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Small Business Employee Benefits and HR Blog

5 ACA Facts All Startups Need to Know

June 10, 2014
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Many startups are confused about the Affordable Care Act (ACA), and how it impacts their small business. Startups and ACA - what you need to know

For example, a recent survey found that 52% of small business startups are unsure of their requirements under the ACA. What do startups need to know about the ACA (aka ObamaCare)?

Here are five ACA facts all startups, entrepreneurs, and small business owners need to know.

1) Small Startups Don't Have to Offer Health Insurance 

If your startup has fewer than 50 full time equivalent (FTE) employees, the ACA's "Employer Mandate" does not apply to your business. In other words, there's no penalty for not offering traditional health insurance to employees.

That being said, many startups value offering health benefits for recruiting and retaining key employees. And, a healthier workforce generally means a more productive workforce. 

But, traditional group health insurance is out of reach for many startups because of cost and/or restrictive minimum participation requirements. Which is why startups are quick to adopt new startup health insurance solutions. We'll discuss these in fact #4 below.

2) Individuals Will Pay a Fine for Not Having Health Insurance

Under the ACA, owners and employees must have health insurance, or else pay a fine at tax time. There are some exemptions to the "Individual Mandate", but most people will pay a fine if they do not carry health insurance starting in 2014. 

3) New Advantages to Individual Health Insurance

While individual health insurance plans are not new, the ACA creates three new advantages that level the playing field with traditional group health insurance. These new advantages include:

  • Coverage for a pre-existing condition (individuals cannot be denied coverage or charged more because of a medical condition)

  • Coverage of essential health benefits

  • Discounts, via the premium tax credits, lower the cost of premiums for eligible individuals

Additionally, individual health insurance has these advantages over group health insurance:

  • Employees keep their plan when they switch jobs

  • Employees choose the specific network (preferred doctors, clinics, etc.)

  • Employees choose the level of coverage they need, specific to their family's medical needs (deductible, co-pays, co-insurance, etc.)

  • On average, individual health insurance costs less

4) New Startup Health Insurance Solutions

Because of facts #1-3 above, most startups are forgoing a traditional group health insurance plan and adopting defined contribution allowances that employees may use on individual health insurance premiums. With defined contribution allowances:

  • The startup sets monthly healthcare allowances

  • Employees purchase their own health plan and submit a reimbursement request

  • The reimbursement request is reviewed and approved (usually by a third party)

  • The startup reimburses employees for the approved expense

This approach is becoming popular with startups because employees select and purchase a health plan that best fits their families' needs, choosing any plan, from any carrier. Employees can keep their same network and doctors, and pick a coverage level that fits their health needs. Individual health plans cost less than traditional group plans, and the new premium tax credits may be available to qualifying employees. 

To set up this type of arrangement in a compliant way, establish a formal Section 105 Plan (such as a Healthcare Reimbursement Plan). Tip: Most startups work with a Defined Contribution Provider to ensure compliance with federal and ACA regulations (including the new "Market Reforms"), and to make administration easy.

5) New Health Benefits Reporting Requirements for Startups

Although most startups are exempt from the ACA's Employer Mandate, there are still reporting requirements that MAY apply (depending on the size of business and the type of health benefits offered):

  • New W-2 Reporting

  • PCORI/CER Plan Fees

  • High-Earner Medicare Payroll Taxes

  • Notice to Employees about the Health Insurance Marketplaces

See this cheat sheet on health reform requirements for small businesses.

Looking for more startup health insurance resources? See:

What are your ACA tips or facts all startups need to know? What questions do you have?

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