By now, you’ve probably learned that the Affordable Care Act, also known as the ACA, mandates that individuals in the United States enroll in health-insurance coverage. Starting this year, the law now also requires any large employers—those with 100 or more employees—to offer health insurance.
But amid all the news coverage about President Obama's signature piece of legislation, small-business owners have been left wondering, "How does it affect me?"
To help answer some of the most common questions about the ACA, we turned to three senior managers at Washington Council Ernst & Young, Ernst & Young LLP, who worked extensively with employers, insurers and health-insurance brokers on issues related to the implementation of the Affordable Care Act—Heather Meade, Sarah Kuehl Egge and Daniel Esquibel.
Here’s their best advice for navigating these new regulatory waters:
So, as a small-business owner, what do I really need to know about the ACA?
The short answer: If you have fewer than 100 full-time equivalent employees, “you don’t have to offer health insurance in 2015,” Meade says. If you employ between 50 and 99 full-time people, however, there is a new wrinkle in Tax Year 2015—as a business owner, you must submit information on your employees (via forms 1094 and 1095 series) to the IRS in 2016, verifying whether they and their family were offered health insurance by your company.
Are there any important dates coming up that will affect me?
One important date to keep in mind is February 15, 2015, which is when the open enrollment period for individuals to get insurance through the ACA’s marketplaces closes. “It’s possible that your employees might be asking you questions about their health-coverage options and whether or not you’re going to offer them a plan through work,” Meade says. It’s also worth noting that on January 1, 2016, employers with 50 or more full-time equivalent employees will be required to offer health-insurance coverage.
What do you mean when you say “full-time equivalent” employees?
Good question. “The ACA defines anyone who works 30 hours per week on average as a full-time worker,” Esquibel says. But employers will also be asked to add up the number of hours worked by their part-time employees in order to determine, in aggregate, how many full-time equivalent workers, or FTEs, they represent. If the total number of full-time workers, plus full-time equivalents exceeds 100, an employer is considered a large employer under the ACA for 2015. Typically, the hours worked by two or more part-time workers could add up to one FTE. If you operate more than one location, you’ll also need to consider your entire labor force when doing this calculation. To make it easy to determine how many full-time equivalent employees you have, you can visit the FTE calculator at Healthcare.gov for help.
Let me be blunt: What happens if I don’t offer a health insurance plan?
Things could get expensive, according to Esquibel. If your business meets the FTE threshold of 100 employees and you don’t offer coverage, you could face a tax penalty of $2,000 multiplied by the number of FTEs you have (minus 80) in 2015.
OK, let’s say I’m interested in learning what kinds of plans are available to my small business. Where can I go?
If your business has 50 FTEs or less and you want to offer your employees health insurance, a good place to start is by visiting the new Small Business Health Options Program, or SHOP, site. The site is tailored to make shopping for and enrolling in a plan smooth and easy for small businesses, Meade says.
Are there rules for the kind of coverage I have to offer my employees?
Under the ACA, there are now standardized rules across all 50 states that insurers have to follow, according to Egge. Everyone is eligible for coverage, including dependents up to the age of 26 and those with pre-existing conditions. And every plan in the individual and small-group insurance markets needs to cover 10 essential health benefits, like hospitalization and prescription drugs. From a pricing perspective, medical underwriting is no longer allowed for ACA-compliant plans. Instead, premium pricing is only allowed to vary based on geography (which city or state you live in), the age of the people enrolling in the plan, family size and whether someone is a smoker.
How do I know what plan might be best for my employees?
“New rules have made it easier for individuals and small-business owners to compare plans and make an informed choice,” Egge says. Through this link on the SHOP site, for example, you can research plans available in your state that fall under four metal tiers: bronze, silver, gold and platinum. In general, the plans are arranged such that those with a lower premium also cover fewer out-of-pocket costs. A bronze plan, for example, has a lower premium and covers 60 percent of an individual’s costs. A platinum plan has a higher premium but covers 90 percent of average costs, with the rest coming of an individual’s pocket. You can also compare what health-care providers are in a particular plan’s network and review what prescription drugs are covered by each plan. You can even compare plans by out-of-pocket expenses, such as deductibles, co-pays, coinsurance and total out-of-pocket cost limits. Under the ACA, there are now annual limits on out-of-pocket expenses ($6,600 for a self-only plan and $13,200 for family coverage in 2015), but many plans cap out-of-pocket limits at lower levels.
Is there a way for me to give my employees some different options for health coverage?
Right now, it depends what state your business is in. There is a new program taking shape called Employee Choice, Meade says, where your employees could actually chose their own plan from whichever tier you select. Employee Choice is currently only available in 14 states where the federal government helps run the SHOP Exchange (as well as several state-run SHOP Marketplaces) but is scheduled to be available nationwide in 2016.
Are there any rules about how much I need to contribute to my employees’ premiums?
The rules are different for large employers, but as a small-business owner with 50 or fewer FTEs, you can decide how much you want to contribute, according to Egge. That said, insurers in some states have what they call “contribution and participation rules,” which, for example, might require that a small employer must cover 50 percent of the premium and that 70 percent of the employees in the firm must be enrolled in the plan.
Does the ACA offer special tax incentives to help small businesses offset the cost of health coverage?
Yes, in some cases. There is a small-business tax credit available, but “it’s a bit complicated to determine if you are eligible for the tax credit,” Meade says. (You need to purchase coverage through the SHOP exchange and have fewer than 25 FTEs making less than $50,000 a year, for instance.) But this link on the topic, available on the SHOP site can help. Another important point here, Meade says, is that if you don’t offer affordable coverage, your employees might be able to get tax credits or subsidies if they go to the ACA’s Marketplaces as individuals—something they will weigh against how much of their premium you would be willing to pay through a plan offered through your business.
What happens if my business has locations in more than one state?
The simple answer is that you can buy plans in each state, which you can do via this link on the SHOP site or by talking with an agent or broker.
My business is growing. Fast. And we’re hiring like crazy. What happens if I realize at the end of the year that we have more than 100 FTEs?
First of all, congratulations. Secondly, “the ACA provides for a special transition period for employers like you,” Esquibel says. You generally have until April 1 of the following year to begin offering a plan before you would face penalties if you haven’t previously offered coverage.
About how long does it take to get a plan up and running?
First off, as a small business, you can begin offering a plan at any time throughout the year, according to Meade. But a general rule of thumb is that it takes 30 days to get a plan into effect. There are also some reporting requirements about what you need to tell your employees and when, which is something the SHOP site can help guide you through.
Wow, this is a lot to process. Is there anyone I can turn to for help?
Yes. You can use this link on the SHOP site to find an agent or broker who can help you sort through your options, Egge says. You can also learn more by visiting the site business.usa.gov/healthcare or by calling 800-706-7893 for any SHOP-related questions you might have.