Recent changes to healthcare laws have left small business owners wondering how to navigate the new system. Once regarded as a premium benefit offered only by high-profile employers, the Patient Protection and Affordable Care Act (ACA) has expanded health insurance coverage to a wider number of Americans. As a small business owner, this is an exciting and anxious prospect.
The anxiety of complying with new laws brings about a number of questions for small business owners. Many entrepreneurs will be concerned about costs associated with providing coverage, and even more will be forced to find ways to fit these costs into their budgets. Can costs be passed onto employees? Are there relevant pros and cons to be considered before offering health insurance?
The information below should help clarify these issues for small business owners.
Can Businesses Be Exempt From Providing Health Insurance?
This will be contingent on a business’ size, but the straight answer is yes. Business owners with fewer than 50 employees are not required to provide a health coverage plan. With that being said, those businesses’ employees are still required to obtain health insurance. Health insurance exchanges (also known as marketplaces) at the federal and state levels provide options for small business employees who might otherwise be tempted to work for a larger organization with health insurance coverage.
Should a small business owner with less than 50 employees wish to provide health insurance options for their workforce, a primary resource for this would be the Small Business Health Options Program (SHOP) Marketplace. Furthermore, a business that purchases insurance through SHOP for a workforce that’s smaller than 25 employees may qualify for tax credits.
When Must a Business Provide Health Insurance?
Business owners with more than 50 employees are required to offer a company insurance plan. Common ownership is at play here, meaning that organizations comprised of smaller businesses will still be required to provide a health insurance option for all employees.
The ACA’s Employer Shared Responsibility (ESR) provisions will take effect as of January 1, 2015. These provisions require businesses with more than 50 employees to offer health coverage to all workers or be forced to make an ESR payment. ESR payments will be required for any month that insurance is not provided.
The ESR payment amount is $2,000 per uninsured employee, not counting the first 30 full-time employees. For example, if your company employs 52 people and doesn’t offer health insurance, your payment will be based on 22 employees, totaling $44,000.
The Department of the Treasury has provided a Federal Register that contains detailed information about complying with the Employer Shared Responsibility provisions.
All types of businesses are subject to the Employer Shared Responsibility provisions, including for-profit, non-profit and government institutions.
When Would a Business Be Required to Make an Employer Shared Responsibility (ESR) Payment?
As of Jan. 1, 2015, a business would be required to make the Employer Shared Responsibility payment if either of the following accurately describes how it offers health insurance:
- The business owner that employs over 50 individuals does not provide a health insurance plan or provides a plan to less than 95% of its full-time employees and their dependents, and at least one of these full-time employees benefits from a premium tax credit to pay for insurance elsewhere.
- The business owner with over 50 employees provides health insurance coverage for all employees, but at least one employee is the recipient of a premium tax credit to pay for another insurance, due to the business owner’s option being unaffordable or not meeting minimum value.
How Can My Business Budget for a Health Insurance Plan?
First, you must figure out how much your premiums will cost. Second, you will have to decide how much of that cost you will pass onto your employees, if any. Remember that these costs can be offset by certain tax deductions and credits. Lastly, if you require health insurance premiums from your employees, they must be “affordable,” based on criteria that will be discussed in detail below.
For states serviced by HealthCare.gov, the federal health insurance exchange, small business owners can use a calculator to view estimated premiums as part of the SHOP Marketplace. Select “I’m looking for coverage for a small business I own or operate,” and answer a few questions about your location, type of insurance and the age of your employees to get an estimate.
For small businesses located in states with their own exchanges, the ease of finding that figure will vary. New York’s exchange features a calculator similar to the federal one. This is contrasted with California, however, where businesses can check out a list of sample plans offered by the exchanges’ six insurance providers.
After figuring out how much of your plan’s cost you are willing to absorb, you will have to make sure that your employee’s premiums are affordable. An affordableinsurance premium is one priced at 9.5% of the employee’s annual household income or less. If the premium is higher than 9.5%, then the plan is considered unaffordable. In order for an employer to safeguard against this, he or she can use the following three safe harbors to determine premium affordability:
- Box 1 from IRS Form W-2
- Pay rate
- Federal poverty line
An employer can use any one or a combination of the above to perform the necessary affordability calculations. If the employer provides various healthcare options, calculations should be assessed against the option with the lowest cost.
Okay. So What Does an Employer’s Plan Have to Cover?
All employer-sponsored health insurance plans must provide what is known as minimum value. A minimum value plan will cover at least 60% of the total permitted cost for benefits expected with the plan. A minimum value calculator, provided on the Centers for Medicare & Medicaid Services website, allows employers to determine whether their plan(s) offers minimum value, based upon deductibles, co-pays and other details regarding the plan.
If an Employer Offers an Affordable Plan With Minimum Value, and At Least One Employee Obtains Outside Health Insurance or Receives Medicare or Medicaid, Will the Employer Be Required to Make an Employer Shared Responsibility Payment?
No, in this situation, the employer is complying with the Employer Shared Responsibility provisions. Only if at least one full-time employee receives a premium tax credit will the employer be subject to the Employer Shared Responsibility payment.
My Business Isn’t Required to Offer a Plan. What Are the Pros and Cons of Offering One?
Most businesses are intimidated by the costs associated with providing healthcare. You’ll have to determine how much you, as an employer, will be willing to spend as well as what amount of that cost will be passed onto employees. This is in addition to other burdens like paperwork and perhaps even concerns about liability.
Even so, most of the reasons against providing healthcare are outweighed by its potential benefits. Running a business that offers health insurance tells prospective and current employees that the company cares for its workers’ wellbeing. Healthy workers mean less sick days, which translates to higher productivity. There will be costs, but those can be mitigated through tax deductions and credits should your business qualify for them.
Employers should be sure to account for all matters regarding proper health insurance coverage for their employees in order to comply with the new standards. Note that the transition period has been taken into account during the year 2014, and this time has been granted for employers to take proper measures to start 2015 with the right health insurance options. Don’t wait until the last minute!