In the past few years, Congress has adopted a number of health-care insurance reforms under the Affordable Care Act (ACA) that will impact businesses both large and small. Some significant financial benefits are available to small businesses that com-ply with the new ACA rules.
The first step toward compliance is knowing whether the ACA treats your company as a large employer or small employer. Large employers are defined as companies that employ, on average, 51 or more full-time workers in a given year, and this rises to 101 or more employees in 2016. Small employers are companies that employ, on average, 50 or fewer full-time workers, rising to 100 employees or less in 2016.
You may already be familiar with some of the ACA market reforms: prohibition on exclusion of pre-existing conditions of children of enrollees; prohibition on the cancellation of insurance coverage due to serious illness; elimination of lifetime caps on insurance coverage; raising to 26 the age limit for children covered on their parents’ policies; and requiring insurers to report medical loss ratios each year and pay premium rebates to enrollees when the insurer spends more on its own overhead than on health care.
While the ACA does not actually require any company to carry group health-insurance coverage, Large employers face penalties of $2,000 per worker in excess of the first 30 workers if the company fails to offer “affordable or adequate” group health-insurance coverage. Coverage is not “affordable” under the ACA if a worker must pay more than 9.5 percent of his or her household income toward insurance premiums. Coverage is not “adequate” under the ACA if the insurance does not cover, on average, at least 60 percent of a worker’s medical costs.
Fortunately, small employers are not penalized if they do not provide group health-insurance for their employees. Instead, the ACA provides tax credit incentives to offset a portion of the contributions made by certain small employers for group health-insurance premiums. To be eligible, a small employer must have less than 25 full-time equivalent workers (FTEs), pay average wages per FTE of less than $50,000 per year, and contribute at least 50 percent to their employees’ total group health-insurance premiums. The lower the average annual wages paid and the fewer the workers, the bigger the tax credits available to the employer. Small employers with 10 or fewer FTEs and average annual wages of less than $25,000 may qualify for tax credits of up to 35 percent through 2013. The credit increases to 50 percent in 2014, but eligibility phases out for small employers as their wages and number of FTEs increase. Eligible small employers can carry forward the ACA tax credits for up to 20 years, apply the tax credits to the previous year’s tax return, and deduct excess premiums as expenses.
Of course, the devil is in the details for small employers that want to understand their eligibility for ACA tax credits. Small businesses should consult their health-care insurance advisors or attorneys for more information on whether they are eligible for the tax credit.