Affordable Care Act changes health benefits landscape for small and large employers 

The Patient Protection and Affordable Care Act, commonly known as “Obamacare” or the Affordable Care Act (ACA), requires all Americans, with some exceptions, to purchase health insurance. And, it also changes the health benefits landscape for small and large employers.

Under the ACA, the government has designated small employers as those with 49 or fewer employees and large employers as those with 50 or more workers, with significantly different mandates for each size company. The following is a brief description of how the law affects these employers, including changes about coverage deadlines that were announced early 2014.

FOR EMPLOYERS WITH 49 OR FEWER FULL-TIME EQUIVALENT WORKERS...

Notification is required:Smaller businesses with 49 or fewer FTE (full-time equivalent) employees—those working 30 or more hours a week—face far fewer requirements than larger employers under the ACA. Small businesses are not required to offer health insurance to employees, but they do need to inform workers about the individual mandate to purchase health insurance. Smaller employers also need to educate workers about how to purchase coverage from a state- or federal-government web site, which are called online Health Insurance Exchanges. This notice applies to all current employees and each new employee, regardless of employer health insurance status or if the workers are part time or full time. Employers can download sample notices that they may use to comply with this rule on the U.S. Small Business Administration (SBA) web site.

SHOP exchange to be available: Starting in November 2014, employers with up to 49 employees that want to offer health benefits can purchase coverage through the Small Business Health Options Program (SHOP) web site. The SHOP marketplace will offer small employers increased purchasing power to obtain health coverage at a lower cost because their risk will be pooled among businesses nationwide, according to the SBA. This program will be rolled out to employers with up to 99 employees in 2016. From 2014 and after, eligible companies that purchase insurance through the online SHOP exchange may receive a tax credit of up to 50% (35% for tax-exempt businesses) of their contribution toward their employees’ insurance premiums. These employers may take the tax credit for up to two years and the incentives will vary depending on the size of the workforce and average wages.

For employers with 50 or more Full-Time Equivalent Workers…

Coverage is required: Larger employers are required to offer health insurance benefits to their employees or face a $2,000 per employee tax penalty, (called an “Employer Shared Responsibility Payment”) after the first 30 workers.

Income requirements: These penalties, however, are dependent on employees’ income levels. The government is issuing tax credits to employees to purchase health insurance on a state or federal online exchange if their incomes are 400% or less than the federal poverty level, which is approximately $47,000 in 2014 for a single person. If employees earn more than 400% or are enrolled in an employer’s qualified health plan, then a tax credit would not be available and the employer would not be penalized. 

Employer-sponsored health plans do face requirements, though, under the ACA. These plans, for a single employee, must cost no more than 9.5% of their annual wages and must cover at least 60% of their healthcare expenses, or companies could face a $3,000 penalty for each worker.

Delays announced: In early 2014, the U.S. Department of Treasury announced delays for these requirements, which vary based on employment levels. Businesses with 100 or more FTE employees will not face the coverage requirements and penalties until 2015 and employers with 50 to 99 FTE workers are exempt from the mandates until 2016.

In the meantime, larger employers who are at risk for the Shared Responsibility Payments must assess the potential financial impact of eliminating health benefits for employees. In some cases, asking employees to purchase health plans from the federal or state exchanges and absorbing the penalties will be a cost savings over offering a group health or self-funded insurance plan where employers share half of the costs. Employees might also prefer the wider variety of premium and benefit options available on the online exchanges versus the two or three plans offered by a group health insurer. Either way, ample communication and education will help your employees and company make a smooth transition into the post-healthcare reform world.


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