In 2010, The Patient Protection and Affordable Care Act, commonly referred to as Obamacare, was passed by Congress. While the Act has gained a tremendous amount of criticism, only a small number of the American people understand its provisions and how it affects them personally.
First and foremost, it is imperative to understand the intent of the act. The premise of the Affordable Care Act is to reform the health care system and provide the opportunity for all Americans to have access to quality and affordable health care. Since most of those with health insurance receive it as an employee benefit, businesses are both concerned and confused about the financial impact.
One of the most commonly misunderstood provisions of the act relates to the tax imposed on companies that do not provide affordable health care for their employees. Before moving forward, let’s define which employers will be impacted by the Employer Shared Responsibility Tax. This tax generally applies to businesses that employ 50 or more full-time employees or full-time equivalent employees (FTEs). Companies that meet this threshold are required to provide access to affordable health care only to full-time employees – and not to the part-time workers that contribute to the FTEs. Given this fact, it is beneficial to dissect the plan and identify how it affects small business owners based on the number of employees.
Self-Employed Individuals: Beginning in 2014, those who are self-employed are required to either carry basic health insurance coverage, qualify for an exemption or pay a shared responsibility payment when they file their federal tax return.
The act does not require self-employed individuals to secure a policy in the open market. After all, many self-employed individuals are often married, veterans or retirees. Therefore, the self-employed can be in compliance with the terms of the act by securing healthcare coverage through their spouse’s employer, Medicare part A or veterans’ benefits through TriCare.
In future years, self-employed individuals can purchase health insurance through the Insurance Marketplaces. Additionally, states have the option to expand Medicaid coverage to adults up to age 64 who earn up to 133 percent of the poverty level.
Employers with fewer than 50 FTEs: May qualify for a tax credit, making health insurance a more affordable option for many business owners. This tax credit is available to qualifying businesses with existing plans and those starting health insurance plans for the first time.
Small businesses often are not large enough to receive preferential rates like the group plans for larger companies that employ hundreds or thousands of workers. One of the provisions of the act allows small businesses to access Health Care Insurance Marketplaces and pool the risks of its employees’ health care costs with those of other small businesses. This essentially creates a “group plan” for smaller employers, and should lead to more competitive rates than if they did not partner with other small businesses.
Employers with greater than 50 FTEs: The key feature of the act for this class of employers is the Employer Shared Responsibility Provision. If one or more full-time employees is certified to receive a premium tax credit in the Health Insurance Marketplace, then that employer may be required to pay a penalty starting in 2015. This recently was changed from 2014 to allow a more thoughtful approach to its implementation.
Some of the provisions of the act that are not specific to the size of the employer as determined by the number of FTEs include:
• Limiting contributions to Health Care Flex Spending Accounts (FSAs) to $2,500, subject to cost of living adjustments
• Increasing Medicare withholdings by 0.9 percent for single taxpayers with compensation greater than $200,000, and $250,000 for joint filers.
• Providing incentives to companies that support workplace wellness programs
Like any piece of legislation, the Affordable Care Act has its share of strengths and weaknesses. To find out how the act affects you as a business owner, visit http://business.usa.gov/healthcare.
Life is a journey. Plan for it.
Ashleigh Brooker, CFP, is the principal of A.J. Brooker Financial Associates in Columbia. Reach her at info@AJBrooker.com or (803) 724-1235.