Small business owners in San Diego County will need to brush up on federal health care reform regulations in order to take full advantage of new tax incentives and potentially lower insurance costs.
Because the Affordable Care Act (ACA) is highly complex and the rules still are evolving, it’s best to seek professional help when buying employee health insurance, says Jim Morrison, president of Morrison Insurance Services Inc. in Carlsbad.
Rather than attempting to go it alone, business owners “need to work with their insurance broker and a tax adviser,” he said.
Pamela Legge, senior vice president, employee benefits, for BB&T-John Burnham Insurance in San Diego, said some employers are savvy about the ACA, but “others are still very confused, as the law continues to be amended and updated.”
Douglas Gwilliam, president of CBIZ Benefits and Insurance Services Inc. said companies should make an effort to understand federal regulations and adhere to them. Regulators “will be expecting people to abide by not only the letter of the law but do all they can to abide by the spirit of it,” he said.
While the ACA was intended to reduce health insurance costs for employers and individuals, it’s too soon to know if it will be a financial benefit for small businesses, said Morrison. There are a lot of unknowns.
“The general sentiment in the industry is that the pricing will be higher, but we have nothing to base that on until we see numbers,” Morrison said.
Scott Hauge, president of the Small Business California trade group, said the idea behind the ACA is to lower costs for small businesses and individuals by creating large insurance pools that have greater buying power.
No one can be certain this will happen, however, he said. “The verdict is out.”
The ACA doesn’t require businesses to provide health insurance to workers. Instead, it offers tax credits for eligible companies that do so voluntarily. The Kaiser Family Foundation notes that companies can qualify for tax credits of up to 35 percent of the health insurance premiums they pay for employees. To do so, they must:
Pay average annual wages of less than $50,000.
Contribute no less than 50 percent toward employee health insurance premiums.
Have less than 25 full-time equivalent employees (FTEs). “Your part-time employees’ total hours will be aggregated to determine your full-time equivalent,” said Neal Stehly, executive vice president, benefits division for Carlsbad-based Marrs Maddocks & Associates Insurance Services Inc.
Starting next year, the 35 percent tax credit increases to 50 percent and will be available to employers that participate in Small Business Health Options Program (SHOP) insurance exchanges.
According to the Kaiser group, beginning in 2014 businesses with 50 or more FTEs that decline to provide affordable health insurance to full-time workers and their dependents could face a penalty called a “shared responsibility payment.”
Businesses could be fined $2,000 per employee. The first 30 employees are excluded from the fine, however. A full-time employee typically is one who works at least 30 hours a week, under federal guidelines.
Employers with 50 or more full-time equivalent employees that offer coverage that is not considered “affordable” under federal guidelines also may be fined. If they have one or more full-time workers who receive a premium tax credit to purchase health insurance, they may be asked to pay $3,000 for each employee receiving the credit or $2,000 for each of their full-time equivalent workers, excluding the first 30, whichever fine is less.
For businesses with more than 50 FTEs, the ACA has “significant reporting and calculating requirements that are very complicated and confusing,” Legge said.
The 50-FTE threshold applies even when workers are split across multiple businesses by a single owner, said Stehly. For example, if you had six separate businesses of 10 full-time workers each, you would exceed the 50-worker threshold.
“If you have common ownership businesses, you can’t split them up and try to stay under 50 employees,” Stehly said. “It’s going to be aggregated.”
In California, workers will be able to choose from a range of health coverage. Businesses can provide important guidance, said Morrison.
Take time to learn about the health reform act. Check out the federal government’s Healthcare.gov website or the SBA’s www.sba.gov/healthcare.
“The key is look at all your options when you make a decision,” Hauge said.
Ask about renewing early. Morrison said it may be possible for some small businesses to renew their current employee health insurance policies early and avoid the need to buy insurance for employees through the new state exchange in the coming year. “Not every carrier is going to allow it,” he said. “They really need to discuss with their broker if this is a viable option.”
Consider keeping the plan you have. The ACA allows small businesses to maintain their current insurance plans, even if they don’t meet all of the act’s new requirements. The advantage to businesses is that older plans are less regulated. The plan must have been in place when the health reform law took effect in 2010.
Don’t risk a fine. Stehly said the government means business when it says that companies that fail to provide adequate health insurance coverage under the ACA will face added costs. “They are not going to allow employers to game the system,” Stehly said of federal regulators.
Emmet Pierce is a freelance writer.