Understanding the Affordable Care Act (ACA)
The Affordable Care Act (ACA) tells businesses when they need to offer health insurance. If you don’t follow these rules, you might get fined.
If your small business has fewer than 50 employees, you don't have to give health benefits. But offering insurance could help you attract and keep good workers.
If you have 50 or more full-time employees, you must provide insurance to all full-time workers. A full-time worker is anyone who works 30 hours or more each week.
You don't have to offer insurance to part-time workers, but if you give it to one part-time employee, you might need to offer it to everyone, depending on your state laws.
There are options like health discount plans which aren't traditional insurance but may save you money and you don’t need group minimums to sign up.
Health Insurance rules under ACA
Data from the Kaiser Family Foundation, suggests 48.7% of people in the U.S. get their health insurance from the workplace. In order to remain competitive in acquiring employees whether part time or full time small businesses need to ensure that they are compliant with ACA mandates or risk being penalized.
Exemption: Businesses with less than 50 full-time equivalent employees are not obligated to provide health insurance. Those that have 50 to 99 employees, may qualify for some ACA exemptions.
Tax credits: Businesses with less than 25 full-time employees that voluntarily provide health insurance, maybe able to get some tax credits.
Employer mandates: The rules state that businesses with 50 or more full-time employees must offer affordable health insurance. Affordable suggests that employees pay a x percentage of their income for a plan that meets the minimum standards.
IRS Reporting: Businesses with 50 or more employees, have to tell the IRS about the health coverage through the 1095-C for employees and 1094-C for the IRS.
Penalties: Not meeting the employer mandate i.e. a business that does not offer affordable insurance to at least 95% of their full-time employees (causing any employee to buy insurance through the Marketplace to get a subsidized premium) may have a penalty imposed.
Penalty math
In 2024, if you had 65 full-time employees you did not offer health insurance too.
One employee gets subsidized coverage.
Business penalty of $103,950. Calculated as (65 - 30) x $2,880.
This penalty will not be imposed if the employee earns more and does not qualify for the subsidy.
Keep in mind that state and federal regulations differ and keep changing. Speaking to lawyers and brokers before choosing any health benefit plans will keep your business safe from penalties.
Documents required for group coverage
In order to qualify for tax credit on health benefits you need to have the basics:
- Proof of business is location
- Proof of the type of business
- Payroll information
Checklist for Health Insurance
1. Check your eligibility
2. Understand the Small Business Health Care Tax Credit.
3. Explore different insurance plans
4. Shop for medical discount plans
5. Get Quotes
6. Understand the benefits and requirements
7. Talk to the experts
8. Have your employee details
10. Decide on employer/employee contributions
11. Review the rates
12. Finalize vendors
Mandate criteria
To know if you have to give health insurance, you should count how many full-time employees work at least 30 hours a week. You can offer coverage to part-time workers too, but only if you want. If you offer it to one part-time worker, you don’t have to offer it to all part-timers.
To avoid fines, businesses should clearly define full-time and part-time positions.
There are individual state mandates for the ACA’s rules for employers. Make sure you are up to date on these.
If you offer group insurance, eligible employees can cover their dependents. This can include spouses, biological or adopted children, and in some state laws, domestic partners. Dependents are anyone 26 and under
Employers offering health insurance
- You can provide coverage for spouses but may need employees to pay extra premiums
- Set clear rules to decide if spouses can be on the plan.
- While you don’t have to cover dependents, you might need to help with their premiums.
Categories that must be covered
The ACA created ten categories of healthcare services that must be covered. These include:
- Prescription drugs
- Emergency services
- Hospital stays, maternity, and baby care
- Mental health services
- Recovery services
- Lab services
- Disease management and prevention
- Kids’ services
- Dental and vision care for children
Your health plan needs to cover at least 60% of expected costs and can’t put limits on how much you can use. Small businesses can offer various networks, like PPOs and HMOs, and can set up a payment plan that works for everyone with deductibles and co-pays.
Definitions and key terms
- Premium Contribution: This is what you and your employees pay for insurance. Employers may cover part of the premium.
- Contribution Limits: The IRS has rules on how much you can contribute understand the rules in your state.
- Deductibles: This is what employees pay out of pocket before insurance kicks in.
- Co-Pay: This is a fixed fee for certain services when employees use them.
- Out-of-Pocket Maximums: This is the most someone pays in a year before insurance covers everything else.
Choosing health plans for better value
When picking a business health plan, here are some simple tips:
- Think about what health services you and your staff expect to need.
- Compare plans based on what you can afford.
- Add HSA's that help employees save money for medical expenses.
- Look for plans that cover preventive services at no extra cost.
- Review Plans: Read the summaries carefully to understand what’s included.
- Give employees different plans to choose from.
- Choose plans that explain costs and benefits well.
- Promote Preventive Care: This is usually low-cost and helps avoid future health issues.
- Make sure you meet ACA limits on out-of-pocket costs.
- Keep checking if your health plan is still working for you.
Benefits of providing benefits as a small business employer
Group coverage is usually cheaper than individual plans.
ACA rules allow employees and their families to join group health plans.
Employers can benefit from tax deductions by offering health insurance.
Modern plans can offer more choices and might not have the same premium costs as traditional insurance.
Providing benefits can lead to happier workers and help you keep talent.
Alternatives to traditional insurance
Medical or Health discount programs are designed for a wide range of individuals, including employees of small to medium-sized businesses, freelancers, and contract workers.
A lot of these plans can enhance your existing employee benefits without disrupting your current billing processes. If your current benefits plans are costly and don't offer supplementary coverage for services such as dental, vision, prescriptions, or lab work, you can easily add these as an affordable option.
This way, your employees can access a broader range of healthcare services at a lower cost, ensuring they get the comprehensive care they need.
By using discount plans, employers can enhance their employee satisfaction and retention, making it a win-win solution for both businesses and their staff.