Small business owners need to understand their requirements under the new healthcare law, the Affordable Care Act (ACA), and savvy business owners are using the advantages of the ACA to offer better, more affordable employee health benefits. There are four key aspects all small business owners need to know.
1. Small Businesses Are Not Required to Offer Traditional Health Insurance
The Employer Shared Responsibility provision, also called ESR or the employer mandate, is the requirement for larger businesses to either offer health insurance to employees, or pay a fee if/when an employee buys subsidized health insurance through the Marketplace.
The ACA’s Employer Shared Responsibility does not apply to small businesses with fewer than 50 employees. There are no tax penalties for businesses with fewer than 50 full-time employees who do not offer health insurance.
2. There Are New Reporting Requirements for Businesses of All Sizes
Even though small businesses are exempt from the Employer Shared Responsibility Fees, there are new ACA reporting and compliance requirements that may (or may not) apply. These requirements depend on how many employees you have, and the type of health benefits you currently offer (if any). For example:
PCORI/CER Plan Fees: If you offer a Healthcare Reimbursement Plan (HRP) or another type of self-funded (or self-insured) health plan, you are required to pay the Patient-Centered Outcomes Research Institute (PCORI) fees.
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.
If your small business currently offers health benefits, there may be additional reporting or plan changes you need to make to comply with the ACA. Check out this comprehensive health care reform compliance checklist.
3. Small Businesses Have Access to the SHOP Marketplace
The Affordable Care Act (ACA) designed the Small Business Health Options Program ("SHOP Marketplace") to provide small businesses with more choices for their healthcare plan. However, the SHOP Marketplace still isn’t working for small businesses. Small businesses hoped the SHOP Marketplaces would help them offer affordable health benefits that employees value. But instead:
Competition is low in the SHOP exchanges (i.e. in most states there is still little choice for employees, and little competition to drive costs down).
Premiums cost more in the SHOP Marketplaces than on the individual health insurance market (i.e. the premiums are still cost prohibitive for most small businesses).
Premium subsidies are only available in the individual exchanges (i.e. providing further cost incentive to send employees to the individual market).
4. Small Businesses Are Dropping Group Health Insurance to Help Pay for Individual Coverage
Group health insurance costs are becoming unsustainable for small businesses. Because of the new advantages of individual health insurance, many small businesses are transitioning employees to individual health insurance, and helping with a premium reimbursement plan. Since small businesses are not subject to the ESR, this is a more appealing option for both business owners and their employees.
With this approach, businesses give employees a tax-free healthcare allowance to spend on individual health insurance - instead of purchasing a group health insurance plan. Employees use their healthcare allowance to purchase an individual health plan of their choice and those eligible can access the premium tax credits.