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Affordable Care Act: Does Your Small Business Need Prepping?

Affordable Care Act: Does Your Small Business Need Prepping?

There’s been a lot of talk regarding how large businesses will handle the restraints and changing requirements of the impending Affordable Care Act (ACA). Earlier this month, the U.S. Treasury Department on Thursday proposed new rules meant to ease requirements for large companies and insurers when they report employees' health coverage information. But what about small, family-owned businesses? While there are no mandates to follow, the ACA does address small businesses. Some details that are cloaked as advantages, however, could come with some inherent snags.

Tax Credit Complications

The White House is offering key tax credits for small businesses under the ACA (outlined in its Health Reform for Small Businesses document). By 2014, tax credit (up to 50 percent for two years) will be available on health insurance offered by employers with less than 25 full-time equivalent employees and average annual wages of less than $50,000, with the maximum credit available to employers with 10 or fewer full-time equivalent employees and average annual wages of less than $25,000. However, in both cases, the employer must contribute at least 50 percent of the total premium cost.

The problem with these credits? It’s nearly impossible to qualify. Bloomberg BNA’s Health Insurance Report recently analyzed the list of rules and exceptions, citing, “a number of individuals cannot be considered employees when calculating the credit; further, their hours and wages are not counted when determining an employer's eligibility for the credit.”

So, even if a small business is able to pass the test on contribution requirements and wage limits, some employees including owners, family members, contractors, and seasonal employees will be omitted.

Issues with Family Coverage

Under the ACA, the Small Business Health Options Program (SHOP) will serve as the hub for small businesses to find and purchase affordable health insurance for employees. According to the U.S. Centers for Medicare & Medicaid Services, SHOP is designed to reduce costs and increase competitive pressure on insurers to drive down premiums for small businesses. The program is slated to become available in 2014 for those who employ fewer than 100 workers.

In theory, SHOP will give small businesses a well-deserved monetary break, including a cut in administrative costs, which are currently three times higher on average for small businesses than they are for large businesses. Additionally, employees of small businesses and their families will be eligible for their own tax credits to purchase coverage through SHOP, as long as the employer doesn’t already provide coverage. However, it’s this last detail that has caused a stir.

The New York Times recently published a scenario that turned the SHOP advantage for small businesses on its side. The potential pitfall occurs when small businesses (in this case, less than 100 employees) offer family coverage plans, but do not help pay the premiums for family members. This, in itself, is a common and perfectly acceptable business practice. Oftentimes, while employees take advantage of full or near-full individual coverage, they will search for more affordable family coverage than is provided in the employer’s package. However, according to the New York Times article:

"If the company offers family members health insurance, they immediately become ineligible for the tax credits and subsidies — regardless of whether the insurance the company offers is affordable. As a result, many workers…could find family coverage impossible to obtain."

So will offering coverage for the families of employees actually hurt them? Perhaps it’s too early to tell. In the meantime, be sure to enter into the era of Affordable Care by addressing tax benefits with your CPA while weighing against the coverage needs of your employees.

Image credit: stockbroker / 123RF Stock Photo

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