Reducing the number of Americans without healthcare coverage is a monumental task. Under the Affordable Healthcare Act that’s exactly what the federal government intends to do. To better understand repercussions to small employers, we recently met with Kevin Roller of Roller Consulting, an expert in the area. Here are the highlights to date.
For small business owners there are a few considerations that can be proactively addressed prior to the launch of the Affordable Healthcare Act. The act was initially set to launch in 2014, but has been delayed until January 2015. In the media, you’ve most likely seen that all preliminary materials regarding the act focus on the effect on employers with 50 or more employees and the stiff penalties for not providing health coverage. As a small employer, do you need to pay attention to any of it? Let’s take a look.
Definition of an Employer with 50 or Fewer Employees
The federal definition of an employer with 50 or fewer employees is straightforward for businesses with all full time employees. Use a head count. But what happens if you hire seasonal or part time workers throughout the year and the aggregate total takes your head count above 50?
• Seasonal Workers: Generally speaking, seasonal workers who work less than 120 days during the year are exempt from head count calculations.
• Part time Workers: According to the federal definition, part time workers are counted on an aggregate basis to determine whether or not your business crosses the 50 full time employee threshold. In general, divide the aggregate monthly hours worked by part time employees by 120. If part time workers put your count over the threshold, your business will need to be compliant with the act however, the penalty for failing to provide insurance for those part time employees will not apply. The act will apply for full time employees who are not provided with healthcare. (If you have more than 50 employees, consult your healthcare advisor for specifics).
Next, small businesses should understand the “exchange.” All small businesses and individuals will have the option to enroll in an exchange to secure health insurance. A healthcare exchange is generally defined as an entity set up in your state to make it simpler for individuals and small businesses (fewer than 100 employees) to compare health insurance options. Each state is expected to set up an exchange with the purpose to oversee the insurance options available through the exchange and provide resources, such as insurance plan summaries, to help in plan selection. Businesses and individuals in states that do not set up an exchange may look at the federal exchange being set up.
The exchange itself will not actually provide the insurance, but rather serve as a network of options. Each exchange is expected to provide benefits that meet certain criteria called “essential health benefits” at various coverage levels with cost-sharing limits. Special SHOP (Small Business Health Options Program) exchanges will be established for small businesses. The exchanges were to be set up by October 1, 2013. We’ll have to see if that happens. Exchanges might serve as an opportunity for employers to potentially find insurance at a lower cost.
Tax Penalties on Individuals
It is important for small employers to understand the expected tax on individuals who decline coverage and its impact. The Act calls for penalties/tax to be collected along with federal income tax from individuals who do not have healthcare coverage.
A small business that currently has a healthcare plan partially paid for through employee payroll deduction might have some employees who opt out of coverage because they don’t want to deduct money from their take home pay. Once the act is implemented, those employees will need to pay the aforementioned tax or penalty for not having coverage. This could cause employees to re-evaluate decisions on coverage, causing many to choose their employer offered plan, instead of paying Uncle Sam. Hence, the small business might see more employees taking advantage of coverage, thereby increasing their costs.