Small Business Guides
Affordable Care Act: What You Need To Know
8 min read
If you're running a small business in the United States, you should understand the Affordable Care Act – otherwise known as Obamacare. While the healthcare law is very complex, it does need to be understood. So what do all small business owners need to know about it?
Why Obamacare health insurance matters to small businesses
Employees of large businesses often get health care as part of their employment package, and the same is true of government workers. But this might not be the case for small business owners and their employees:
- Almost half of America's uninsured are small business owners, their employees or their dependents.
- Small businesses pay on average 18% more than big businesses for health insurance.
- For small businesses or the self-employed, healthcare and health insurance are complex and evolving topics.
Yet without health insurance your business is at significant risk. If you or any of your key employees should become sick or injured, absence from the workplace will hit your company hard, not to mention the huge cost of paying for medical care out of your own pocket.
The Affordable Care Act (ACA) can help small businesses by lowering the ongoing cost of health insurance premiums and increasing access to quality and affordable health care. Here's what you need to know about Obamacare.
Learn the basics
The ACA is still a new topic for most small businesses and self-employed people. Yet knowing which type of health insurance to buy is crucial, because it affects your overall costs and bottom line.
Fortunately there are some online resources that will take you through the basic information you need to know as a small business employer. For example, you might start with the overview at Business USA or contact the Small Business Association and look into their webinars and other events covering the Affordable Care Act.
Resources such as these will help you to understand the general principles of the Act. Once you have that knowledge, it's time to look into the specifics. To do that, you need to consider what your business needs.
The ACA is still a new topic for most small businesses and self-employed people.
Examine your business healthcare needs
All businesses are different, small businesses especially so. Taking the time to analyze your business will help you determine what type of health insurance you need to buy – and what you can afford. Here are some of the things you should take into account:
- What type of small business is yours?
Obamacare has different options for different sizes of business, ranging from the self-employed, through to employers with fewer than 25 employees or up to 50 employees, to those with 50 or more employees. Different rules apply for each. Full-time and part-time staff are treated differently too.
- Compare your company to others
Look at your industry and your competition, and check out companies of similar size and revenue to see what type of healthcare insurance they have.
- What is your budget for insurance?
Draw up reports and projections with your accounting software, so you can run through different scenarios and see what you can really afford to spend.
- Evaluate the impact on your bottom line
This is more important than just looking at the cost of your insurance premiums. It includes any tax offset and reductions in other areas, plus potential for reduced absenteeism and higher productivity.
- Get help and advice
Talk to an insurance broker – preferably one referred to you by a friend or peer – and work with your accountant or financial advisor too.
- Talk to your staff
Let them know your plans before you implement them. Your employees might come up with useful ideas that you hadn't considered, and they'll value their involvement in the process.
The Business USA site or the Small Business Health Options Program (SHOP) are good places to start if your business is looking to obtain health insurance. It gives employers a choice of health insurance and dental plans from health insurance companies, along with some tools to help you make the right decision.
SHOP also gives you access to the Small Business Health Care Tax Credit, which could be worth up to 50% of the amount you pay in employer's premium contributions. Check the details to see whether your small business qualifies for this credit.
Not all businesses can use SHOP – the size of your company is the defining factor. Things to bear in mind are:
- You must have 50 or fewer employees, each averaging 30 hours or more of work a week in 2014.
- Those 50 or fewer employees can be 'full-time equivalent' employees (FTEs), including part-time employees. For example, two half-time employees generally equal one full-time equivalent employee.
- Beginning no later than January 1, 2016, SHOP will be available for employers with up to 100 FTEs.
All 2014 health plans in the SHOP Marketplace will come up for renewal in 2015, and enrolllment begins November 15, 2014. So keep an eye on SHOP to see how things change over the coming months and years.
It’s important that you make sure you understand your obligations to your employees under the ACA:
- Do you have 50 or more full-time employees?
The Affordable Care Act requires certain employers with at least 50 full-time employees (or equivalents) to offer health insurance coverage to full-time employees and their dependents, and the cover must meet certain minimum standards set by the Affordable Care Act. Alternatively, you can make a tax payment called the ESRP (Employee Shared Responsibility Payment).
- Notify full-time employees of their insurance options
You must follow the FLSA (Fair Labor Standards Act) which applies to all full-time, non-exempt employees at a company or organization with annual dollar volume of sales or receipts of $500,000 or more. Other types of institution, such as schools and hospitals, must follow it too.
- Don’t pay for your employees' insurance directly
They could be taxed on that amount and it could be interpreted as endorsing a certain plan. Also, most plans do not meet Employee Retirement Income Security Act (ERISA group) requirements.
- You are not required by law to use a state or government-run exchange
You can use any plan that qualifies under the Affordable Care Act.
To calculate your number of full-time employees, add up the total hours of service for which you pay wages to employees during the year (but not more than 2,080 hours for any employee), and divide that amount by 2,080.
If the result is not a whole number, round to the next lowest whole number. If the result is less than one, however, round up to one FTE. In some circumstances, an employer with 25 or more employees may qualify for the credit if some employees work less than full time.
Requirements based on company size
Depending on the size of your company, you will have varying obligations to your employees. As a general rule, the more people you employ, the more cover you have to provide under the ACA. The following is a summary of how the size of your business affects your Affordable Health Care Insurance obligations.
- Self-employed at a company generating revenue
Assuming you have no direct employees (independent contractors don't count), you're not considered an employer. Your options include getting cover for yourself through the SHOP Marketplace (and maybe trading personal insurance for SHOP cover), or keeping your personal insurance. If you recently left a company with insurance, you are eligible for COBRA (Consolidated Omnibus Budget Reconciliation Act) for 18 months.
- Alternatively, see the government’s Health Care website about plans for individuals and families. Check the site to find out if you qualify first (this varies by state).
- Employers with fewer than 25 employees
If you have employees who submit W-2 forms, you are not required to provide health insurance. But if you do buy SHOP coverage you may qualify for a small business health care tax credit worth up to 50% of your premium costs. You may also be eligible for small business tax credits if you have an average annual wage under $50,000 and contribute 50% or more to full-time employees' self-only health insurance premiums.
- Employers with fewer than 50 employees
If you have employees who submit W-2 and each employee works at least 30 hours a week, you aren't required to provide health insurance but you can buy cover in the SHOP Marketplace.
- Employers with more than 50 employees
If you have employees who submit W-2 and each employee works at least 30 hours a week, you're considered a “large business” under the Health Care law (though you should check the small print about seasonal workers and full-time equivalents).
The Affordable Care Act requires almost all employers with at least 50 full-time employees (or equivalents) to offer health insurance coverage to full-time employees.
You generally will not able to use the SHOP Marketplace to offer health insurance to your staff, but that will change in 2016. Small businesses with 50-99 full-time equivalent employees (FTE) will need to start insuring workers by 2016. You should also learn about the Employer Shared Responsibility Payment and your obligations, and the FLSA (Fair Labor Standards Act).
- More than 100 FTEs
In addition to the obligations mentioned above, you will need to start providing health benefits to at least 70% of your FTEs by 2015 and 95% by 2016.
Read and learn more about Obamacare
The Affordable Care Act is complex, and its related policies and effects are evolving all the time. For this reason, we recommend that you periodically check with your insurance broker and financial advisor to keep up to date with the latest laws and policies. In the meantime, the following are some useful links to online resources about the healthcare law:
- A tool to calculate if you qualify for a tax credit from the Small Business Majority trade association
- Weekly webinars in English and Spanish from the US government about healthcare options for small business owners.
Remember, if you choose to do nothing about your obligations under Obamacare, you could end up paying a large fine. So it's better to educate yourself now and make the right choices for your business and your employees.