Hey business owners: How much time do you spend worrying about health insurance for your workers? A lot? Don’t have time to answer because you’re too busy actually running your business?
You’re probably aware that the Affordable Care Act ushers in big changes for how employers provide health coverage, but you may not know what the health reform law means specifically for your retail store, contracting business, farm or other chosen livelihood. The good news is: You might get a tax credit. The bad news is: You might get hit with a penalty.
Here are the basics:
One of the most-discussed elements of the ACA is the “employer mandate.” Technically, the law doesn’t require businesses to offer health insurance, but some companies will have to pay a penalty if they don’t offer affordable coverage. That includes businesses with 50 or more “full-time equivalent” employees.” (Not sure what that means? Keep reading.) Those entities will be fined $2,000 per worker, excluding the first 30 employees, if they don’t offer coverage to employees who average 30 or more hours per week.
There’s no penalty for not covering part-time workers.
To avoid the penalty, employers must offer insurance that covers at least 60 percent of employees’ health care expenses. The coverage also must be “affordable,” meaning an individual employee’s premium can’t amount to more than 9.5 percent of their household income. If the coverage isn’t affordable, employees can apply for tax credits to buy insurance on their own through the health insurance marketplace (formerly called an “exchange”) that opens for enrollment on Oct. 1. Employers will either have to fork over $3,000 for each employee receiving the tax credit, or pay $2,000 per employee excluding the first 30 workers (whichever is less).
Do you employ 49 or fewer full-time equivalent employees? Breathe easy; you’re exempt. You don’t have to provide health coverage to your workers, unless you want to.
The penalties take effect in 2015, a year later than originally planned, after business groups complained about the administrative burden.
Your fast-approaching deadline
You must notify your employees in writing by Oct. 1 about the new health insurance marketplace. This applies to all companies covered by the Fair Labor Standards Act — generally those with at least one employee and $500,000 in annual volume, so most businesses — regardless of whether you currently offer health coverage.
To debunk one myth, there’s no fine or penalty under the law for failing to notify employees.
The notification should inform all workers about what the marketplace is, that enrollment kicks off on Oct. 1, that they may be able to buy cheaper insurance through the marketplace, and that if they choose a marketplace plan they may lose any employer contribution to their coverage. You must notify all employees, regardless of full- or part-time status and their insurance situation, and all new workers upon hiring.
So, that’s an item to add to your to-do list, if you haven’t already. Need help? The U.S. Department of Labor has provided some sample notices.
How to get started
How does a small business buy insurance from the marketplace?
— Sign up at Healthcare.gov/small-businesses, the official marketplace website. The small business marketplace is known as the SHOP, or Small Business Health Options Program. The SHOP is open to employers with 50 or fewer full-time-equivalent employees. It’s designed to provide a way to compare prices, coverage and plans in a way that’s easy to understand.
— Sign up through the marketplace hotline: 1-800-706-7893 for small businesses.
— Specially trained insurance agents and brokers can sell insurance from the marketplace. That includes the licensed broker you may be working with now. If you like your broker, there’s no need to change. Brokers are one of the most common sources of information for small business owners with questions about the ACA, according to David Clough, state director for the National Federation of Independent Business in Maine. “There’s certainly a lot of questions,” he said. “There’s a lot of confusion too.”
A look at your options
If you’re shopping on the, well, SHOP, you can choose from two carriers in Maine: Anthem Blue Cross and Blue Shield and Maine Community Health Options. Anthem is the state’s largest health insurer and has partnered with MaineHealth, the state’s largest health care organization, to offer marketplace plans. MCHO is a new Lewiston-based nonprofit insurance co-op run by its members.
Visit the Maine Bureau of Insurance website (or call your broker) for the specifics on these plans.
Both Anthem and MCHO, as well as a few other carriers, are also selling small business plans outside of the marketplace. You may want to look into those too, especially if you’re not eligible for a tax credit and won’t lose anything by shopping off the marketplace.
Tax credits for small businesses
Small businesses with fewer than 25 full-time equivalent employees (nope not 50, this is a lower threshold) may be eligible for tax credits to offset some of the cost of providing health insurance. To qualify, businesses must have average annual wages below $50,000 and pay at least half of the cost of their employees’ health insurance. And in 2014, you have to buy insurance through the SHOP to get a tax credit.
The tax credit actually kicked in back in 2010, shortly after the ACA was passed. For 2014 and future years, the credit is a bit more generous than before. Starting next year, eligible employers that buy insurance through the SHOP can receive a tax credit of up to 50 percent of the employer’s contribution toward insurance premiums. (It’s 35 percent for tax-exempt small businesses). The tax credit is available for up to two years. The exact amount depends on the number of employees and average wages.
To cite a scenario offered by the IRS, say you pay $50,000 a year toward your workers’ health care premiums. If you qualify for a 20 percent credit next year, you’ll save $10,000.
Check out the NFIB’s tax credit calculator to estimate your credit amount.
Keep in mind:
— If you already offer health coverage, you may be able to keep your existing plan. As long as your plan was in place before the ACA was signed into law on March 23, 2010, it’s considered grandfathered and isn’t subject to many of the law’s requirements, such as covering preventive services without charging workers a co-pay or co-insurance. The plan can remain grandfathered even if you enroll new employees or change insurance carriers, but the benefits and costs to employees must remain largely the same.
— Your health insurance rates could go down. Or they could go up. Some health insurers and brokers are notifying businesses that they may save money by renewing their plans this year. Carriers may offer deals, hoping to get existing customers to renew before some of the ACA’s requirements for more comprehensive health benefits take effect in 2014. Particularly if you’re now offering your employees a high-deductible, bare-bones plan, your carrier may boost rates in 2014 to comply with the coverage minimums. Renew now and you could potentially avoid higher rates for another year. Your employees might not be happy about missing out on those benefits, though.
— Back to the “full-time equivalent” terminology. For the ACA’s purposes, you can’t just round up your employees for a head count to get your total workforce. Under the law, “FTEs” are calculated by adding up the hours of full and part-time employees. So, for example, two half-time employees are equivalent to one full-time employee. The idea behind this was to discourage businesses from cutting employees to part-time status to avoid the requirement to offer insurance.
— Beginning in 2016, all SHOPs will be open to employers with up to 100 FTEs. If you plan to use SHOP, you must offer coverage to all of your full-time employees (those working 30 or more hours per week on average.)