President Obama’s reelection means the Patient Protection and Affordable Care Act (PPACA), also known as health insurance reform or “Obamacare,” will take effect in 2014, with its employer mandate taking effect in 2015. What’s a business owner to think? Here, the facts (and just the facts) about what Obamacare means to your small business.
Q: Do I have to offer insurance to my employees or face a penalty?
A: There is a lot of confusion about this question, but the truth is if you have fewer than 50 full-time or full-time equivalent employees, you are exempt from this rule and do not have to offer insurance. (What’s a full-time equivalent? Basically, two half-time employees add up to one full-timer, so 100 employees who work 20 hours a week are considered 50 full-time equivalents.)
According to the U.S. Census Bureau and Small Business Administration, 96 percent of U.S. businesses fall into this small biz category. In fact, businesses this size may benefit from tax credits that became available beginning in 2010. Companies with fewer than 25 full-time employees that pay the majority of health care premiums for their workers qualify for a tax credit of up to 35 percent of premiums. The credit will increase in 2014 if your business purchases insurance through a Small Business Health Options Program, or SHOP Exchange (more on this below). Eligibility varies depending on number of employees, how much of their health insurance premiums you cover, and their annual salaries. The IRS’s Web page Small Business Health Care Tax Credit for Small Employers explains in plain English how the credit works and how to claim it.
If you do employ 50 or more full-time or full-time equivalent workers, then starting in 2015, you will be required to provide health insurance or pay a penalty. In some cases, it may be more affordable to pay the penalty than to offer insurance. Determining penalties is complex; this Healthcare.gov page and and the IRS website offer more details, but you should consult your accountant for advice.
Q: I’m self-employed with no employees. How will the PPACA affect me?
A: There’s good and bad news. The bad: Yes, the PPACA will require most people to buy health insurance starting in 2014 (get the details here or in infographic form here). The good: It will also create more, and more affordable, options for doing so.
Some states consider self-employed people small businesses, and allow them to buy the health insurance for small employers that’s available. Your State Department of Insurance can tell you if you qualify. If your state doesn’t consider self-employed people small businesses, Healthcare.gov’s insurance and coverage finder can help you find an individual plan.
Starting in 2014, you may be eligible for government subsidies to make insurance more affordable. Self-employed people earning less than four times the poverty level will qualify. (In 2010, four times the poverty level was about $43,000 for an individual and $88,000 for a family of four.)
If a pre-existing condition has kept you from getting insurance, there’s great news: Starting in 2014, health insurers will have to sell coverage to everyone who applies, regardless of pre-existing conditions, and will not be able to charge more for doing so.
Q: What are insurance exchanges and how will they work?
A: Insurance exchanges will be set up in each state as of January 1, 2014, to certify insurance plans, offer a variety of plans and provide buyers more information about costs and options.
The states had to decide by December 14, 2012, whether they would create their own exchange or hand the responsibility over to the federal government. If the Department of Health and Human Services has determined that a state will not be creating its own exchange, the federal government will step in. You can see whether your state is creating its own exchange or using a federal exchange here and get more details about the progress of your state’s exchange here.
States can set up separate exchanges for small businesses (Small Business Health Options Program, or SHOP) and individuals, or combine the two. For exchange purposes, “small businesses” are defined as those with one to 100 employees; however, between 2014 and 2016, states can choose to limit participation to employers with 50 or fewer workers. Starting in 2017, all employers with 100 or fewer employers will be able to buy insurance through the exchanges; after 2017, states may allow businesses with more than 100 employees to participate.
For More Information
There’s no getting around it, the PPACA is complex. The following resources can help:
Find the IRS’s news releases and legal guidance relating to the PPACA here. See how the PPACA affects small business taxes here. Visit Healthcare.gov’s small business section for explanations and links to resources.
Last, but not least, consult your insurance agent and accountant to make sure you’re making the right moves for your situation.
Rieva Lesonsky is a contributing editor for SUCCESS and CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Follow Rieva at Twitter.com/Rieva and visit her website, SmallBizDaily.com, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.