What the Affordable Care Act Means for Businesses

By Lisa Yagoda, Nicole Duritz, Joan Friedman

Copyright © 2014 AARP. All rights reserved.

The Affordable Care Act’s (ACA) impact on businesses differs depending on their size. The ACA doesn’t affect more than 95 percent of U.S. businesses because they have fewer than 50 full-time equivalent employees.

But the small percentage of U.S. businesses that have 50 or more full-time equivalent employees are required to provide insurance coverage that meets established minimum standards or face a potential tax penalty. The requirement generally applies to firms with 100 or more full-time equivalent employees starting in 2015 and employers with 50 or more full-time employees starting in 2016.

The two key criteria here are the affordability of the coverage the business offers and the minimum value of that coverage:

  • Affordability: For employee-only coverage (meaning not for a family policy), the employee’s share of the lowest-cost plan’s premium costs cannot be more than 9.5 percent of that person’s annual household income. If the cost of the lowest-cost coverage the business provides is higher than that percentage, the plan is considered not to be affordable.

  • Minimum value: The company’s health coverage must pay for at least 60 percent of the costs of covered services to qualify as having minimum value under the ACA.

A larger business that doesn’t provide coverage meeting these two criteria may face a financial penalty called an Employer Shared Responsibility Payment as of 2015. This payment is calculated based on whether the company offers any insurance coverage to its employees.

If the company doesn’t offer any insurance, each year it will owe $2,000 per full-time employee, excluding the first 30 employees. If the company does offer insurance, but the coverage is found lacking per one or both criteria, each year it will owe $3,000 per full-time employee who receives financial help for a plan through the Health Insurance Marketplace.

These penalties are designed to encourage larger business to take responsibility for providing adequate coverage to employees, reducing the number of uninsured workers in the country and improving access to healthcare.

But what about smaller businesses that employ fewer than 50 people? Will they face the same tax penalties as their larger counterparts for not supplying coverage to their employees?

The answer is no; the ACA doesn’t require small businesses to offer insurance to their employees. However, the law changes for the better how a small business can shop for health coverage. If you’re a business owner with 50 or fewer employees, you can now join with other small businesses in your state to get health insurance for your employees.

For the first time, you should have many of the same options that previously were available only to larger companies.

Business owners can shop for health insurance plans for employees using their state’s Health Insurance Marketplace. Within each Marketplace is a Small Business Health Options Program (SHOP) that facilitates comparison among plans, including benefits and costs. Owners can choose what plan to offer to employees, and then those employees can go and sign up through the SHOP Marketplace.

The system is designed to reduce a business owner’s paperwork and administrative costs, in addition to providing greater leverage for driving down costs by grouping coverage purchases for many small businesses.

In addition, small businesses purchasing coverage via SHOP may be eligible for a tax credit to help make the cost of covering employees more affordable.