Learn more about small business health insurance and the Affordable Care Act.
Despite many legal and political challenges, much of the Affordable Care Act remains intact. Specifically, the employer mandate is still present and enforceable. Here’s how the ACA employer mandate affects your small business.
Calculate How Many FTEs Your Business Has
Precisely how your small business is impacted by the employer mandate depends on how many full-time employees (FTEs) or their equivalent you have. These are referred to as “FTEs” in the ACA and related IRS literature.
To determine how many FTEs your business has, go through the following steps:
- Count each permanent employee who works full-time as 1 FTE
- Count each permanent employee who works part-time as a fraction of an FTE, with the fraction being determined by the average number of hours they work in a week. For instance, an employee who works 30 hours a week would be considered 0.75 FTEs.
- Include full- and part-time seasonal employees, who are defined as employees who work a maximum of six months.
- Don’t include any seasonal workers, who are defined as people who work fewer than four months or 120 hours on a temporary basis.
Add up your total, and you should have the number of FTEs your business employs.
50 or More FTEs: Need Group Health Coverage
If your small business has 50 FTEs or more, the ACA doesn’t consider your business to be a small business. Instead, the act classifies your business as a “large employer” and its employer mandate applies. Under the ACA employer mandate, any businesses with 50 or more FTEs must make group health coverage available.
Additionally, the ACA states that your business must pay at least 60 percent of employees’ plan premiums and the share paid by employees isn’t to exceed 9.86 percent of their household income. Should your business fail to offer a plan and pay at least 60 percent of premiums, it will be assessed a significant penalty under the ACA.
(Many businesses exceed the ACA’s minimum 60-percent minimum threshold, with employers paying 82 percent of premiums for single coverage and 67 percent of family coverage premiums on average according to a 2018 Employer Health Benefits Survey completed by the Kaiser Family Foundation.)
25 to 49 FTEs: No Employer Mandate in Place
If you determine that your small business has between 25 and 49 FTEs, the business isn’t impacted by the ACA. Businesses with fewer than 50 employees are excluded from the employer mandate.
(Your small business may, of course, still want to offer an affordable group health plan in order to attract high-quality employees.)
Under 25 FTEs: Small Business Tax Credit Available
If you count fewer than 25 FTEs, your small business still isn’t subject to the ACA employer mandate and doesn’t need to offer group health coverage. If you choose to offer coverage and select a qualified plan, however, the business has the chance to qualify for the Small Business Health Care Tax Credit.
The amount of the tax credit is determined by many factors, but it’s usually quite significant. Businesses with fewer than 10 FTEs that pay an average annual salary of $25,000 or less can qualify for especially generous amounts.
To qualify for this credit, your business must:
- Employ fewer than 25 FTEs
- Pay an average annual employee salary around $50,000 or less
- Cover at least 50 percent of employees’ group health plan premiums
- Make coverage available to all employees
- Select a qualifying SHOP plan (for most businesses)
Coverage doesn’t have to be made available to employees’ family members, and businesses located in areas where SHOP plans aren’t available can still qualify if they meet certain conditions and purchase an alternative ACA plan.
Qualifying SHOP plans can be purchased through eHealth, an approved SHOP plan broker that offers many ACA-compliant group health plans.
Find an ACA-Compliant Group Health Insurance Plan
Whether your small business is legally required to provide group health coverage under the ACA or you want to offer coverage for other reasons, our representatives can help. Talk with one of them about finding a policy that meets ACA standards and SHOP standards (if applicable).