One of the key mandates of the Affordable Care Act (ACA), or “Obamacare” as the law is commonly known, is the creation of health insurance exchanges in each state. The intention of these exchanges is to give individuals and small businesses a means for buying affordable health insurance. With the October 1st launch date for the new health care exchanges fast approaching, business owners should be aware of the financial and tax implications related to them. Here are some important highlights of the new health insurance mandates to help your business plan ahead.
- The health insurance requirements of the ACA differ for businesses with 50 or more full-time equivalent employees (FTEs) and those with fewer than 50 FTEs. The number of FTEs your business has determines whether you must provide employees with health insurance and any penalties you will have to pay if you choose not to. The number of FTEs you have also determines if your business is eligible for tax credits and participation in the government’s Small Business Health Options Program (SHOP).
- Mandatory provision of health insurance applies only to companies with 50 or more FTEs. Beginning October 1, if your business has 50 or more FTEs you will need to choose between providing affordable care to all full-time employees or paying a penalty. If you have fewer than 50 employees, you aren’t mandated to provide health insurance, but you may wish to consider using the SHOP marketplace in your state to offer employees the benefit of health insurance coverage.
- For companies with 50 or more FTEs, the penalty for not offering health insurance is $2,000 per person, excluding the first 30 employees. Depending on the cost of insurance product premiums, it may, from a purely financial perspective, make sense not to offer insurance and pay a penalty if it costs less. However, these economic savings must be balanced against the costs of lower employee satisfaction and potential staff turnover if health insurance is not part of your benefit package.
- Employers with 50 or more FTEs may be subject to the Employer Shared Responsibility Payment in 2014. This payment applies to employers with 50 or more FTEs who don't offer health insurance that meets certain minimum standards. According to IRS guidelines, these standards include having at least one employee who could purchase their insurance for less money through the government’s health insurance exchange. In other words, if your employees will save money by buying health insurance through the government exchange, you may be subject to the Employer Shared Responsibility payment. Generally, to avoid the Employer Shared Responsibility Payment, an employer must provide insurance with a premium cost for employee-only coverage that is no more than 9.5% of an individual’s annual household income.
- Until 2016, the SHOP marketplace is only available to employers with fewer than 50 employees. Starting in 2014, small businesses with 50 or fewer FTEs (or 100 FTEs in Hawaii) can use the government’s SHOP marketplace to purchase health insurance for their employees. In 2016, small businesses with 100 or fewer FTEs will also be able to participate in the SHOP marketplace. It is important to remember that although small businesses are not mandated to use SHOP insurance products, they will not qualify for health insurance tax credits if they purchase their insurance outside of the program.
- If your business has fewer than 25 full-time equivalent employees, you may qualify for employer health care tax credits. To qualify for the Small Business Health Care Tax Credit, your company must:
- Employ 25 or fewer employees making an average of $50,000 a year or less
- Pay at least 50% of full-time employees' premium costs
- Buy insurance through the SHOP
Starting in 2014, the tax credit is worth up to 50% of your contribution toward employees' premium costs (up to 35% for tax-exempt employers) and is only available to companies purchasing health insurance through the SHOP marketplace.
As you can see, the introduction of government health insurance exchanges will have important implications for business owners. If you have questions about the tax implications of the new health insurance mandates on your business, please give us a call. In addition to the information we’ve provided, you may want to learn more at www.healthcare.gov.