Small Employers and the Affordable Care ActJune 14, 2013
Healthcare options for small employers.
If you have less than 50 full time equivalent employees, you are considered a small employer under the Affordable Care Act (see our prior blog for the mathematics and an alert for folks who own multiple businesses). Being a small employer is simpler because it means that you aren’t required by mandate to offer health insurance and there’s no penalty if your employees seek subsidized health benefits from a government program known as an exchange.
An exchange is a state run pool of insurance plans. It’s designed to allow individuals to purchase health insurance as a group rather than individually – the theory is the group buying power will allow a lower premium than anyone could get on their own. In some states, the exchange will also allow small businesses to purchase group plans for their employees (known as SHOP) – the theory here is that the small employers will get big company pricing by being part of a larger group like the exchange. Watch for our blog detailing the exchanges and how they work, coming a little later this month.
As an employer, a decision needs to be made whether or not to offer health coverage for your employees. Just because you aren’t required to offer health coverage doesn’t mean you can’t - it simply means that it’s optional. The new law is sure to bring change to the health insurance providers so you may find that there are a number of new and different packages and premiums that weren’t available before. If you decide to provide health coverage, there are several new rules in effect:
- The waiting period cannot be longer than 90 days to be eligible for enrollment
- The non-discrimination rules are going to become more stringent
- There will be new restrictions on health savings and spending accounts (HSA, HRA, FSA)
- You will be required to provide a plain English summary of coverage to all employees
Some of the new restrictions and anti-discrimination rules are still being drafted and revised even today. We are monitoring these changes and will post blog updates to keep you informed throughout the year.
Regardless of whether you are a large or small employer, if you provide a health insurance plan to your employees, you will need to report the value of health coverage on all W2’s for the calendar year 2013. Included in the reporting will be supplemental coverages (if pre-tax), some health flexible spending arrangements, and some COBRA premiums. The key is to work with your payroll team now and track this information during the year so it can be reported quickly and correctly.
Elevating to the smaller employer who decides to offer a company plan, part of the new law provides an expanded credit for employers who have less than 25 full time equivalent employees and the average wage for the entire company is less than $50,000. The credit is based on the amount of premium that the employer pays (up to a state average) and if the employer is paying at least 50% of the total premium. In 2013, the credit is equal to 35% of eligible premium and the credit increases to 50% in 2014 if the employer buys coverage through the SHOP exchange. A SHOP exchange is the state insurance pool that is being created as part of the Affordable Care Act. This is a generous credit but there is another limitation.
The credit is reduced by 1/25 for every $1,000 that the average annual wages exceeds $25,000. To put this in practical terms, this means the credit is most beneficial to employers with a generic workforce that are typically paid a lower wage. Employers with highly technical or specialized workers tend to have the majority of the credit phased out due to the higher wages. It’s best to keep detailed wage records so the credit can be determined when tax time comes.
Regardless of everything that is pending and changing, one thing you are required to do soon is to provide written information to your employees - no later than October 1. That information is to educate them on what a state insurance exchange is and how they can access it.
The notice must include:
- Contact information for the exchange and a description of the services provided
- Inform employees that they could be eligible for an individual tax credit for plans bought through the Exchange
- A statement letting the employee know that if they purchase a health plan through the Exchange, they could lose the employer contribution to any health plan the employer offers.
The links below are two sample notices that were drafted by the US Department of Labor. Employers can use these notices to the extent they apply to their situation or they can be used as a starting point for editing
Learn more about the Affordable Care Act: