affordable care act and small businesses

The Affordable Care Act (ACA), also known as the health care law or Obamacare, was created with the stated intent to provide more Americans with access to affordable health insurance, improve the quality of health care and health insurance, and reduce health care spending in the United States.

Under the ACA, individuals:

  • must have health insurance that meets the “minimum essential coverage” requirement, or
  • must pay an “individual shared responsibility payment,” also known as a “penalty,” when filing their taxes if they can afford to buy health insurance, but choose not to buy health insurance, unless they meet certain requirements to qualify for an exemption from paying the penalty. This is also known as the Individual Mandate.

Even with the individual mandate that is part of the ACA, employers were not required to offer small business health insurance. Larger companies were subject to fines for failing to offer group coverage, and some small businesses missed out on a health-care tax credit, but it was not required.

More recently, the 2017 Tax Cuts and Jobs Act reset the fine for the individual mandate to $0, so it’s likely that employers may not face penalties for the 2019 tax year if they failed to offer qualified group health plans. However, some states including California, have instituted their own “individual mandates” which still require an individual penalty for lack of coverage. 

Individuals have alternatives through the healthcare exchange, such as Covered California. The Health Insurance Marketplace helps individuals find health coverage and some people may be eligible for lower costs on health premiums and out-of-pocket costs based on their income.

Small Business Options for the ACA

The federal government has created a resource to help small businesses provide health care coverage for their employees,

“The Affordable Care Act (sometimes called the health care law, or ACA) established the Small Business Health Options Program (SHOP) for small employers (generally those with 1–50 full-time and full-time equivalent employees (FTEs)) who want to provide health and dental coverage to their employees.

Certain employers can enroll in SHOP through private insurance companies, or with the help of a SHOP-registered agent or broker. SHOP plans are generally the only way to qualify for the Small Business Health Care Tax Credit to lower premium costs.”

Even though companies aren’t legally required to provide health insurance, many can still benefit from the health-care tax credit in 2019.

According to the Healthcare.gov website,

“Enrolling in a Small Business Health Options Program (SHOP) plan is generally the only way for a small business or non-profit to claim the Small Business Health Care Tax Credit. To qualify for the tax credit, all of the following must apply:

  • You have fewer than 25 full-time equivalent (FTE) employees
  • Your average employee salary is about $50,000 per year or less
  • You pay at least 50% of your full-time employees’ premium costs
  • You offer SHOP coverage to all of your full-time employees. (You don’t have to offer it to dependents or employees working fewer than 30 hours per week to qualify for the tax credit.)”

The smaller the business, the bigger the credit. For example, businesses that employ fewer than 10 people and pay average salaries of less than $25,000 qualify for the most in credits.

These credits can be used to make the purchase of small business health insurance much more affordable. The credits can either be used to defray the cost of premiums in the year that they’re earned, or applied against a tax bill.

Small Business Benefits from ACA

The passage of the Affordable Care Act sparked an ongoing controversy that continues into the current presidential administration. On one hand, there have been measurable and significant benefits for millions who were without adequate health care coverage prior to 2010 and the passage of Obamacare.

On the other hand, many of the promises made to Americans did not come to pass. However, depending on the point of view of analysts and commentators, the results have been a mixed bag. 

For example, when it comes to the benefits of the ACA for small businesses, a brief from the Commonwealth Fund pointed out that, 

“Small-business owners have seen significant gains in health care coverage for themselves and their employees thanks to the Affordable Care Act.

Because of the creation of the individual marketplaces and the expansion of Medicaid, more entrepreneurs and small-business employees have health coverage than before the ACA was implemented. Indeed, the uninsured rate for small-business employees fell by almost 10 percentage points post-ACA.

The ACA also has helped stabilize health costs for many small businesses that provide coverage, with the rate of small-business premium increases falling by half following implementation of the law.”

In addition to tax credits, small businesses benefit in other ways.

Collective Buying Power

Small businesses have historically paid as much as 18% more for health insurance coverage compared to competing businesses with higher headcounts. Small business owners can now leverage their buying power with other small employers in the Small Business Health Options Program (SHOP) Marketplace.

Targeted Premium Dollars

The ACA’s 80/20 rule means that insurance carriers who fail to allocate 80% of small businesses’ premium dollars to medical claims and activities that improve the quality of care, they must send that business a Medical Loss Rebate (MLR) check. Between 2011 and 2013, this resulted in small businesses saving more than $2.5 billion in lower upfront premiums and rebates from their insurance companies, and three million employees got an average rebate of over $100 per family per year.

Small Business Health Care Coverage

Small business owners who want to provide insurance options for their employees face a number of decisions and tasks. At JC Lewis, we help these employers with the initial set-up, annual renewal, and the on-going maintenance that may be needed.

JC Lewis only offers California health insurance plans from leading health insurance carriers licensed to do business in California. And we are licensed and certified by each of these carriers to offer coverage to individuals, families, small group employers, as well as to seniors with Medicare supplemental and prescription drug plans.