Owners of small and midsized businesses are striving to understand and comply with the broad set of changes required under the Patient Protection and Affordable Care Act (ACA). This article dispels five common myths about the ACA for businesses with 50–99 employees.
Myth No. 1: Our Business Is Exempt From the Affordable Care Act‘s Employer Mandate
The ACA attempts to increase the number of Americans who have health insurance without imposing hardships on businesses and individuals who cannot afford coverage. The law exempts certain businesses from the mandate, but if you’re defined as an applicable large employer (ALE), then you must be compliant. ALEs are defined as having at least 50 full-time-equivalent (FTE) employees. Companies with more than 100 FTEs must provide health insurance to full-time workers starting in 2015, while businesses in the 50–99 range will berequired to provide coverage starting in 2016, though some businesses may be eligible for transition relief.
Myth No. 2: Most Businesses of Our Size Don‘t Provide Health Insurance Today
As of 2013, only 57 percent of firms with fewer than 200 employees offered health insurance, according to the Kaiser Family Foundation. This represents a decline from 65 percent a decade earlier. If you look a little closer, however, you’ll see that very small companies with fewer than 10 employees are bringing down the overall average. More than 90 percent of companies with 50–199 workers offer health benefits to their employees (the 50–99 employee segment is not broken out separately).
The Affordable Care Act will require midsize employers to make changes to their existing coverage, but only a small percentage will be offering such coverage for the first time.
Myth No. 3: Even if We Are Penalized for Not Providing Coverage, We Can Deduct the Penalty on Our Income Taxes
Employers that fail to comply with the coverage mandate will be subject to a penalty of $2,000 to $3,000 per employee per year, not including the first 30 employees. The size of the penalty depends on the number of employees and whether the employees receive federal premium subsidies when they buy their own coverage on the public marketplace.
Companies can deduct most business expenses from their income taxes, but the employer mandate is structured as a shared responsibility fee. The penalty is classified as a tax that cannot be deducted for federal income tax purposes, according to the U.S. Small Business Administration.
On the other hand, health insurance contributions are fully deductible for employers, and of course, these payments also provide value for employees in the form of insurance benefits.
Myth No. 4: We Can Continue to Offer a Limited Benefit or Mini-Med Plan
Health insurance comes in many varieties. Over the past several years, some companies, especially those in lower-wage industries, have offered so-called limited benefit or mini-med plans to keep costs down and make premium contributions affordable for their workers. Such plans have been criticized for capping annual benefits and not covering expensive services such as hospital stays and prescription drugs.
Limited benefit plans do not comply with the ACA; therefore, companies will need to upgrade their coverage to meet the employer mandate.
The Affordable Care Act specifies a set of essential health benefits for individuals and employers with up to 100 employees. Essential health benefits comprise 10 categories of care, according to HealthCare.gov. These include physicians, hospitals, behavioral health andprescription drugs, among others. There are additional requirements for children, such as dental and vision care.
Myth #5: We Will Have to Buy Our Insurance From a Government Website
State and federal health-insurance marketplaces for individuals got off to a rocky start during the open enrollment period that began in October 2013. Many of these websites (sometimes called exchanges) were unstable and difficult to navigate, causing frustration for those trying to enroll. The problems have largely been fixed, but some individuals and businesses remain wary of online marketplaces, fearing a repeat of the initial headaches.
The Small Business Health Options Program (SHOP) is designed to provide online marketplaces for businesses with up to 100 employees. However, the SHOP marketplaces were delayed and are initially limited to companies with 50 or fewer employees. In 2016, SHOP is expected to open up to employers with 51–100 employees in some states.
In any case, using the SHOP marketplace is optional. Employers can go directly to an insurance company or a broker without using SHOP. And even if they use SHOP, employers can work with a broker at no extra cost. Employers can visit the SHOP homepage to learn more about the SHOP plan for their state. Additionally, the Centers for Medicare & Medicaid Services offers tips for getting health coverage through the SHOP marketplace in 2014.
This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.
David E. Williams is president of Health Business Group, a strategy consulting firm serving clients in technology-enabled health care services, pharmaceuticals, biotech, medical devices and software. He is frequently quoted in the media on the business of health care and is the author of the Health Business Blog. David sits on the board of both private health care companies and nonprofits.