Despite a lot of negative rhetoric, the Affordable Care Act (ACA) is making some inroads that are hard to ignore. Healthcare reform is impacting the entire country—the number of uninsured is falling, and insurance is becoming more affordable for many. It’s important that small business owners understand what the ACA changes mean for them, since the new rules can be tricky to interpret.
Here are the key takeaways all business owners need to know before the law goes into effect.
1. Employers with more than 50 employees will be required to offer “affordable” healthcare options by 2016 at the latest.
The new law requires companies with more than 50 employees to provide “affordable” healthcare for those employees by either the start of 2015 or the start of 2016, depending on the number of employees you have (more details on this below).
The minimum coverage small business owners need to offer to qualify as an “affordable” plan is pretty straightforward. The plan must pay for at least 60% of covered health care expenses, and employees must not be required to pay more than 9.5% of their annual household income for the coverage. In other words, you have to meet the basic requirements of a plan sold on the health insurance marketplace, or the Small Businesses Health Options Marketplace (SHOP).
2. You can easily find and purchase group plans in the SHOP marketplace.
The SHOP marketplace is available for businesses with fewer than 100 full-time employees (50 in some states) and serves as a simple platform for companies to shop for plans for employees and apply for tax breaks if they qualify.
3. There is a per-employee fee for not providing coverage, and it includes part-time employees.
Under the ACA, not insuring your employees may mean incurring a fee called the employer mandate fee. The collection of this fee will help the government fund marketplace subsidies and provide a budget to implement other aspects of the Affordable Care Act.
The fee you’d have to pay depends on the number of full-time equivalent employees your business has.
Tallying this number is a little complicated: the final number includes not just full-time employees, but also part-time employees, calculated by adding all hours worked by part-time employee hours per week and dividing that number by 30.
So if you have 10 full-time employees and 4 part-time employees who work a total of 90 hours a week, your full count will be 13 employees (10 full-time + 90 hours/30).
4. The size of your business will determine whether or not the fine applies to you, and if so, how large it will be.
Here’s a breakdown of the fee structure:
• If your business has fewer than 50 employees:
The fines don’t apply to you, and you can continue operating as before. If you have 25 or fewer employees, you can even be rewarded for providing your employees with healthcare plans by getting tax breaks of up to 50% for the company’s contribution towards the premiums. Note: You’ll only get the full 50% of what your company is paying for its employees’ healthcare if you have 10 or fewer full-time employees who earn $25,000 or less on average.
• If your business has 50-99 employees:
You’ll have to provide healthcare for 95% of your employees by January 1, 2016. Otherwise you incur the fee. Throughout 2015, you won’t be fined for not providing health care.
• If your business has over 100 employees:
You’ll need to provide health benefits to at least 70% of your full-time employees by the start of 2015 and 95% by January 1, 2016. Otherwise you’ll incur a fee.
5. For companies with at 50 employees or more, the exact fee calculations are complicated.
The new rules require that you pay $2,000 per year for each employee that you don’t cover, not counting the first 80 employees. So if you employ 100 people, but don’t insure any of them, you’d have to pay $40,000 per year (20 employees x $2,000).
That “first 80 is free” discount drops to 30 employees in 2016, so in a year you’d be paying $140,000 to not insure a staff of 100 people.
Here’s a catch: if the insurance you offer isn’t truly affordable (see definition of “affordable” above) for even just one of your full-time employees (and that employee receives a premium tax credit), you’ll have to pay the lesser of $3,000 for each of those employees receiving the tax credit, or $750 for each one of your full-time employees.
What does this mean? Let’s say you have 3 employees, Including Joe. The plan you offer isn’t affordable for Joe because the premium is more than 9.5% of his family’s annual income. If the other two people you employ can afford the plan, you’ll be fined $2,250, or $750 x 3 (which is less than $3,000).
Or, if Joe can’t afford the plan, and the other 9 people you employ can, you’ll just be fined $3,000 (since that’s less than $7,500, or 10 x $750).
6. You may find it’s cheaper to pay the fine than to buy health care.
After running all the numbers, you may find out that it’s more cost-efficient for you to pay the fee than to provide health insurance to your employees. If you employ 100 people, and the health care plan you find means you’d have to pay $500 per person or $50,000 in total, you’d be saving money by paying the fine of $40,000 ($2,000 x 20 employees).
Whether or not you incur ACA fines, there are costs to deciding not to insure your employees.
The concept of providing healthcare for employees is obviously a positive factor in employee relations. Many of your employees will feel more cared for and valued by an employer that pays for their plan. Insuring your team boosts morale, and leads to higher employee retention, saving you money by leading to higher productivity rates and less employee turnover.
While the Affordable Care Act may be a challenge for some budgets, it is also helping more Americans than ever to obtain health insurance. With the creation of SHOP and other programs, there are options available to help small business owners comply with the new rules. It’s up to small business owners to acquaint themselves with these regulations, and make sure they’re taking the best steps for both their business and their employees.