This cheat sheet provides a quick reference for small businesses on health reform (aka the Affordable Care Act or ObamaCare).
Small businesses (with fewer than 50 employees) are largely unaffected by health reform. Yet, many small business owners and HR managers feel confused about their requirements under health reform.
The purpose of this article is to provide a quick reference guide for small businesses about how health reform impacts your business and your employees - and how to take advantage of health reform changes to offer more affordable health benefits.
1. As a Small Business, Do I Have to Offer Employees' Health Insurance?
Health reform "requires" that only larger companies (with 50+ FTE employees) offer health insurance to employees. And even these deadlines have been delayed.
If larger companies do not offer affordable, minimum coverage health insurance then they may have to pay a penalty. This is often called the "employer mandate" or "employer shared responsibility fee". Here's the phase in schedule by company size:
Small business (fewer than 50 FTE employees): Not subject to employer mandate.
Mid-size businesses (50 - 99 FTE employees): The employer mandate (and employer shared responsibility fees) start in 2016.
Large businesses (100 + FTE employees): The employer mandate (and employer shared responsibility fees) start in 2015.
2. Are There Any New Small Business Health Insurance Options?
Yes. There are two new options for small business health insurance.
First, as part of health reform's new insurance exchanges ("marketplaces"), there is an option for small businesses called the SHOP Exchange. This is a new way small businesses with fewer than 50 employees (or fewer than 100 in some states) can purchase a group health insurance plan. If your business has fewer than 25 employees and meets other requirements, you may be able to access the small business tax credits. But, if your small business hasn't been able to afford group health insurance in the past, the SHOP doesn't do much to lower the cost.
The second and more popular new option for small businesses is to offer a pure defined contribution health plan, where small businesses give employees a healthcare allowance instead of purchasing a group health plan. Employees use their healthcare allowance to purchase an individual health plan of their choice, and those eligible can access the individual health insurance tax credits.
Most small businesses are skipping the SHOP Exchange in favor of defined contribution because of the cost savings, and to give employees access to the individual health insurance tax credits (discussed in #3 below).
3. Do Employees Have to Buy Insurance?
Yes, or pay a tax penalty (aka the "individual mandate" or "individual shared responsibility payment").
Health reform law requires that most Americans be enrolled in health insurance by March 31, 2014. To avoid the individual mandate penalty employees can be covered by health insurance through work, a government program like Medicare or Medicaid, or by a health plan they purchase on their own.
Those who remain uninsured will pay a penalty starting in 2014 of $95 or 1% of household income, whichever is greater. By 2016, the penalty rises to $695 per individual or 2.5% of household income, whichever is greater. Read more about what happens if you don't buy health insurance here.
To help individuals buy health insurance, there are new health insurance discounts for eligible Americans. The discounts (individual health insurance tax credits and cost-sharing subsidies) started January 1, 2014.
To be eligible, individuals cannot be offered health insurance through an employer or other government program, and must meet certain income requirements (make less than about $45,900 in 2013 for a single individual). For those who are eligible, the discounts offer significant savings on health insurance premiums.
4. Are There New Health Benefits Reporting Requirements for Small Businesses?
Yes. Even though small businesses are exempt from the employer mandate, there are new reporting requirements that may (or may not) apply.
New W-2 Reporting: Beginning with the 2012 tax year, employers with 250 or more W-2 Form Employees must report the aggregate cost of employer-sponsored group health coverage on employees’ W-2 Forms.
PCORI/CER Plan Fees: The Patient-Centered Outcomes Research Institute (PCORI) fees - also called comparative effectiveness research fees or CER plan fees - are required for businesses with self-funded (or self-insured) plans, including a Healthcare Reimbursement Plan (HRP). These fees are due July 31st of each year.
High-Earner Medicare Payroll Taxes: As of 2013, employees earning more than $200,000 a year ($250,000 for joint filers) must pay higher Medicare hospital insurance (HI) taxes beginning in 2013. The new tax is 2.35% (an increase of 0.9%) of applicable wages above those thresholds, so a worker earning $300,000 a year will pay HI taxes of 1.45% on $200,000 plus 2.35% on $100,000. There is no change to the employer’s share of the HI tax. Click here to read more about how businesses need to adjust payroll for these employees.
Lastly, if your small business currently offers health benefits, there may be additional reporting or plan compliance considerations for 2014 and beyond. Check out this comprehensive health care reform compliance checklist.
What questions do you have about this cheat sheet on health reform for small businesses? What would you add? Leave a comment below.