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Myth vs. Fact- Myth #1: All Businesses Will Be Required to Provide Health Insurance to All of Their Employees

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Myth vs. Fact- Myth #1: All Businesses Will Be Required to Provide Health Insurance to All of Their Employees

By Meredith K. Olafson, SBA Official
Published: February 20, 2013 Updated: February 20, 2013

As a business owner, it’s important to understand how the Affordable Care Act can affect your business. However, with so many misconceptions about how the Affordable Care Act works, this can be difficult.  To clarify the myths versus facts, we’re launching a new blog series called “Myth vs. Fact: The Affordable Care Act and Small Business”.

This blog covers one of the most common myths we’ve seen out there: All businesses will be required to provide health insurance to all of their employees.

Fact: Employers are not required to provide coverage to their employees under the Affordable Care Act.  However, starting in 2014, some businesses that do not offer health coverage to their full-time employees may be subject to a shared responsibility payment under the health care law.

How do I know if I may be subject to an Employer Shared Responsibility Payment?

Businesses with 50 or more full-time or full-time equivalent (FTE) employees that do not offer affordable health insurance that provides a minimum level of coverage to their full-time employees (and dependent children under the age of 26 starting in 2015) may be subject to a shared responsibility payment if at least one of their full-time employees receives a premium tax credit in an Affordable Insurance Exchange, or Marketplace.   For the purposes of these provisions, a full-time employee is one who is employed an average of at least 30 hours per week.

Businesses will not be affected by these provisions if they already offer affordable health coverage that provides a minimum level of coverage to their full-time employees, which is the vast majority of these businesses.

Businesses with fewer than 50 full-time or FTE employees are generally not affected by these provisions.  However, it’s important to know that if companies have a common owner or are otherwise related, their total combined number of employees is used to determine whether each separate company is subject to these provisions — even if none of the member companies individually employ 50 or more full-time or FTE employees.

How can I find out if I meet the threshold number of 50 or more full-time or FTE employees?

To assist employers, the IRS has developed a helpful set of Q&As on the Employer Shared Responsibility provisions. The IRS has also issued a set of proposed rules relating to the Employer Shared Responsibility provisions, and is accepting written or electronic comments by or before March 18, 2013.  

About the Author:

Meredith K. Olafson

SBA Official

Meredith K. Olafson is Senior Policy Advisor for the U.S. Small Business Administration where she oversees the agency's education and outreach efforts around health care and the Affordable Care Act.

Comments:

We have a unique situation and would like some assistance in understanding it. We have about 300 minimum wage employees and most of them also receive govt. entitlements to include insurance for their dependents. We have not conducted the survey yet but probably 50 percent of them work up to 30 hours a week and the biggest nightmare is turnover. How would offering health care coverage affect us? Would the coverage start from day one of employment or wait till after probationary period of six months? Thanks for your meaningful suggestions in advance.
Hello, and thank you for your question. You can find more information about how the Affordable Care Act might affect your business based on your individual circumstances by referring to the Proposed Regulations for the Employer Shared Responsibility rules at http://www.irs.gov/pub/newsroom/reg-138006-12.pdf. These proposed rules contain guidance on a variety of issues under Employer Shared Responsibility, and the IRS has said employers may rely on these proposed rules during 2013 for the purposes of compliance.
It appears you would be subject to the requirement to offer coverage or pay the penalties. Given the wage level of your employees many would likely use an exchange to get coverage which would activate the penalties. If turnover is a problem for you, offering coverage to your full time workers (30+ hours a week) with a six month wait period from eligibility (which you could do) may help stabalize turnover. It may also entice more of your workers to full time employment which means more expense in health coverage. The issue will be the level of coverage you provide and how much you ask your employees to contribute to it. If you ask the employee to contribute to the coverage you must keep the contribution at or below 9.5% of the annual wage of the worker in order to avoid facing the tax penalty. Until the insurers finalize the new plans and pricing it will be difficult to evaluate the additional cost to your business.
The maximum waiting period starting 2014 will be 90 days. Also, just to be clear, the 9.5% has to be measured against the W-2, with two other "safe harbors" available.
The Affordable Healthcare Act is just a small legal step to make eventually healthcare a human right. A "small legal step" is the operative words.
I think it is a big step in the right direction. Let's wait until the Affordable Healthcare Act is completely in place and see if/what are any unexpected consequences before we trash this act. This post was edited to remove a link. Please review our Community Best Practices (http://www.sba.gov/community) for more information about how best to participate in our online discussions. Thank you.
She is right that you do not have to offer insurance if you have less than 50 FT or FTEs. But, if you have 50+ and you DON'T offer insurance you would pay $2,000 x number of employees minus 30. So if you have 60 FT employees you would pay $2,000 times 30 OR $60,000 and it is NOT tax-deductible. For those of you have a small business under 25 employees there is a tax credit but it is on a sliding scale where once you exceed 10 employees it gets smaller and smaller. Finally on splitting a company into two entities, it will not work as you would have to count both companies together, assuming same or similar ownershp (rules are complicated).
I have a company, which employs 30 employees at one location and 20 employees at other location. Will the affordable health care act provision will apply to me ? Can I create separate companies for each location to avoid the Affordable health care act provision starting January 1, 2014 ? I would appreciate your response.
Hello, and thank you for your reading our Health Care Blog. For more information regarding your questions, we refer you to IRS’s Questions and Answers on Employer Shared Responsibility at http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act under the section titled “Which Employers are Subject to the Employer Shared Responsibility Provisions?” Question 4 addresses which employers are large enough to be subject to these rules, and Question 5 provides guidance to businesses that have a common owner or are otherwise related. Generally, businesses will need to count the total number of employees they employ during 2013, including full-time, part-time, and seasonal workers, to determine whether they are considered large enough to be subject to these new provisions in 2014.
You would have to divest ownership of the second company. The IRS will look at all of your companies together to determine number of employees. Since you are so close to the 50 mark, you could reduce some employees to part time to keep below the threshold. You also have options to share the cost of coverage with your employees to lower your costs. Depending on how much you pay your employees you could also look at tax advantaging their purchase of individual coverage outside an exchange.

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