Staying Compliant: The Affordable Care Act for Small Businesses

A great deal of the discussion surrounding the Affordable Care Act (“ACA”) deals with large companies and the burden to “big business.”  It is estimated that 96% of all businesses in the United States have 50 or fewer employees and employ nearly 34 million workers[1]. For these companies and their smaller counterparts (those having 25 or fewer employees), there is a great deal of confusion about the ACA.  Those who support the law, argue that compliance is relatively simple.  Those who oppose it, argue that it is cumbersome and costly for everyday entrepreneurs.  As is often the case, the truth lies somewhere in the middle, and while small businesses are in fact exempt from certain provisions of the ACA, there are nonetheless several provisions that are relevant for business owners.  The following list highlights a few of the more notable ones:

 

1.         Employer Notice to Employees:  Companies that have at least one employee and $500,000 in annual revenue, must provide notification to its employees about the new Health Insurance Marketplace.  Employees must be advised about their eligibility for a premium tax credit if they purchase their coverage directly through the Marketplace and that they may lose any existing employer contribution to their health plan in such a case. 

 

2.         Limits on Flexible Spending Accounts: Employee Flexible Spending Accounts (“FSA”) limits are now $2,500 per year (plus cost of living adjustments).  This does not apply to any employer contributions, only contributions made by the employee.

 

3.         No More 90-Day Waiting Period:  As of January 1, 2014, employees who are eligible for their employer’s health insurance coverage no longer have to wait more than 90 days to begin coverage. 

 

4.         Summary of Benefits:  Employers must provide a written “Summary of Benefits and Coverage” to their employees explaining plan coverage and costs.  Employers are subject to penalties for non-compliance.

 

5.         Medical Loss Ratio Rebates:  Insurance companies must spend at least 80% of their premiums on medical care and not administrative costs.  If an insurance company fails to do this, it must refund money to its policy holders.  In the case of employer-provided coverage, this means the employer receives the rebate and must determine whether or not such rebates constitute “plan assets” and how it should be allocated among plan participants (i.e. – employees).

 

6.         Small Business Tax Credit: To help small businesses offer affordable health care options to their employees, the “Health Care Tax Credit” provides that business having fewer than 25 “full-time equivalent” employees, pay average waves below $50,000 and contribute 50% or more toward employees’ self-only (not family) health insurance, may qualify for a tax credit of up to 40% (beginning in 2014).  This credit is available to employers who are part of the “Small Business Health Options Program” (See, #7 below).

 

7.         Small Business Health Options Program: Small companies having up to 50 employees are now able to enroll in a new health care insurance marketplace through the Small Business Health Options Program (“SHOP”).  To help small companies compete with large companies having “economies of scale” when it comes to procuring health insurance, SHOP gives a group of small companies more buying power and more choice.  This is essentially a risk pool.  The U.S. Department of Health and Human Services has a hotline to answer questions about eligibility and SHOP risk pools in your area (1-800-706-7893).

 

            In order to further the government’s stated purposes in enacting the ACA of ending the discriminatory practices of insurance companies that increase premiums for sick or older employees, and to reduce people’s fear of switching jobs or starting a business for fear of losing their health coverage[2] (, all businesses must become educated about the provisions of the ACA that apply to them so they can plan and act accordingly.

 

                Compliance Corner addresses issues of legal compliance with federal, state and local law and is intended to provide a general guideline to our readers and not specific legal advice to any person or entity.  You should always seek independent legal advice before undertaking any action.  Should you have any questions regarding the foregoing, you may contact Jay Presser at (312) 648-2300 or send an e-mail to Jay.Presser@sfnr.com. 

 [1] (See, www.whitehouse.gov/healthreform, The Affordable Care Act Increases Choice and Saving Money for Small Businesses).

[2] Id.