How does the ACA affect small business health insurance?

The Affordable Care Act (also called Obamacare) has dramatically reshaped health insurance requirements in the United States. Initially passed into law in 2010 and challenged multiple times since then, some businesses aren’t aware of what obligations and incentives the act includes for them. The following is a look at how the ACA affects small business health insurance.

Defining small business as under 50 employees

Before your business can determine how it’s affected by the ACA, you must first identify how your business is classified under the act. Classification is based on the number of full-time employees (FTEs) or equivalent employees.

To calculate how many FTEs your business has:

• Start with the number of full-time employees you have.
• Now you’ll need to take a look at your part-time employees. In a way, you add them together to equal a certain number of full-time employees (FTEs).
• Part-time employees should be counted at whatever percentage of 40 full-time hours they work, so a person who works 20 hours a week would count as 50% FTE. So, two part-time employees who each work 20 hours a week count as one full-time employee for the purposes of this definition.
• In most cases, you don’t count independent contractors or seasonal workers in this FTE calculation. If seasonal workers work fewer than 120 hours during the tax year, you generally don’t count them.

Once you’ve calculated how many FTEs your business has, the important categories are as follows:

• Businesses with fewer than 25 FTEs
• Businesses with fewer than 50 FTEs
• Businesses with 50 or more FTEs

Requiring large businesses to provide health insurance coverage

The ACA’s requirement for businesses to make group health insurance coverage available to their employees applies only to businesses with 50 or more FTEs. Every large business must offer an affordable employer-sponsored coverage option, usually a large group plan. Large businesses are required to pay at least 60 percent of the cost for single coverage. Employers who meet the FTE criteria and fail to provide sufficient coverage may have to pay a penalty.

If your business has fewer than 50 FTEs, you don’t have to provide or pay for a health coverage plan. The ACA has no absolute small business health insurance coverage requirement for businesses with fewer than 50 FTEs. But you can still offer your employees health insurance and eHealth may be able to help you find a surprisingly affordable plan.

Offering coverage as a small business with fewer than 50 FTEs

Although not a formal legal requirement, many businesses with fewer than 50 FTEs want to offer group health insurance coverage to their employees. They do this for a variety of reasons, as health insurance plans help attract quality employees, reduce employee turnover, and improve overall morale.

If your business has fewer than 50 FTEs, but you’d like to make group health coverage available to employees, think about offering a small group health insurance plan. These plans are similar to large group plans, but they’re adjusted to better meet the financial needs of small businesses and their employees.

The ACA-sanctioned Small Business Health Options Program, which is otherwise known as SHOP, offers affordable small business health insurance plans. You can find SHOP plans through a SHOP-registered broker, such as eHealth. Just click the button on this page to get started.

Qualifying for a small business tax credit with fewer than 25 FTEs

SHOP small business health insurance plans may be especially attractive to businesses that have fewer than 25 FTEs. If your business has fewer than 25 employees, it might qualify for the ACA Small Business Health Care Tax Credit.

To qualify for the Small Business Health Care Tax Credit, your business must:

• Have fewer than 25 FTEs
• Pay an average annual salary around $50,000 or less
• Cover at least half of employees’ health insurance premium costs
• Offer SHOP health insurance coverage to all full-time employees

You don’t have to offer coverage to part-time employees or dependents to qualify for the tax credit.
The credit is based on many factors, but in most cases it’s a substantial amount that greatly offsets the cost of offering a SHOP small business health insurance plan to employees.

Find a SHOP small business health insurance plan

For help finding an ACA SHOP small business health insurance plan that fits your business’s budget and provides solid coverage for employees, click Find Plans on this page. eHealth is a SHOP-registered health insurance broker. Our representatives are well-versed in the plan options and able to assist in comparing multiple ACA health insurance plans so you can select the best available one for your business. eHealth can help you find affordable coverage, with a plan that qualifies for the tax credit if that’s applicable in your situation.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.