By: Sullivan Alexander, MBA,CGMA,CPA.CITP, Conture—Director, Management Advisory
Small Business and Health Care Reform – Ready or Not!
In terms of health care reform, Affordable Care Act (ACA), or (Obama Care), next month marks an important milestone. The new health insurance marketplaces or exchanges are anticipated to open on October 1, 2013 for immediate enrollment, with coverage starting January 2014. From a small business point of view, health reform is not going away, and planning ahead for compliance is likely the best option, despite political wrangling and uncertainty around the debt ceiling.
Overall, there are a number of issues small business owners will need to consider as they plan ahead to make the best decisions based on complicated factors and competing interests of the owners, employees, and the government. This brief will discuss only a few. Given the ACA’s inherent goal of increasing access to health coverage for Americans, employers play a key role. As a result, the law contains provisions to potentially influence small employer participation in providing group health plan coverage for employees. These include the creation of exchanges/ health insurance marketplaces, small business tax credits, and employer penalties, or assessable payments.
Health Exchange or Insurance Marketplaces
In a nutshell, the ACA requires the creation of health insurance exchanges in every state, some of which will be state based, while others will be federally based. Incidentally, Washington State’s exchange is state based. In simple terms, these exchanges bring individuals and small employers (buyers) and sellers of insurance together. It allows individuals and employers (100 or less) to shop for, and compare coverage of different private health plans, rates, deductibles, co-pay and other factors. In addition, these exchanges will assess eligibility for premium tax credits and cost sharing for individuals. These are advanceable, refundable tax credits and cost sharing subsidies that can go directly to the insurers to assist in paying for coverage depending on if the employer coverage offered meets the provisions of being affordable and meets minimum value requirements.
Small Business Tax Credits
The small business tax credit was really intended to entice small employers to offer a health plan for the first time or continue to maintain health coverage. For a full credit, the provision requires the employer to contribute a uniform percentage of at least 50% of the employee’s health care coverage, provided they meet the following two criteria:
Employ 10 or less full time equivalent (FTE’s), and:
Have an average taxable wage of $25,000 or less
The current tax credit is 35%, and will increase to 50% for 2014 and 2015. For very small businesses this is good; however, for many small businesses due to the aggressive phase-out the resulting benefit could be quite small if you have more 10 employees, and pay wages in excess of $25,000.
Share Responsibility – Employer Penalties
For purposes of the ACA, certain large employers will be assessed penalties based on whether they offer health insurance coverage or not; and if they do, whether the coverage is affordable and provides minimum value. Large employers are those that employ on average 50 or more full time employees in the prior year. (Full-time employees are those working 30 hours or more per week or more). In general, the penalty will be $2,000 per employee if no coverage is offered. And if coverage is offered to employees, it must be both affordable and cover at least 60% of the cost of medical expense; otherwise the penalty will be $3,000 per employee. Depending on the number of employees the cost can be significant whether if you chose to play or pay.
If coverage is offered, and if even one employee receives a premium tax credit or subsidy, this would imply the employee portion of the coverage was greater than 9.5 % of the household income, or did not meet the 60% test above. In this case, the employer would still be assessed a penalty. This could essentially result in paying for the coverage as well as the penalty. To deal with this penalty provision, the IRS has issued three safe harbors for business.
Tips to Consider For Small Business
Get informed and learn about key provisions and regulations, keeping in mind you do not have to be an expert. Having an awareness is essential to being able to ask important questions ;
Carefully evaluate your options for compliance and factor in how it impacts your business goals;
Proactively deal with potential penalties. Here prevention truly is the best medicine; and,
Consider working with a business advisor, or CPA to guide you through cost benefit analysis of various health plans options, coverage, premiums, deductibles, W-2 reporting disclosures, other business issues, as well as keeping you updated with the on-going health care reforms changes.
In sum, the health care reform and provision are complex and effects individuals, employers, health insurers and medical service providers to name a few. More importantly, this is critical to your business, and may increase, or decrease long run costs, as well as affect the relationship with your employees ultimately impacting the business in meeting the needs of your customers
Making the best decision will require carefully weighing the interest of the business with those of employees, and regulators. The health care clock is ticking and takes time to carefully plan, so there is no time to delay!
The above general information has been provided for information only and should not be considered a substitute for engaging professional advice.