Q. How will the Affordable Care Act affect my small business?
A. The answer to this question is very complex. Now that President Obama has been re-elected, all provisions of the Patient Protection and Affordable Care Act (PPACA) will become and remain law. You cannot escape. Further, regulations associated with the law are still being written, so the rules continue to change. That notwithstanding, businesses had better react now or they could find themselves in serious financial difficulty.
Because of the complexity of this topic, we reached out to experts, Tony and Teri Gutierrez with JBA Benefits. They explained the impact of PPACA at a very high level.
Determine if you are a large employer – If you have more than 50 full-time employees, you are a large employer. For the purposes of PPACA, a full-time employee is one who works, on average, 30 or more hours per week. If you have fewer than 50 full-time employees, you must take the total hours worked by all part-time employees divide that number by 30 hours per week and add it to the number of full-time employees you do have to calculate your full-time equivalents (FTEs). If the result is more than 50, you are a large employer.
If you are a large employer – You must offer health insurance to all of your full-time employees or pay a penalty of $2,000 per year for each employee in excess of 30. For example, a company with 100 full-time employees that does not offer health insurance would face a $140,000 non-deductible penalty annually (if you are in a 35 percent tax bracket, that would be the equivalent of about a $215,000 pre-tax expense). If you choose to offer health insurance, you must meet an affordability standard and a minimum value standard.
To meet the affordability standard, the employee’s contribution to health insurance cannot exceed 9.5 percent of his or her total compensation. Any employee for whom this standard is not met may purchase insurance from the government-run exchange and could receive a subsidy. You will be fined $3,000 for each such employee who does purchase from the exchange and receives a subsidy.
Determining whether you meet the minimal value standard is complex. In fact, it is so complex that the government is building an internet-based calculator. You will be required to enter information about your insurance plan into the calculator. If the insurance you offer does not meet the minimum standard, you will be treated as though you had not offered health insurance. Note that it is your responsibility, not your insurance provider’s, to demonstrate that you comply with the minimal value standard.
f you are not a large employer – You are not required to offer health insurance to your employees. However, if you choose to offer health insurance, you will still be required to meet the affordability and the minimum value standards. If you do, you may qualify for tax credits. To be eligible, you must have fewer than 25 full-time equivalent employees, pay average wages per FTE of less than $50,000 per year, contribute at least 50 percent to your employees’ total group health-insurance premiums and purchase your coverage through the exchange.
Take action now – If you act now, you can make decisions that will affect your status under PPACA, which will determine how much it will cost you. It is true that many provisions of the Act do not kick in until Jan. 1, 2014. However, if you wait until then to respond, it may be too late to change your status. That could cost you significantly. Act now, while there is still time! Even if you’re currently a small employer under PPACA, if you are growing, it’s important to be proactive before your status changes.
While we believe this is a useful overview of PPACA, the devil is in the details. There are far too many caveats and nuances to explain here and new regulations continue to be written, so the rules are changing. Therefore, we strongly advise that you consult experts.