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    Common Questions from Small Businesses about the Affordable Care Act

    Posted by Sylvia Lagerquist, CPA

    Common Questions from Small Businesses about the Affordable Care Act

    The Affordable Care Act or ACA, also known as Obamacare, is a comprehensive set of laws, processes, regulations and new systems designed to provide more Americans with health insurance, and increase both access and participation in the healthcare marketplace.

    The ultimate goal is to improve the nation’s overall health while reducing the spiraling costs of U.S. healthcare. Because of the sheer complexity of the Affordable Care Act, plus the well-documented missteps and failures on the federal online health insurance exchange and many state ones as well, small business owners are often skeptical about the law and worried about how it might impact their business.

    Here are some common questions small business owners have about the Affordable Care Act, and key points to consider for each question.

    Why is health coverage getting more expensive, and what can small businesses do to rein in their employee health costs?

    Health insurance coverage is becoming much more expensive in some places, and in others the cost is actually going down. Due to the already complex economic variations in premiums between states, there is no blanket answer to the question. However, where costs are going up, a number of factors are likely at work. First, the ACA narrowed the definition of what constitutes acceptable health insurance, by requiring insurance companies to cover more people, more conditions and more aspects of health.

    In the long term, this will create a more uniform system and should reduce the cost of health care as better coverage creates a healthier populance, but that’s in the long term. In the short term, prices in many places are rising. In addition, employers are required to follow certain requirements and mandates if they have 50 or more employees, which may increase the cost yet again.

    On the other hand, as the law and its impact matures, more small businesses should be able to acquire employee coverage cost-effectively as the federal and state marketplaces create stronger buying power for individual companies. In addition, some small businesses with 25 or fewer employees may become eligible for tax credits in order to incentivize them to offer health insurance to their employees. Many experts expect that premiums will stabilize, as supporters of the law have suggested is the most likely scenario. of course, in a complex market with as many variables as this one, we can’t predict future market conditions with an ideal degree of accuracy, and many small business owners have remained skeptical about what future rates will look like.

    In addition to becoming educated on new insurance options, shopping proactively for the best carrier and plan, and pursuing tax credits where applicable, small businesses are often reining in healthcare costs by requiring employees to take higher deductibles or copays; slowing new hiring to lessen the impact of the increases; or subcontracting work to other companies rather than hiring FTEs.

    Our company’s policies and procedures state that a new employee must wait during a probationary period before becoming eligible for the company’s health insurance plan. Is that mandatory waiting period still legal?

    Yes, you may still require a waiting period before new employees are eligible to enroll in a group health plan. However, it cannot exceed 90 days.

    How can a small employer reimburse an employee for purchasing individual insurance on an ACA exchange?

    For years there were a number of avenues available for achieving this goal on a pre-tax or tax-free basis, including Health Reimbursement Arrangements (HRAs) or Premium Reimbursement Accounts (PRAs). However, under the provisions of the ACA enacted in 2014, these avenues are essentially closed. In fact, penalties apply for employers who continue to reimburse employees for individual plans on a pre-tax basis.

    That having been said, employees can opt to receive funds from the employer in a traditional (taxable income) manner, and employers are allowed to coordinate these activities with employees without violating these provisions, in some circumstances. However, you should consult with your accountant before taking any action in this regard.

    As a point of note, using Flexible Spending Account (FSA) funds to pay for insurance premiums was never permitted. Clearly, the goal of the federal law is to discourage employers from paying employees to get their own coverage, and instead encourage employers to purchase coverage for their employes directly, where possible.

    Our company offers health benefits but we can’t afford to contribute much to the employees’ premiums. Some of them have asked whether they could apply for coverage directly through the ACA marketplace, and if they do, would they be eligible for subsidies?

    Anyone can shop for insurance coverage through an ACA marketplace. However, if employees are offered employer health benefits, they can’t qualify for premium tax credits in the marketplace unless their employer coverage is considered ‘unaffordable’. In most cases, if an employee’s share of the premium for self-only coverage in the employer’s plan equals 9.5% or more of their household income, it is considered unaffordable, and they can apply for premium tax credits in an ACA marketplace.

    Some of our employees are shopping for individual coverage in an ACA marketplace, even though we offer employer-sponsored health coverage. Those who are pursuing coverage directly are asking about “minimum value” in our company health benefits. What is that?

    The term “minimum value” means that your company’s employer-based health plan would cover at least 60% of an average group of people’s covered health costs. Most employer plans will meet this test, but some may not. An employee’s marketplace application includes a form with questions about employer-based coverage, and they are instructed to take this form to their employer and have them to fill it out. With that information, the marketplace will determine whether the plan meets minimum value. If it doesn’t, your employee may be able to qualify for premium tax credits to help pay for their own marketplace coverage.

    Our employees have a Health Savings Account (HSA) as part of their health plan. What impacts does the ACA have on this benefit?

    The Affordable Care Act did make some changes to Health Savings Accounts – also called HSAs – and how they work. First, the law eliminated an employee’s ability to use money in their HSA account to buy over-the-counter drugs. The second big change is that the law increased the penalty for withdrawing funds from an HSA before the employee reaches age 65. The early withdrawal penalty increased from 10% to 20%.

    Our company only has two employees. Are we still eligible for a group plan under the ACA?

    Yes, two employees constitutes a group for insurance purposes, so you can certainly buy group insurance that will cover you and your employees. You aren’t mandated to provide it because you have fewer than 50 employees, however.

    I am self-employed. Can I deduct the premiums for my insurance purchased through an ACA marketplace on my taxes?

    Self-employed individuals can generally deduct premiums for health insurance on their tax returns. However, if you’re buying individual coverage for yourself and your family through an ACA marketplace, only non-subsidized premiums can be deducted.

    Are there additional advantages for my small business if I elect to purchase group insurance coverage through an ACA marketplace?

    Yes, in 2014 the health-care tax credit for companies with fewer than 25 employees actually increased from 35 percent to 50 percent, as long as the company participates in the Small Business Health Options Program, also known as SHOP.

    The small business health-care tax credit is targeted at companies with low- and moderate-income workers. Generally, businesses with fewer than 25 FTEs who pay average wages below $50,000 a year, and contribute toward at least half of employees’ health-insurance premiums, will qualify for the tax credit.

    NOTE: For an introduction and overview of the Affordable Care Act (ACA), please read The Affordable Care Act: An Introduction for Small Business Owners.

    Selected Sources:

    http://www.ncpa.org/pub/st356

    http://www.zanebenefits.com/blog/can-employers-reimburse-employees-individual-health-insurance-in-2014

    http://www.dickerson-group.com/can-employers-reimburse-employees-for-coverage-purchased-on-the-aca-exchanges.html

    http://www.businessweek.com/articles/2014-06-30/answers-to-more-small-businesses-questions-about-obamacare

    http://kff.org/health-reform/faq/health-reform-frequently-asked-questions

    https://www.ehealthinsurance.com/affordable-care-act/faqs

    http://www.csmonitor.com/USA/DC-Decoder/2013/1002/Obamacare-101-What-owners-of-small-businesses-need-to-know

    http://healthcoverageguide.org/reference-guide/laws-and-rights/tax-implications/#Tax-Deductibility+of+Employer%26%238217%3Bs+Premium+Contributions

    http://www.forbes.com/sites/sallypipes/2014/10/20/obamacare-on-shaky-ground-as-court-battle-looms/

    Image Credit: dmsacks (Flickr @ Creative Commons)

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