“It sounds good, but how much is it going to cost me?”
The sweeping health insurance reform, better known as the Affordable Care Act, was signed into law in March of 2010 and promised to give coverage to America’s uninsured.
Last year the legislation survived a challenge in the Supreme Court and is now on track to go fully into effect on Jan.1, 2014.
The Care Act will then be the law of the land regardless of which political party you identify with. But the clamour from the small business community about the legislation has been rising to a fevered pitch the past three years with business owners seeking some concrete answers about how the new regulations will affect them.
To anyone paying attention, it seems almost all of those questions boil down to one thing:
“How much is this thing going to cost me?”
That is exactly the questions we will try to answer here.
Coverage vs. Number of Workers
Your first key number in determining how much the Care Act will cost you is, how many workers you employ.
Essentially, with less than 50 full-time employee you do not need to offer them a health insurance option, and you don’t have to worry about any penalties.
Yes you heard right, less than 50 full time employees = no requirement to offer health care, and no penalties for your business.
However if you’re a business with 50 or more full time workers, and no health plan, then the federal government will be hitting you where it hurts, the wallet. Those businesses will have to pay a penalty of $2,000 for each full time worker minus 30, according to the Kaiser Family Foundation.
That means take the number of full time employees you have, subtract 30, and then multiple that number by $2,000 in order to figure out your penalty.
Those people employed at small businesses that don’t provide coverage, could purchase it through one of the state health insurance exchanges being built right now across the country. This October, the exchanges are scheduled to open and begin enrollment for insurance starting in 2014.
Wait so who exactly is a full-time employee?
According to the definitions in the Care Act an employee is considered full-time if they work at least 30 hours a week up to a maximum of 40 hours a week (2,080 hours a year). So the number of full-time workers a business employs is tabulated using the total number of hours worked by all employees, according to FAQ on health care reform from the Small Business Majority, an advocacy group.
Are you confused yet? Don’t worry, let’s try an example.
Your business employs 10 people let’s say. Five of them are part timers working 20 hours a week (1,040 hours a year), four are full timers working 40 hours a week (2,080 a year), and one employee works 45 hours a week (2,340 hours a year).
Looking quickly, it would appear this example business has five full time workers, and five part timers, right? Not quite.
Because employees are classified based on their number of hours worked, our example business actually has seven full time workers.
5,200 hours total for our five part time workers at 20 hours a week each
8,320 hours total for our four full time workers at 40 hours a week each
2,080 hours total for our one worker doing 45 hours a week *note, this employee was paid for the 45 hours a week but only counts under the Care Act for 40 hours a week.
Total hours worked by all employees at example business: 15,600
15,600 divided by 2,080 (the maximum number of hours for any employee) = 7 *note, if your total number of employees does not work out to be a whole number, you would just round down to the near whole number
So even though in this example, it looks like the business employs five full time workers, under the Affordable Care Act definitions it actually has seven.
Tax Credits
At this point you might be asking yourself, well why does it matter how many full time employees I technically have? I know I’m going to be under the 50 full time worker requirement, so I’m in the clear.
Yes those are both true, but if you are a small business and you do want to offer your workers a health insurance option, you might qualify for a tax credit.
Specifically businesses with 25 or fewer full-time workers whose average salaries are up to $50,000 a year are eligible for the tax credit that could cover up to 35 percent of the business’s eligible premium expenses for tax years 2010–2013.
The full tax credit will go to businesses with 10 or less full-time employees, paying annual average wages of $25,000 or less. Starting next year in 2014 this tax credit increases to cover up to 50 percent of those costs. and will be good for two years.
Other Costs
So if you are a very small business the Affordable Care Act is not going to cost you much. But if you are a little bigger with 50 or more employees then you will need to offer health insurance. The cost of which will probably vary from provider to provider.
The good news there is that if you already offer your workers a plan you can keep offering it, and have it be grandfathered in under the new regulations. That is just as long as you don’t change it drastically so as to make it more expensive for you workers.
That being said there are still a lot of questions about the Care Act that small businesses and entrepreneurs are seeking the answers to. As 2014 get nearer we can hope for the sake of commerce that those answers will stave off some of the worst predictions about the Care Act crashing the economy.
About the Author: This article was contributed by Simon Bukai, CEO of Vista Health Solutions, a New York based health insurance broker, focusing on small businesses and the self employed. Simon has worked in the health insurance industry for over 20 years and founded Vista in 2006.