Affordable healthcare insurance is an essential benefit to offer your employees. Because of the Affordable Care Act, it may even be legally required, depending on the size of your business. To maintain legal compliance, you first need to understand what the ACA is, what recent changes have been made to it and how it impacts your business.
What is the Affordable Care Act (ACA)?
The Patient Protection and Affordable Care Act (also known as the Affordable Care Act, PPACA, ACA or Obamacare) is a healthcare reform law that went into effect under President Barack Obama's administration on March 23, 2010. The primary objective of the Affordable Care Act is to regulate the cost of health insurance and expand Medicaid coverage. Although some aspects have been repealed under President Donald Trump's administration, much of the Affordable Care Act is still applicable to your business.
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Who benefits from the Affordable Care Act?
The purpose of the Affordable Care Act is to ensure that every American has access to affordable health insurance. Although the ACA presents some challenges for businesses, it benefits several groups, including low-income households, people with preexisting medical conditions and children.
The ACA benefits low-income households, or households with "income limits," by expanding Medicaid coverage to apply to a larger group of individuals.
"The ACA directly expanded Medicaid eligibility to people falling below 133% of the federal poverty guideline, which in 2020 is $12,760 for a single-person household, $17,240 for a two-person household, and just over $26,000 for the average four-person household," said Ty Stewart, president and founder of Simple Life Insure.
The ACA directly benefits individuals with preexisting medical conditions who may have previously not had access to affordable healthcare, since it prohibits insurance companies from denying coverage or charging additional premiums due to preexisting conditions.
Children are also allowed to stay on their parents' health insurance plans until they turn 26 years old, receiving health coverage for several essential services like pediatric and preventive care, lab tests, prescription drugs, and mental and behavioral health treatment.
How the Affordable Care Act impacts your business
Before the Affordable Care Act went into effect, all businesses had the option to offer or not offer health insurance to their employees. The healthcare reform law changed that. The ACA declared that small businesses with fewer than 50 employees can provide their employees with insurance or let their employees sign up for their own insurance coverage separately; however, businesses with 50 or more employees are legally required to offer their employees health insurance.
Reporting health insurance coverage
Rolling out these policies takes effort on your part as an employer. Denise Stefan, president of Engage Insurance Agency at Engage PEO, said that small businesses are required to report the value of the health insurance coverage provided to each employee on annual W-2s, and if you choose health insurance that is considered "self-insured," then you also have to file an annual report providing certain information for each covered employee.
You may also be required to pay a fee to help fund the Patient-Centered Outcomes Research Trust Fund. "Small employers must also withhold and report an additional 0.9% on employee wages that exceed $200,000 per year," said Stefan.
Small Business Health Options Program (SHOP) and tax credits
Although the ACA presents a few challenges for small businesses, it also has some benefits for the employer – a primary one being tax credits. Since providing health insurance is not always practical for very small businesses, the Affordable Care Act created the option of affordable health insurance and tax credits for small businesses.
Small businesses with fewer than 50 full-time employees can purchase affordable health insurance through the Small Business Health Options Program (SHOP) – given that they meet the four eligibility requirements. Businesses with SHOP insurance and fewer than 25 employees may qualify for the Small Business Health Care Tax Credit, worth up to 50% of their premium costs. (This may differ by state.)
"Small employers were not mandated to provide coverage, like large employers, but if they had no more than 25 full-time employees, they could take advantage of the tax credit as long as they provided qualifying health insurance for their employees, paid for at least half of the cost of the insurance and paid an average yearly salary of less than $50,000," said Stefan.
This tax credit is available to eligible employers for two consecutive taxable years and granted based on a sliding scale (i.e., smaller businesses receive larger credits).
Employer mandate penalties
Since the goal of the Affordable Care Act was to reduce the number of uninsured Americans, it originally required everyone who could afford health insurance to either buy it or face a penalty for noncompliance. Although the penalty for individual mandate noncompliance has been lifted, some states may still have penalties in place for qualifying businesses that don't offer essential health benefits. These penalties often do not apply to very small businesses, though.
"In 90% of cases, small businesses with fewer than 25 employees will not be fined penalties for not offering health insurance, so you can at least breathe easier about that," said Stewart.
Changes to the ACA in 2020
Many changes have affected the Affordable Care Act over the years, so we spoke with experts to learn the most recent impacts. Stewart said many of the ACA's largest changes mirror the insurance industry's broader responses to COVID-19:
- More private insurers offering SHOP plans: There has been an uptick in short-term plans being allowed to extend from three months to 12 months, which can save small businesses money if they meet extension qualifications.
- No individual penalty: In previous years, individuals had to pay a penalty come tax time if they were uninsured for longer than three consecutive months. In 2020, that individual mandate penalty has been waived. The only exceptions to this are Rhode Island and California, as legislators in these states decided to continue fining uninsured residents.
- Rolling enrollment: The ACA and SHOP plans now offer employee enrollment outside the standard enrollment period.
- FSA contribution increases: Employees in most cases can increase their contributions to their flexible spending accounts until 2021.
Additionally, many taxes that were initially designed to help pay for the Affordable Care Act have been repealed by both the House and the Senate, in conjunction with the passage of the December 2019 spending bills.
"The health insurance tax, the Cadillac tax and the medical device tax were all repealed as part of the spending bill," said Stefan. "The repeal of the health insurance tax was passed after most 2020 insurance premiums were already in place. As a result, the effect of the change in that tax will not be felt until 2021."
When choosing health insurance for your company, it is best to seek an expert on the health insurance marketplace and state requirements for minimum essential coverage.
"My biggest recommendation is to reach out to a SHOP broker or agent in your state," said Stewart. "These are experts who can provide the most accurate information on pricing and plans available in your state's marketplace, as well as your business's exact liabilities. There is so much marketplace variability across the country, so these SHOP brokers really are your best resource."