25 full-time employees and FTEs that choose to offer health insurance to their employees. The credits can be as large as 50 percent.
  • Out-of-pocket maximums. Large fully insured plans and self-funded arrangements have wide latitude in designating which benefits to cover, with some limits on out-of-pocket maximums. In contrast, small groups must offer a set of “essential health benefits” that are subject not only to a limit on out-of-pocket maximums but also to separate limits on deductibles.
  • Exchanges. The Affordable Health Care Act creates public health insurance exchanges (or marketplaces) to facilitate the purchase of health insurance coverage by individuals and small groups. Coverage choices under the small group marketplace — the Small Business Health Options Program (SHOP) — are available in 2014 for some state-run exchanges and will be in 2015 for all state- and federal-run exchanges.

This is, of course, a very simplified depiction of the Affordable Health Care Act, and you’ll want to learn more about each requirement and option. Robert Half has produced a comprehensive guide to the act (with the assistance of a leading expert) that can help.