From the Hotline: The ACA and Employers with Less than 50 Employees

Question: How does ACA impact smaller employers with less than 50 employees?

Answer: Many of the provisions of the Affordable Care Act apply to larger employers (with more than 50 or 100 employees).  Here is a summary of some of the provisions of the law that impact under 50 employers from the Kaiser Family Foundation:

Small Business Health Options Program (SHOP):  Starting in 2014, small businesses with generally 50 or fewer employees will have access to the new health care insurance marketplaces through the Small Business Health Options Program or SHOP Exchange.  Currently, small businesses may pay on average 18% more than big businesses for health insurance because of administrative costs.  The SHOPs promise to offer small businesses increased purchasing power to obtain a better choice of high-quality coverage at a lower cost.  Costs are lowered because small businesses can pool their risk. To enroll, eligible employers must have an office within the service area of the SHOP and offer SHOP coverage to all full-time employees.   In 2016, employers with up to 100 employees will be able to participate in SHOP.

Employer Shared Responsibility:  Although there is no requirement that small businesses offer health insurance to their employees, if an employer has more than 50 full-time equivalent employees, then the employer will have to pay a penalty if they do not offer “affordable coverage”.  Businesses with 50 or fewer FTE employees would be exempt from this requirement.

Summary of Benefits and Coverage (SBCs):  Employers that provide health care coverage are required to provide employees with a “Summary of Benefits and Coverage” explaining what their plan covers and what it costs.  The purpose of the SBC form is to help employees better understand and evaluate their health insurance options.  Penalties may be imposed for non-compliance.

Medical Loss Ratio Rebates:  If a small employer offers health care coverage, the health care reform rules require insurance companies to spend at least 80% of premium dollars on medical care rather than administrative costs.  Insurers who do not meet this ratio are required to provide rebates to their policyholders.  Employers
who receive these rebates must determine whether the rebates constitute plan assets under the ERISA rules.  If treated as a plan asset, employers have discretion to determine a reasonable and fair allocation of the rebate.

Limits on Flexible Spending Account Contributions:  For plan years beginning on or after January 2013, the maximum amount an employee may elect to contribute to health care flexible spending arrangements (FSAs) for any year will be capped at $2500, subject to cost-of-living adjustments. Note that the limit only applies to elective employee contributions and does not extend to employer contributions.

Additional Medicare Withholding on Wages:  Beginning January 1, 2013, the employee portion of the Medicare Part A Hospital Insurance (HI) withholdings by .9% (from 1.45% to 2.35%) on employees with incomes of over $200,000 for single filers and $250,000 for married joint filers.  It is the employer’s obligation to withhold this additional tax, which applies only to wages in excess of these thresholds.  The employer portion of the tax will remain unchanged at 1.45%.

90-Day Maximum Waiting Period:  Beginning January 1, 2014, individuals who are eligible for employer-provided health coverage will not have to wait more than 90 days to begin coverage.

Workplace Wellness Programs:  Effective January 1, 2014, the maximum reward under a health-contingent wellness program will increase from 20 percent to 30 percent of the cost of health coverage, and the maximum reward for programs designed to prevent or reduce tobacco use will be as much as 50 percent.