Wednesday, October 15, 2014

Business Know-How: How small businesses are affected by the ACA


This Business Know-How article was submitted by Chamber member Michael Murphy of Platinum Exchange

Small businesses are now required to provide health insurance to full-time employees (30 hours a week on average). This article offers insight into how the Affordable Healthcare Act’s Employer Mandate may impact Asheville’s small businesses.

>What is the Employer Mandate?

The Employer Mandate requires all employers with over 50 full-time equivalent (FTE) employees to provide healthcare coverage for those full-time employees. (To calculate how many full-time equivalent employees you have, divide your part-time employees’ (less than 30 hours per week) monthly hours by 120 and add that solution to the number of your actual full-time employees.) The alternative to providing coverage is to pay the Employer Shared Responsibility Payment on the federal tax return (explained in detail below).

Employer mandate update: An announcement came earlier this year that the mandate has been delayed in tiers to ease the transition process: employers with 50-99 employees will start complying with this rule in 2016; and those with 100 or more employees will need to offer 70% of their employees’ coverage in 2015 and 95% coverage from 2016 onward.

>Good to know, but what if we employ fewer than 50 people?

Good news! Small operations with fewer than 50 employees duck under the radar - they do not get penalized for not providing health coverage to employees.

BONUS! Tax breaks for coverage for smaller employers: If you (“you” being an employer with fewer than 25 employees) do decide to offer coverage, you can apply for tax breaks (up to 50% for businesses and 35% for nonprofits) for your contribution to your employees’ premiums. To qualify, you must pay for at least 50% of the employees’ premiums; employees’ annual wages cannot exceed $50,000; and the insurance must be provided through the ACA Exchange Marketplace for at least two years. These tax credits are offered on a sliding scale up to 25 employees depending on the aforementioned qualifying factors. Please consult your tax advisor to see if you qualify.

Sole Proprietors (without employees): as an entrepreneurial trailblazer, you are exempt from this conversation and directed to the Individual ACA Marketplace for health insurance coverage.

>What if I have over 50 employees and I am not offering coverage?

The alternative to providing direct coverage is called the Employer Shared Responsibility Payment, which is a fee employers pay per full-time equivalent employee that does not receive affordable, minimum value coverage through their employers. (See Employer Mandate Update above for relief provided for 2015 and 2016). To break down this jargon, here are a couple of scenarios:

If insurance is flat-out not offered by the employer: the employer is required to pay an annual fee of $2000 per full-time employee (which shows up in monthly installments but is paid as a lump sum on the tax return). The tally starts after the first 30 employees.

If insurance is offered but is not affordable or does not meet the minimum value requirement: the employer is responsible for the Employer Shared Responsibility payment, but it is calculated a bit differently. Not meeting the affordability test means that a full-time employee gets a tax credit because his or her coverage is not affordable (in other words, the premium costs more than 9.5% of the employee’s household income) or the plan doesn’t cover 60% of the total healthcare costs (minimum value). If at least one full-time employee gets this tax credit, the payment is $3000 flat for each employee receiving the tax credit. (This payment is subject to certain limitations, so you will need to consult a tax advisor in this scenario).

Simple, right?

It’s important for employers to note that unlike providing coverage directly, the Employer Shared Responsibility Payment is not tax deductible.

>Where do I go to SHOP for Employees’ Insurance?

Much like the individuals’ ACA Exchange, there is a similar marketplace just for you as employers. It’s called SHOP: Small Business Health Options Program. One great aspect of SHOP is that there is no open-and-closed enrollment period – employers can purchase insurance any time throughout the year.

Qualifying employers can use SHOP to compare and purchase group plans for their employees. One of the many qualifiers is that SHOP is only available to operations with fewer than 50 full-time employees in 2014. In 2016, the SHOP will be expanded to employees with fewer than 100 employees. This marketplace creates a large collective of small business customers, which, in theory, generates more buying power and better plans that were monopolized by large firms in the past.

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