Health Insurance Reform for Businesses With 25 Employees or Less


Health Insurance Reform for Businesses With 25 Employees or Less

There are some big changes coming for employers of all sizes, with the advent of the employer mandate provisions of the Patient Protection and Affordable Care Act (PPACA, or ACA, for short).

Congress was aware that some of the provisions that apply to very large employers were not realistic for many smaller businesses, and so there are a different set of rules and potential subsidies that apply specifically to businesses with 25 workers or less.

If this describes your business, here are the salient points to keep in mind:

The Small Business Health Care Tax Credit

Do you primarily employ lower and middle-income workers? If so, you may qualify for the Small Business Health Care Tax Credit.

This credit may apply if you have fewer than 25 full-time equivalent employees (FTEs), your average employee earns $50,000 per year or less, and you contribute 50 percent or more toward employees’ self-only premiums.

Under this credit, you can qualify for a tax credit of up to 35 percent. (Tax-exempt organizations can qualify for a credit of up to 25 percent) to help offset the cost of insurance. Family members working for the small business owner are not counted against them for eligibility purposes. Leased employees, however, do count for the purposes of calculating the average number of FTEs.

Limits on FSAs

The ACA imposed a new limit to flexible spending arrangements, or FSAs. The new limit is $2500. Future increases will be subject to cost-of-living adjustments. This rule, however, only applies to money the employer contributes. It does not extend to employe contributions.

Small Business Health Options Program

The Small Business Health Options Program, or SHOP, is a sort of small-business version of the individual exchange program. If you have up to 50 FTEs, you may access SHOP on line and select a qualifying group medical plan from among the options available in your area. These plans available via SHOP all meet the ACA’s requirements for minimum essential coverage. Offering the plan to your full-time employees will generally bring you into compliance with the ACA employer mandate and help you avoid a substantial excise tax of up to $100 per worker per day ($36,500 per year) for failing to cover qualified employees.

The SHOP program may also help level the playing field by tightening the gap between what small and large employers must pay for group health insurance benefits. Currently, according to the Small Business Administration, smaller employers pay up to 18 percent more than large businesses for comparable protections for their employees.

To be eligible to purchase coverage via SHOP, you must have at least one common-law employee, and you must offer SHOP coverage to all full-time employees. You must also meet minimum participation rates.

Do you have a combination of full-time and part-time workers? You can use this FTE calculator to see if you are qualified to offer benefits via SHOP.

Questions? Call them at 1-800-706-7893 (TTY users: 1-800-706-7915) Monday through Friday, 9 a.m. to 7 p.m. EST.

90 Day Waiting Period

If you have employees who become eligible for your group plan, they must be required to wait no longer than 90 days for your coverage to become effective. The IRS guidance to employers on how to meet this requirement is available here.

Wellness Incentives

The Affordable Care Act was in part designed to provide incentives for employers to encourage prevention of health claims by encouraging workers to develop healthier lifestyles. Employers are being incentivized to create a variety of wellness programs, including weight management, smoking cessation programs, and the like. As of January 1, 2014, the maximum reward for employers running successful wellness management programs increased from 20 to 30 percent of health cost coverage. For tobacco cessation programs, rewards can be as high as 50 percent of the costs of coverage.

New Taxes

If you have employees earning $200,000 (single filers) or $250,000 (married couples), you should know that the ACA has increased the employee-paid portion of FICA by 0.9 percent. You must therefore increase your withholding for these individuals for Medicare Part A (Hospital Insurance) for any wages over the $200,000/$250,000 threshold.

The employer’s portion of the tax does not change. It remains at 1.45 percent.

Summary of Benefits and Coverage

Remember, you must provide your employees with a “Summary and Coverage Form,” a standard document that explains to employees the benefits and costs of their employer-sponsored health plan.