Healthcare Changes Affecting Your Small Business
With 2014 officially here, the Affordable Care Act, commonly called Obamacare, has finally taken effect after several years of intense debate and discussion. Much of the news now currently surrounding healthcare reform is centered on individuals signing up for coverage through the federal and state-managed health insurance marketplaces. However, there are big changes affecting small businesses, as well.
Whether you are a business owner who is in favor of these changes, it’s important to understand them so that you can make the best decisions for you and your employees. Here are some of the basics about the Affordable Care Act that can help you as you navigate through these substantial changes affecting healthcare for small businesses.
Do You Have Full-Time Employees?
Solo entrepreneurs and contractors have the advantage of choosing a healthcare plan through their state or federal marketplace. However, when you have employees, the situation dramatically changes. The Affordable Care Act was designed to provide affordable coverage for full-time employees. This begs the question – what exactly is a full-time employee?
In the eyes of the government, a full-time employee is one that is employed at least 30 hours each week over a given month.
While hours are important in determining who needs to provide coverage for their employees and who doesn’t, annual wages are also taken into account. Wages of employees are used alongside the number of employees to determine if a business has to pay a fee or will receive a tax credit. This is to prevent employers from cutting back hours to get out of paying for their obligations.
Small Businesses with 50 or Fewer Full-Time Employees
As part of the Affordable Care Act, small businesses with 50 or fewer businesses can now obtain health plans for their employees through the Small Business Health Options Program Marketplace. The purpose of the marketplace is to increase the purchasing power of small employers to enable them to obtain higher quality healthcare coverage at a lower cost. In 2016, businesses with fewer than 100 full-time employees will also be able to participate in the SHOP Marketplace.
Employers that meet the current requirements can enroll for SHOP coverage through agents, brokers, or insurance companies. These providers can determine eligibility and help with comparing plans. It’s important to remember that businesses that use SHOP must offer coverage to all of their full-time employees – those working 30 hours or more per week on average.
Small Businesses with More than 50 Full-Time Employees
Employers with more than 50 full-time employees have some new obligations that begin to take effect this year. First, they have to by law provide information to their employees about the Health Insurance Marketplace/exchange. This must be a written notification that is provided within two weeks of an employee starting work.
Beginning in 2015, small businesses with more than 50 full-time employees must provide health coverage for them. This is commonly referred to as the “employer mandate.”
The Employer Mandate Fee
Many business owners are currently wondering what will happen if they choose not to provide coverage for their workers. Understandably, they are worried about possible penalties. While there have been plenty of rumors and speculation about this, the Affordable Care Act clearly maps out what will happen.
Over 96 percent of all firms in the United States have under 50 employees. They will continue not to be penalized for choosing not to provide health coverage to their employees. However, they will now have access to insurance plans through the SHOP Marketplace.
For employers with more than 50 employees, there will be a penalty per employee for not offering coverage beginning in 2015. This penalty will increase each year by the growth in insurance premiums being provided to employees through a state or federal marketplace plan.
If an employer with more than 50 employees doesn’t offer an insurance plan that pays for at least 60 percent of covered health care expenses, an employer will be charged a penalty for each full-time employee. This penalty will also increase each year.
What About Tax Breaks?
Small businesses with 25 or fewer full-time employees with average annual wages below $50,000 are eligible for tax credits (adjusted for inflation beginning in 2014) to help them pay for employee premiums.
Starting this year, the maximum credit is 50 percent of premiums for small business employees and 35 percent of premiums paid for small tax-exempt employers. To receive the credit, an employer must pay the premiums on behalf of the employees enrolled in qualified health plans offered through the SHOP Marketplace. This credit is available to employers for two consecutive taxable years.
To make this all a little bit more understandable, if you pay $50,000 toward your employees’ health care premiums and you qualify for a 15 percent credit, you will save $7,500 this year.
If you did not owe taxes during the year, the tax credit can be carried back or applied forward for other tax years. It’s also important to note that eligible small businesses can still claim a business expense deduction for premiums in excess of the tax credit.
To qualify for tax credits, insurance has to be purchased through the SHOP Marketplace for at least two years. Credits can be claimed on a business’s tax return with an attached Form 8941 showing calculations for the credit.
Find out if your business is eligible for the Small Business Healthcare Credit and how much you might receive.
The Medicare Increase
As part of the Affordable Care Act, there has also been an increase in Medicare tax. This tax, which is paid by both employees and employers, is being increased by .9 percent (from 2.9 to 3.8 percent) for some employers and employees. Small businesses making under $250,000 are exempt from the tax. Employees making less than $200,000 as an individual or $250,000 as a family are also exempt. Employers must withhold and report an additional 0.9 percent on wages or compensation for employees making more than $200,000.
The Pre-Existing Conditions Fee
There is also an annual fee of $63 to be paid by small business employers purchasing insurance to cover pre-existing conditions. This fee will decrease each year until 2017 when it will be completely phased out.
Other Terms and Conditions
Under the Affordable Care Act, there are defined limits that can be placed on waiting periods for insurance enrollment. Employers cannot have waiting periods longer than 90 days for employees to obtain coverage. Beginning in 2015, this will drop to 30 days, and fines will be issued to employers with waiting periods of longer than 60 days.
Also, employers must now provide a summary of benefits during open enrollment or on the first day a plan starts. They must provide information at least 60 days in advance if there are changes to a plan.
Positive Benefits of the Affordable Care Act
Politicians and pundits alike have weighed in heavily when it comes to the Affordable Care Act. Like with any government program, there are positives and negatives that should be considered.
For many small business owners, there are some definite advantages to this program. The obvious perks include being able to gain access to affordable insurance options, cost assistance, and increased buying power via the SHOP Marketplace.
There are also significant tax breaks that will enable some employers, particularly very small businesses, to be able to offer insurance when they previously were unable to do so. In some cases, small employers will see up to a 50 percent reduction in their share of the cost of employee premiums. This will enable many to offer better quality benefits or more options.
The “employer mandate” was not intended to hurt small businesses. Rather, it was designed to ensure that large companies take shared responsibility to provide affordable insurance to their employees. In the long run, the goal is to provide healthcare to more Americans whether they work for small businesses or large corporations.
Negative Effects of the Affordable Care Act
Of course, many believe that there is a downside to the Affordable Care Act. This includes the fear that employers will cut employee hours to reduce their number of full-time workers. If this happens, it will be a result of the employee mandate in 2015. Some larger businesses and high-paying employees will also see increased taxes. The total impact of the Affordable Care Act is not likely to be felt until the employer mandate takes effect next year.
Fast Facts about Small Businesses and the Affordable Care Act
· More than 50 percent of uninsured Americans are small business owners, small business employees, or their dependents.
· The United States has more than six million small businesses. Over 90 percent of these businesses have fewer than 20 employees.
· Small businesses with fewer than 25 employees will benefit most from the Affordable Care Act.
· Over one-quarter of all small business owners are uninsured. Fifty percent of that group rely on family members for insurance coverage.
· Small business employees make up more than half of the United States’ workforce.
· Small businesses have historically had to pay nearly 20 percent more for health coverage than large corporations.