Affordable Care Act 2016 Requirements for Small Business
By: Reva Nelson
As a small business owner, you’re no doubt aware of the Patient Protection and Affordable Care Act (ACA), President Obama’s sweeping health care legislation, which became law in 2010.
Many small businesses haven’t had to pay particularly close attention to the legislation, as they are generally exempt from Affordable Care Act mandates. But there are a few things you will want to keep in mind about how you will — or won’t — be affected by the ACA in 2016, particularly if your business employs 51-99 people.
Is your Company Exempt from ACA Requirements?
If you have 50 or fewer employees, you are exempt from ACA requirements to either offer affordable health insurance coverage or pay a per-worker assessment, also known as “pay or play.” (These began on Jan. 1, 2015 for employers with 100 or more full-time employees.)
While you aren’t required to provide coverage under the law, you can, of course, choose to purchase coverage through the Small Business Health Options Program (SHOP) exchange in your state or buy coverage in the private market.
However, if your company employs 51-99 workers, you should be aware that the ACA’s transitional rules for small and mid-size businesses expire on Jan. 1, 2016. This means your business must provide employees with “pay or play” provisions, as mentioned above. These are also known as employer shared responsibility.
Double-Check ACA Calculations
It’s highly advisable that you confirm that your count of full-time employees aligns with that of the ACA. The ACA defines a full-time employee someone who works either:
- A minimum of 30 hours per week
- 130 hours per month
- Or a total of 1,560 hours in a year
Moreover, if you own or have a significant stake in multiple small businesses, be aware that roll-up provisions apply. Under the ACA, these businesses are grouped together when calculating the number of employees.
Don’t Overlook ACA Tax Credits
If your business employs 25 or fewer full-time employees (particularly low- or moderate-income workers) and you’ve enrolled in an employer-sponsored health plan through your SHOP marketplace, you may qualify for certain types of subsidized coverage that went into effect in 2014, such as the Small Business Health Care Tax Credit.
In order to qualify for this tax credit, employees must earn an average annual wages of $50,000 or less and pay at least 50 percent of their employees' premiums. The tax credit ranges from 50% of premiums paid for eligible small employers, and from 25% to 35% of employer premiums paid for tax-exempt eligible small employers.
The New Definition of Small Group
If you have 51-99 employees, as of Jan. 1, 2016, your health insurer considers your company a “small group” rather than a mid-market group.
This expanded definition of small group, which until now was defined as 50 or fewer employees, may seem innocuous, but is very important. “It will impact prices, risk ratings, provider networks, and the types of benefits that these companies are accustomed to offering,” says Helena Ruffin, president and owner of The Ruffin Group Insurance Services.
For ACA plans, small employer group healthcare premiums are based on your company’s modified community rating, a rating based on the cost of care in a particular geographic area, which is meant to ensure that people within the same region aren’t priced differently.
Before the ACA was implemented, group ratings could vary widely based upon demographics and medical underwriting, a process by which insurers assessed the group’s projected health risk to determine price. Other allowed rating factors for ACA plans include age, tobacco use and family size.
Ruffin notes that for ACA plans, age is calculated by employees’ birth dates (rather than expanded rate increments such as 35-39 years that were used in the past) and is adjusted annually. These changes may result in higher insurance costs for many small businesses.
In fact, a 2014 report from the Centers for Medicare and Medicaid Services reports that 65% of small businesses would likely pay more. On the flip side, if you have a young workforce and are based in a region with favorable community rates, the new pricing may actually work in your favor.
Ruffin advises that you start looking into your options. “If your plan renews in December, make sure your agent is knocking on your door right now. Ask your agent to prepare a benchmark report to compare prices with other carriers in their market, and begin your transition.”
Say Goodbye to Grandmother Plans
Regardless of the number of employees you have, your insurance plans are likely to change come Jan. 1, 2016, due to the end of “grandmothering,” explains Chuck Kiskaden, president and CEO of Health Benefits Advisors. "Grandmothering" refers to a transitional policy for certain types of coverage in the small group market.
“When the ACA was first implemented, companies of all sizes were told that if they liked their plans, they could keep them. But all grandmother plans end with Jan. 1, 2016 and later renewals, and companies will need to transition to an ACA-defined bronze, silver, gold or platinum plan,” says Kiskaden.
Kiskaden recommends that these companies look into their plan options, since they won’t be able to continue on their old plans after Jan. 1, 2016, though groups that renews before January can keep their grandmothered status until they renew in 2016.
Employers with 51-99 employees would primarily do this to keep from being forced into small group age rating of premiums and small group "metal" products, says Kiskaden. He adds that costs are likely to be higher in these new plans, but can’t be higher than 3X the lowest-cost plan.
Looking for more information? Check out this ACA plan overview to assist with choosing a plan that’s right for your small business. Plans that are available in your area, of course, will vary.
Will your company be ready for the ACA’s 2016 requirements? It’s time to closely examine your plan options and start educating employees about any plan changes.