The Affordable Care Act & Employers: What Preparations Should Small, Mid-Size & Large Businesses Take?

The Affordable Care Act & Employers: What Preparations Should Small, Mid-Size & Large Businesses Take?
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Many employers breathed a sigh of relief when the Obama Administration delayed the requirements of the Affordable Care Act’s employer mandate until 2015, but this does not means that businesses can be complacent and postpone making plans for compliance with the complex health insurance reform law.

In an effort to reduce the number of uninsured Americans and increase access to affordable health care, the strategy used by legislators in creating this law relies heavily on employer-sponsored health insurance. The law requires companies that have 50 or more full-time equivalent (FTE) employees have to provide affordable health insurance benefits to their workforce, or face paying shared responsibility penalties, which are as much as $3,000 per employee.

One of the positive aspects of the law is that small employers with less than 25 employees, while not required to offer their workers health benefits, are eligible for the tax credits to offset their costs if they decide to offer benefits. The parts of the law that are of greatest concern to employers are the reporting and employee education requirements, which are extensive and complicated.

FTE Employees, Affordable Insurance, Essential Health Benefits: The ACA Defined

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A recent survey of small business employers, the United States Chamber of Commerce found the issue that most concerned employers was developing a strategy to comply with all the requirements of the ACA. 77 percent of the respondents think their health benefits expenses will increase after the law is fully implemented.

Much of the apprehension stems from the definition in the terms used in the law. For example, business has to offer health benefits to its workforce if 50 or more employee work an average of 30 weeks for 120 days or major each year. While this sounds straightforward, this definition brings challenges to resorts and restaurants that have more than FTE employees during tourist season, but have a significantly smaller workforce during the rest of the year.

Adding to the complexity, the government does not count family members of the business owners who may help out at work. Businesses that have seasonal employees need to review their scheduling carefully to determine whether they are required to offer affordable health insurance. Insurance is considered affordable if the premium is less than 9.5 percent of the employee’s gross wages, the plan offers no-cost coverage for preventive services, the plan covers at least 60 percent of the cost of the plan’s medical, and it covers the federally mandated health benefits.

The Effects on Different Size Businesses

Small business and midsize businesses are likely to experience the greatest impact from the implementation of the ACA. A recent LIMRA survey found that only 47 percent of small businesses, defined as those with less than 100 employees, currently offer health insurance to their workforce.

One of the reasons that so few of these businesses offer health benefits to their employees is the high cost of small group policies. To address this issue, the ACA provide a Small Business Tax Credit for business owners that have 25 or fewer employees whose average income is $50,000 or less annually. These employers, along with those who have a workforce of 49 or less, are eligible to purchase health insurance in the online health insurance marketplaces, which, due to competition among the health plan providers, are supposed to have lower premiums than small group plans available in the private market.

While most employers with more than 100 employees offer health benefits to their workforce, the need to ensure their existing plans meet the affordability criteria and have the minimum essential health benefits mandated by the ACA. Additionally, all employers will need to file reports with the government outlining the costs and benefits associated with the health insurance plans they offer. Furthermore, employers will also need to have documentation on file to show they have provided information about the state health insurance exchanges.

While employers will definitely experience some effect when the employer mandate goes into effect in 2015, careful strategic planning can go a long way in reducing compliance cost and minimizing the risks of incurring penalties.