- Businesses with 50 or more full-time employees are required to provide group health insurance coverage to their employees. If they don't, that business is liable for penalties and fines at the end of the tax year.
- Knowing whether or not your organization is required to offer health insurance is one thing, understanding how to go about setting your program benefit up is another.
- If you are required to offer health insurance benefits to your employees, your next steps involve ascertaining whether your small business qualifies for the ACA's small business healthcare tax credit.
- This article is for small business owners who want to learn more about health insurance requirements, how the ACA affects eligibility and what is forthcoming in 2021.
Since the post-World War II era, when employer-sponsored healthcare benefits were conceived, healthcare, including the regulations surrounding employer-offered health insurance, have evolved, in some cases, drastically changing from year to year. The Affordable Care Act (ACA) plays a huge role in an employer's responsibilities, so small business owners need to have a clear understanding of it so they can prepare their businesses for the end of the year and 2021.
Do employers have to offer health insurance?
If you are considered a "small employer," which means, according to the ACA, having less than 50 full-time employees, then you are not required to offer ACA-described group health insurance coverage for employees.
What does this mean for other employers? Businesses with 50 or more full-time employees are still required, even after the now-repealed individual mandate, to provide group health insurance coverage to their employees. If they do not, they will be liable for penalties and fines at the end of the tax year. [Looking for more information on health insurance? Check out our Small Business Guide to Health Insurance.]
Should small employers offer health insurance?
Even though they are not required to offer health insurance, there is a strong argument to make that small business should offer health insurance to their employees, if possible, since it is such a strong added value for employees (and their families) over the long run.
Since so many companies do offer health insurance, not doing so can put your business at a disadvantage when trying to attract highly skilled talent to your organization.
Pros of offering health insurance benefits
In addition to attracting quality candidates, here are six other advantages to investing in healthcare insurance for your employees:
- Employee retention (and satisfaction): Research from the Society of Human Resource Management found that employees are more likely to stay with an employer if they like their healthcare plan.
- Lower premiums: Group plans typically cost less than individual plans, even within the ACA framework.
- Pretax benefit for employees: In many cases, small business-provided health insurance can reduce employees' tax burden, which provides your workers with more take-home income.
- Healthier and productive employees: When employees have access to healthcare, they, and their dependents, can more easily address health issues early on. This results in healthier employees, which reduces the number of days employees take off because of illness.
- Creating an employee-focused company culture: Few things boost company culture more than offering benefits that employees truly value. Having a solid benefit offering shows employees that the company cares about them. Health care insurance is one of those key benefits that a business can offer its workers that powerfully delivers this message.
- Possible employer tax credit eligibility: Although it is not required for small businesses to offer group health insurance, some employers may benefit from a tax credit through the ACA's Small Business Health Options Program (SHOP).
Key takeaway: Employers with fewer than 50 full-time employees are not required by law to offer group health insurance coverage for their employees. However, there are strong reasons why small businesses, regardless of size, should offer health insurance to their employees.
What is the ACA, and how does it impact health insurance requirements?
The ACA has transformed the group health insurance industry over the years – and it continues to evolve. Originally, the ACA had three main objectives:
- To reform the private insurance market – especially for individuals and small-group purchasers
- To expand Medicaid to adults with an income at or below 133% of the federal poverty level
- To change the way that medical decisions are made by all impacted, including the insured, employers and insurers
The real goal was that all people, or many more anyway, would have access to health insurance benefits than they did before the ACA. Before the ACA, no employer was ever required to offer health insurance of any kind to employees.
The ACA includes premium tax credits and cost-sharing reductions to lower costs for lower-income employees and their covered dependents. The ACA tax credit also encourages smaller employers, who are not required to provide health insurance, to offer the benefit through SHOP. That, in turn, offers the employer tax credits that reduce the cost of an employer-sponsored benefit that employees want.
Key takeaway: The ACA was designed to reform the private health insurance market to provide health insurance access to more employees who previously did not have access. Additionally, there is a tax credit for employers who offer health insurance benefits, which is designed to reduce the overall costs of ACA-related programs.
How can employers determine their eligibility for the small business health insurance tax credit?
Small business owners who choose to offer group health insurance benefits for employees may qualify for the ACA's small business healthcare tax credit. Small employers are not only eligible but often qualify for a higher tax credit. For example, some employers qualify for the Small Business Health Care Tax Credit that covers 50% of the costs the employer pays for its employees' premiums (or 35% for nonprofit employers).
Enrolling in a SHOP plan is necessary for a small business or nonprofit to claim the Small Business Health Care Tax Credit. Additionally, your business will need to meet all of the following criteria:
- You have fewer than 25 full-time-equivalent (FTE) employees.
- The average employee salary is $50,000 per year or less.
- Your business pays at least 50% of your full-time employees' premium costs.
- You will offer SHOP coverage to all of your full-time employees. (You don't have to offer it to dependents or employees working fewer than 30 hours per week to qualify for the tax credit.)
You can also use Healthcare.gov's Tax Credit Estimator to help assess what, if any, your small business tax credit will look like.
The tax credit is typically higher for companies with fewer than 10 employees who are paid an average of $25,000 or less. In essence, the smaller the business, the bigger the credit.
Where can employers get health insurance for employees?
Finding out how to access this program and offering a health insurance plan to your workers requires work. However, these online resources can help you on your journey:
Key takeaway: Smaller businesses that offer health insurance via SHOP may be eligible for tax credits of up to 50% of their portion of employee premium costs. To qualify, your company must have less than 25 full-time-equivalent employees who have an average salary of $50,000 or less. Qualifying businesses must also pay at least half of their employees' premium costs.
How to prepare for your 2021 ACA coverage
Starting on November 1, 2020, businesses can enroll in a 2021 Marketplace health plan. The deadline for enrollment is December 15, 2020. Once enrolled, coverage begins on January 1, 2021.
You can find projected plans and pricing at healthcare.gov/see-plans.
Using a SHOP-registered agent or broker
Because enrollment can be complicated, it is recommended that you work with a SHOP-registered agent or broker – there is no cost for using their services. There are several reasons why you want to work with an agent or broker:
- They have experience helping small businesses enroll in SHOP coverage (e.g., they will make this process easier for you).
- They have an in-depth understanding of the health insurance market in your area.
- They can guide you through selecting a plan and navigating coverage issues after you enroll.
If you already have an agent or broker, you can continue working with them, as long as they are registered to sell SHOP insurance. Visit localhelp.healthcare.gov to find an agent or broker who can help. You can also get immediate help from an agent or broker by using the Help On Demand tool at Marketplace.
One final note relating to SHOP eligibility: If your business grows to 50 employees or more, after already qualifying for SHOP, your business can "renew" its eligibility under the current guidelines.
Key takeaway: You can enroll in ACA health insurance coverage on November 1. To get 2021 coverage, you must enroll by December 15. It is recommended you use a SHOP-registered agent or broker to walk you through the selection and enrollment process.
Are there ACA-related (health insurance) tax-reporting requirements for 2020?
There are tax-reporting requirements for businesses that, for 2020, are set in stone and will not change before the end of the tax year. The IRS requires businesses that offer group health insurance benefits to perform several duties, including.
- Applicable employer-sponsored coverage: Employers that provide "applicable employer-sponsored coverage" under a group health plan must report the value of the health insurance benefits provided for every employee. This information is reflected in their W-2 form.
- Form 1095 and related documentation: Form 1095 is part of the individual and employer mandate of the ACA and is an assortment of IRS-related forms used to administer the employer-shared responsibility of the ACA insurance model. It is used to determine the employee's premium tax credit eligibility.
- Additional withholdings: In addition to the reporting requirements, employers are required by the IRS to withhold 0.9% on employee compensation that is greater than $200,000.
- Patient-Centered Outcomes Research Trust Fund: Also part of the ACA payout program is the fee that all small businesses must pay for the Patient-Centered Outcomes Research Trust Fund. The is a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans that helps to fund the Patient-Centered Outcomes Research Institute (PCORI). The institute aids patients, clinicians, purchasers and policymakers in making better-informed healthcare choices by advancing clinical effectiveness research.
Key takeaway: There are several tax requirements you should be aware of, such as information to include on employee W-2 forms and 1095 forms.