Although the road to healthcare reform has been a bumpy one, the passage of the Affordable Care Act (ACA), more commonly referred to as Obamacare, has had a positive impact on millions of Americans previously unable to obtain health insurance due to high costs or preexisting conditions. Of course, the ACA has created change not only for individuals, but for businesses as well.
A small business owner might not feel the same crunch as larger businesses. Many small businesses are exempt from the employer mandate portion of the ACA that requires larger businesses to provide health insurance coverage for employees.
However, the ACA does offer some incentives for small business owners that are interested in providing health insurance coverage as part of a benefits package in order to treat employees well and increase their competitive edge when it comes to hiring top candidates. Here are a few things every small business owner should know about the effects of Obamacare.
What is a Small Business?
In terms of the ACA, businesses are broken up into three categories: those that have 100 or more full-time employees (FTE), those that have 50-99 FTE, and those that have fewer than 50 FTE. For businesses that fall into the last group, there is currently have no onus to fulfill the employer mandate portion of the ACA.
Both of the other categories (50+ or 100+ FTE) must provide health insurance coverage for employees that meets mandatory minimum standards, as well as fulfill other requirements. The only difference between these two categories is the time frame for providing this coverage before penalties for failure to comply begin to kick in.
Within the small business category there is a further breakdown that employers need to be aware of. Businesses that hire fewer than 25 FTE and offer health insurance to their employees are eligible for tax credits to incentive taking on this added cost by providing elective insurance benefits. However, there are no tax credits provided to those small businesses that offer health insurance to their workforce if they have between 25-49 full time employees.
The Small Business Health Options Program, or SHOP, is designed specifically to help small business owners provide affordable health insurance to employees. Again, this only applies to small businesses with fewer than 25 FTE, which leaves businesses with 25-49 FTE in a bit of a gray area.
There are other rules to qualify, as well. Even if you have fewer than 25 FTE, you must also meet the proviso that annual wages for employees average out to less than $50,000.
Further, businesses that have 10 or fewer FTE earning an average salary of less than $20,000 will qualify for even greater incentives. In addition, employers must choose health insurance plans through SHOP that meet mandatory minimum standards and they must pay at least 50% of premium costs in order to qualify for incentives.
So what do small business owners stand to gain by providing employees with health insurance coverage? The size of your company (i.e. number of FTE) and the average annual salary will determine the extent of the eligible tax credit, but it could be as much as 50% of the share of employer premiums if qualified for the full credit.
It could also be significantly less, and if there are 25 or more employees, a business will not qualify at all. Every small business owner will have to decide if the benefits of providing health insurance for employees are worth the cost. Before making a final decision, though, it’s best to understand all of the potential benefits, especially if tax incentives apply.