The Affordable Care Act, You Mean ObamaCare?
Watch any news outlet, and you’ll find yourself inundated with information regarding the Affordable Care Act. With so much information out there, it can be hard to sift through and find out what affects you as a small business owner. We've narrowed down the information into five key parts to help you make sense of these quickly approaching changes.
What is the Affordable Care Act?
Signed into law March 2010 by President Obama, the Affordable Care Act puts into place extensive heath insurance reforms that roll out over the course of the next couple of years. While certain aspects of the Affordable Care Act have already taken effect, the largest and by far most controversial aspects of the law will be implemented January 1, 2014.
According to the U.S. Department of Health & Human Services, as of January 1, 2014, all individuals who can afford it will be required to obtain basic health care coverage or pay a fee. Other January 1st implementations include:
- Increasing the small business tax credit
- Establishing the health insurance marketplace (which officially opened October 1, 2013)
- Prohibiting discrimination due to pre-existing conditions or gender
- Eliminating annual limits on insurance coverage
- Requiring insurers to spend between 80 and 85 percent of every premium dollar on medical care, instead of things like advertising, administration, etc.
What Are the Fees for Individuals?
If you will not have basic health care coverage by January 1, 2014, as an individual you will be fined. This fine is based on your household income. As an individual you will pay 1% of your household income or $95 dollars, whichever one of these amounts is higher. This fee will increase every year until 2016 when it reaches its peak of 2.5% of your household income or $695.
What Fees Will Impact Small Business Owners?
The effect of the Affordable Care Act upon your business is dependent upon the size of your business.
- If you are a sole-proprietor or have no other employees, the impact on you will not be much different than the impact on an individual. You will be required to have health care coverage or pay the fee.
- Small businesses, those with 50 full-time equivalent employees or less, are exempt from the mandate to provide insurance to their employees. According to an article from NBC News, 96% of all U.S. businesses are not required to provide healthcare coverage.
- Businesses with 50 full-time employees or more are required by the Affordable Care Act to provide basic coverage to employees who average 30 or more hours a week. If you do not provide coverage the penalty is $2,000 per employee after the first 30 employees. For example, if you have 55 full-time employees, and you do not provide health care coverage, your fine is calculated as such:
55 employees minus the first 30 full-time employees exemption x $2,000 per the additional 25 employees = a fine of $50,000.
It's important to note that businesses in this category have received a minor reprieve, and will not face fines until January 1, 2015.
In both of these categories, the key word is full-time equivalent. Full-time equivalent refers to the number of employees on full-time schedules plus the number of employees on part-time schedules, which are converted to a full-time basis. So if you have 4 part-time employees who each work 20 hours a week, you have two full-time equivalent employees.
Regardless of the size of your business, all businesses are required to inform employees about the health insurance marketplace. There is specific information on healthcare.gov that outlines the requirements for the written notice small businesses must provide to their employees.
What Insurance Is Acceptable?
Not all insurance counts to avoid a secondary penalty. The Wall Street Journal explains that as an employer you must provide “minimum essential” and “affordable coverage”. Minimum essential means that the insurance must cover at least 60% of the total health care costs incurred by the insured. Affordable coverage means that the premium for the coverage cannot exceed 9.5% of your employee’s household income. If the health care coverage does not meet these criteria, there is a $3,000 fee per employee.
What Are Incentives for the Affordable Care Act?
According to an article in the Washington Post, if you have less than 10 full-time equivalent employees with average wages beneath $25,000 and you provide health insurance for your workers you are eligible to receive a tax credit. This credit is up to 50% of your contribution towards your employee’s insurance premiums. If you are currently providing health care coverage for your employees, then the Affordable Care Act might actually help your bottom line with these tax credits.
To claim the credit, you need to use the Form 8941, Credit for Smaller Employer Health Insurance Premiums, found on the IRS.gov website. If your business falls into this category, you will include the amount as part of the general business credit on your income tax return.
The Affordable Care Act has created a political frenzy. Regardless of your views, it is important to understand this legislation as it impacts all sides of the political spectrum. For you as a small business owner, it important to know how this act impacts your business and your employees. While maneuvering through the criteria can be taxing, the possibility of a tax credit might provide some silver lining.
The Wall Street Journal