Small Business Health Care

The Affordable Care Act: How It Will Affect Your Business

It is no longer “if” it is “How?” Learn how the Affordable Care Act will impact your business.

The Affordable Care Act Can Impact Your Bottom Line

Lioness_AffordableCareActHow will the Affordable Care Act (ACA) impact my business and my bottom line? Do I need to offer health care coverage? These are the types of questions that have circled around the boardroom table between management, owners and their accountants over the past three years. What will help you better understand this is knowing how your business is classified, if it is considered small, medium sized or large.

What is the ACA? The ACA, most commonly referred to as Obamacare, is a mandate to provide health coverage in the United States. The ACA was passed by Congress and then signed into law by President Barack Obama March 23, 2010.

The intent of the ACA is to allow for better control of health care, reduction in premium cost, a competitive insurance marketplace, as well as many other enhancements to health care through quality improvements, sustainability and more. However, this comes at a cost; to create a plan that provides many Americans with health care coverage through an umbrella of choices requires the use of tax relief for some but a burden for others. The ACA allows for a premium tax credit for individuals and families and a tax credit to help offset the cost of covering employees for small businesses and for businesses with 50 or more full-time equivalent employees, additional requirements apply.

Full-time equivalent (FTE) employee count is the determining factor on how the ACA will impact your business and not so much the number of employees. The calculation of the FTE requires a necessary understanding in order to determine where your business falls within this maze. The FTE is a measurement unit used to compare part-time and full-time employees. One FTE is equal to one full-time employee. A FTE is defined by the ACA as a full-time employee (or a combination of part-time employees) who work a minimum of 30 hours per week (maximum 40 hours per week) for more than 120 days per year. This understanding helps to ascertain whether or not the business falls under the rules of shared responsibility; we will explore the different business sizes to help you see where you fit.

If you are an employer with 50 or more FTE employees, the ACA requires the large employer to offer full-time employees an opportunity to enroll in minimum essential coverage under an employer sponsored plan (the plan must be both affordable and provide minimum value). This is one of the core provisions of the ACA, which is the employer-shared responsibility mandate (i.e. basically, you either play or pay). If the employer fails to offer this, then there is an assessment of substantial excise tax penalties. There is a “NO COVERAGE” penalty and an “INADEQUATE COVERAGE” penalty. Large employers must thoroughly review the legislation to avoid these hefty penalties and should consider consulting with their accountant, health benefit specialist, and human resource department to be in compliance.

On the other hand, if you have less than 25 FTE employees during a taxable year, then you are classified as a “small employer”. Small employers are not subjected to the requirement to offer health insurance to employees, however, as an incentive to offer health care coverage, the ACA allows for “eligible small employers” to receive the small business tax credit, in addition to other requirements and exclusions that must be adhered too in order to qualify. For example, if you are classified as a small employer with fewer than 50 employees, but have 50 or more FTE employees, then you are subjected to the rules of the large employer requirements mentioned earlier. Likewise, if you have more than 25 employees, you can still qualify for the credit, if there are many part-time employees. It is key to go through the calculation of FTEs for your business to see where you fit.

There are some postponement provisions for employers with 50 to 99 FTE employees. Essentially, these employers are considered mid-size and can qualify for the one-year postponement in 2015. This gives them until Jan. 1, 2016, to comply with the ACA shared responsibility provision, but not from the reporting requirements. For self-employed individuals, those who are single owners, are classified as individuals. They can enroll through the Health Insurance Marketplace (Exchange) or identify a plan off of the Exchange. However, with no employees, they are not subjected to any of the provisions except for the individual shared responsibility provisions, which was not discussed as this does not affect the business, but more so the individual.

The ACA is lengthy and complex, and will be a burden for employers that must adhere to the employer shared responsibility provisions and reporting requirements. However, it will also allow for many individuals without coverage to have access to affordable health care through purchase from their employer’s sponsored health plan or through a competitive marketplace. This makes dollars and cents to be spread across many, thereby bringing the cost of health care down over the long term. I envision that over time, as many Americans access healthcare, the cost of healthcare will be reduced as more are covered, both young and old.

Originally posted at, February 12, 2015.

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