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The ABCs of the Affordable Care Act

A primer on what small business owners should know about the Affordable Care Act based on the company size.

What do small business owners really know about the Patient Protection and Affordable Care Act (often referred to as the ACA or Obamacare)? The Hartford’s 2013 Small Business Success Study, which surveyed 2,000 small business owners, reveals that many feel at least somewhat informed about ACA provisions. But that also means there could be some information gaps.  

To determine the actual impact of Obamacare on your small business, it’s important to review its most fundamental provisions—including small business requirements, regulations, tax credits, potential penalties, and more.

Here’s a helpful primer that explains what you should know based on the size of your company:

If You’re Self-Employed

(1) Get covered, claim an exemption, or pay the IRS.
Starting in 2014, if you are a self-employed individual, you are required to either have health coverage that qualifies as “minimum essential coverage” or make an “Individual Shared Responsibility” payment when filing your 2014 federal income tax return.

You won’t have to make an Individual Shared Responsibility payment if:

  • The health coverage available to you is unaffordable (which has specific meaning under the Act), or
  • You spend less than three consecutive months without coverage, or
  • You qualify for an exemption for reasons including hardship and religious beliefs

“Minimum essential coverage” includes:

  • Employer-sponsored major medical coverage (including COBRA and retiree coverage)
  • Major medical coverage purchased in the individual market
  • Medicare Part A coverage
  • Medicaid coverage
  • Children's Health Insurance Program (CHIP) coverage
  • Certain types of veterans health coverage
  • TRICARE

More information: Fact sheet on Individual Shared Responsibility

(2) Visit your state’s online health insurance marketplace.
New online health insurance marketplaces are designed to offer health coverage to individuals like you. They include four levels of benefit packages with a range of costs and coverage levels. You and/or your spouse and dependents might qualify for premium tax credits and cost-sharing reductions based on your income, which could help reduce the costs of purchasing insurance inside these marketplaces.

More information: Insurance options

(3) Bone up on new Medicaid rules.
Under the Affordable Care Act, your state may expand Medicaid eligibility to include adults ages 19–64 with incomes up to 133% of the Federal Poverty Level (about $15,000 per year for an individual, $31,000 per year for a family of four). If you are eligible for Medicaid, then you generally will not be eligible for premium tax credits and cost-sharing reductions associated with marketplace insurance.

More information: Medicaid information

(4) Be aware of the new Net Investment Income Tax.
Beginning in 2013, a new 3.8% tax applies to certain net investment income, including taxable capital gains, dividends, rents, royalties, and interest. It applies to individuals who have net investment income and modified adjusted gross income (MAGI) over $200,000 for single filers, and $250,000 for married joint filers.

If Your Business Includes You and At Least One Other Employee

(1) Notify your employee(s) about the new health insurance marketplace.

If you have at least one employee and do $500,000 in annual business, you must inform all part-time and full-time employees that:

  • There’s a new online Health Insurance Marketplace where employees can find affordable health coverage.
  • If the employee purchases a health plan through the Marketplace, the employee may be eligible for a premium tax credit, but may also lose the contribution to any health benefits plan your company may offer.

More information: Guidance from the U.S. Department of Labor

(2) Provide employees with an SBC.
The Summary of Benefits and Coverage (SBC) explains your company health plan coverage and what it costs, so your employees can better understand and evaluate their health insurance options. If your plan is self-funded, the obligation to provide the SBC falls squarely on your shoulders. Failure to provide the SBC could result in a penalty. If however, your plan is fully insured, your issuer will likely provide the SBC. You should check with the issuer to make sure it will and does provide the SBC because, if the issuer fails to do this, you could incur a penalty as well.

More information: Sample SBC

(3) Determine how to handle premium rebates.
Under ACA, insurance companies must spend at least 80% of a small business’ premium dollars on medical care. If they fail to do so, insurers must rebate their policyholders. If you receive such a rebate, you must determine whether some or all of it constitutes a plan asset. If some portion of the rebate is a plan asset (which is likely), you must be careful to use that portion in a way that complies with your ERISA fiduciary duties (for example, by reasonably allocating the rebate to existing plan participants).

More information: IRS FAQs

(4) Limit employees’ health FSA and HSA contributions.
Does your company offer a health Flexible Spending Arrangement (FSA) for use by your employees? If so, the maximum employee contribution is now $2,500 per year.  (This cap applies to elective employee contributions, not to your employer contributions.) In addition, new contribution limits apply to HSAs in 2014 – generally $3,300 for persons covered by qualifying self-only high deductible health plan coverage and $6,550 for persons covered by qualifying family high-deductible health plan coverage.

More information: IRS guidance on health flexible spending arrangements 

(5) Increase Medicare withholding on wages.

The employee portion of the Medicare Part A Hospital Insurance tax is now 2.35% on wages and compensation of over $200,000 for single filers and $250,000 for married joint filers. It’s your obligation to withhold this additional tax on wages above those thresholds. (The employer portion of the tax remains unchanged at 1.45%.)

(6) Cover eligible employees within 90 days.

Beginning January 1, 2014, employees who are eligible for employer-provided health coverage will not have to wait more than 90 days to get on your plan.  

More information: Guidance on 90 day waiting period limitation

(7) Get familiar with Transitional Reinsurance Program fees.

The Transitional Reinsurance Program reimburses insurers in individual health insurance marketplaces for high claims costs. The program is funded through fees paid by employers (for self-insured plans) and insurers (for insured plans). The Department of Health and Human Services estimates that an employer’s tax-deductible fee for 2014 will be $63 for each individual covered under their health plan. This fee applies to all employer-sponsored plans that provide major medical coverage, including retiree programs unless such programs are secondary to Medicare.

More information: IRS FAQs

(8) Optimize your workplace wellness program.

The Affordable Care Act increases the incentive you may offer employees as part of an employee wellness program to 30 percent of the total premium cost of the employee’s coverage, up from 20 percent under pre-ACA rules. And, you may be able to use an incentive that is as much as 50 percent of the total premium cost with respect to certain qualifying tobacco cessation programs. If you are considering offering such a program, the program should be carefully designed to comply with applicable rules.

More information: US Department of Labor resources, IRS guidance on health flexible spending arrangements 

If Your Business Has More Than One But Fewer Than 50 Employees

(1) Check if you’re eligible for tax credits.
The small business Health Care Tax Credit can help you afford health care coverage for your employees, especially low- and moderate-income workers. Starting in 2014, you may qualify for a 50% credit off your health insurance costs if you:

  • Have fewer than 25 full-time-equivalent employees (FTEs), and
  • Pay average annual wages below $50,000, and
  • Contribute 50% or more toward employees’ self-only health insurance premiums.

To get this credit (which is subject to limitations), you need to participate in the Small Business Health Options Program, or SHOP (see below). You can claim the credit for any two consecutive taxable years beginning in 2014.

More information: IRS Q&A, Small Business Health Care Credit Estimator

(2) Take advantage of the SHOP marketplace.
Starting in 2014, you can access the new health care insurance marketplaces through the Small Business Health Options Program (SHOP) exchange. To enroll, you generally must have an office in the Small Business Health Options Program (SHOP) service area and offer SHOP coverage to all your full-time employees.  

More information: Call the SHOP hotline at 1-800-706-7893 (TTY users: 1-800-706-7915) from Monday through Friday, 9–5 ET.

If Your Business Has At Least 50 Full-Time/Full-Time Equivalent Employees

(1) Be aware of Employer Shared Responsibility penalties.
Beginning in January 2015 (delayed from a previously announced January 2014 start date), employers of more than 50 full-time employees must offer affordable health insurance that provides reasonable  value and coverage to employees and their families.

  • Beginning in 2015, under the Act’s Employer Shared Responsibility (ESR) provisions, you may be required to pay a penalty of as much as $2,000 per full-time employee if at least one of your full-time employees (30 hours per week on average) is certified to receive a premium tax credit in an individual health insurance marketplace and you fail to offer what is called “minimum essential coverage” to all of your full-time employees and their children up to age 26. 
  • Additionally, even if you offer such “minimum essential coverage,” to all full-time employees and their children, if the coverage that is offered is not affordable (generally less than 9.5% of the employee’s pre-tax wages) or does not provide “minimum value,” you could be liable for a separate $3,000 penalty if the full-time employee goes to the marketplace and receives a premium tax credit.

More information: Proposed Regulations 

(2) Follow new tax reporting rules beginning in 2015.
The Act imposes two new tax reporting requirements on employers in 2015:

  • The first reporting requirement applies to all employers that sponsor self-insured major medical group health plans. This requirement, which was added to Section 6055 of the Internal Revenue Code, requires employers who self-insure their plans to report annually to both the IRS and their employees whether their employees were covered by “minimum essential coverage” for each calendar month in the preceding year. The information will be used by the IRS to enforce the individual mandate provisions of the Act.
  • The second reporting requirement only applies to you if you’re subject to the Employer Shared Responsibility provisions. This reporting requirement, which can be found in Internal Revenue Code section 6056, generally requires subject employers to provide information to the IRS and their employees regarding the health coverage offered to full-time employees. This information will be used by the IRS to enforce both the ESR and individual mandate provisions of the Act.

More information: Proposed Section 6056 Rules

(3) Report health coverage costs on W-2s.
If you issue 250 or more Forms W-2 in 2013, you will need to report the total annual cost of employer-provided coverage on each worker’s 2014 Form W-2. (The amount reported is for information purposes only and doesn’t result in any additional tax liability for you or the employee.) This is required for most employer-sponsored health coverage, including group medical coverage. 

More information: Information about Form W-2 Reporting

What All Small Businesses Should Do Now

  • View the timeline for your next steps.
    The U.S Department of Health and Human Services provides a very helpful timeline that includes the next steps you can take to implement the provisions of the Affordable Care Act.

See timeline.

  • Check out your health insurance options.
    The U.S. Department of Health and Human Services has also developed a useful interactive tool designed specifically to help small businesses find and compare health plans.

See tool.

 

These materials provide general information, and should not be construed as specific legal, financial, insurance, tax, or accounting advice. You should consult a qualified advisor for individual guidance in these matters. The Hartford shall not be liable for any direct, indirect, special, consequential, incidental, punitive, or exemplary damages in connection with the use by you or anyone of the information provided here or for link to or use of any website referenced herein.