Most people who are working obtain health insurance through their employers. With the enactment of the Affordable Care Act (ACA), or commonly known as the ObamaCare, the way things are done with healthcare also changed. Many people claim that the ACA is now better helping most employers of small scale, unlike before when it is more difficult for them to obtain insurance for themselves and for their employees due to the rising insurance costs, while larger corporations remain virtually unaffected due to the leverage brought about by purchasing large group health plans. So, what really is the ObamaCare for employers? The following are basic facts that can help us gain better understanding of this subject.
The ACA Employer Mandate
The ObamaCare Employer Mandate/Employer Penalty requires all businesses that have 50 or more full-time equivalent employees (FTEs) to provide health insurance to at least 95 percent of their FTEs and their dependents up to 26 years of age, or get fined with a fee that they will pay by 2016. Though originally set to start in 2014, the mandate is delayed until 2015/2016.
How the ObamaCare Employer Mandate Works
Under the ACA Employer Mandate, employers with 100 or more FTEs will have to provide insurance to at least 70 percent of them by 2015 and 95 percent by 2016, while those having 50-99 FTEs are required to begin insuring their FTEs by 2016. As the mandate does not apply to employers with 49 or less FTEs, businesses with less than 25 FTEs with an average annual income of less than $50,000 are qualified to file for employer tax credits through the ObamaCare Small Business Health Options Program (SHOP). For those with 10 or less FTEs with an average annual income of less than $20,000 are qualified for full credit of up to 50 percent of their share of employer premiums.
If an employer refuses to offer insurance or offers one that does not provide minimum value or unaffordable, then it should make a per-month, per-employee Employer Shared Responsibility Payment (ESSP). Employers will be notified by the Internal Revenue Service (IRS) about the payment and will not be required the ESSP on any of the tax returns they file.
The ESSP or the Employer Mandate Fee
The ObamaCare ESSP is a per-employee, per-month fee for employers that are having more than 50 FTEs and do not offer health insurance to the required amount of FTEs and their dependents of up to 26 years of age. Generally, an employer will obliged to pay it if it does not offer coverage or do offer coverage to fewer than 95 percent of its FTEs and their dependents, as well as at least one of the FTEs receives a premium tax credit to help pay for his/her coverage on an insurance marketplace; or if it offers insurance to at least 95 percent or all of its FTEs, but at least one full-time employee receives a premium tax credit for coverage payment on a marketplace, for the reason that the employer did not offer him/her coverage or that the coverage offered by the employer either did not provide minimum value or unaffordable to the employee.
Purchasing Group Health Plans
Employers that have less than a hundred FTEs (50 in some states) are allowed to use the SHOP exchange to purchase and compare group plans for their employees. Insurance marketplaces create large pools of buyers that provide the purchasing power that only large corporations had in the past. Theoretically, this increased purchasing power would lead to better-quality plans that are more affordable. For smaller employers, they can see even more affordability thanks to the subsidies that offered via the exchange to employers having less than 25 FTEs.
The SHOP has certainly helped level the playing field for businesses that might have been overcharged in the past, and employers, no matter their size, can still shop outside the exchanges, as long as they choose those plans that offer minimum coverage.
ObamaCare Mandate for Businesses with Less Than 50 FTEs
One fact that is often overlooked when discussing the ACA employer mandate is that employers having less than 50 FTEs almost universally benefit from the health care reform. For small businesses that have 25 or fewer FTEs with less than $50,000 of average annual wage per employee, they can apply for tax breaks of up to 50 percent of their contribution to their employee premiums. To be qualified, employers must pay for at least 50 percent of such premiums, and their employees’ average annual income should not exceed $50,000.
The Effect of the ACA Employer Mandate on Business and Its Loopholes
Generally, the ObamaCare helps small businesses through the SHOP and costs larger companies a little more because of the employer mandate, while leaving some mid-size businesses stuck in the middle. Considering a company with the equivalent of 60 FTEs, it can comply with the mandate by either cutting back worker hours or opting not to insure some or all of its FTEs and paying the fee. If it kept only 30 workers at full-time and did not offer any of its employees some coverage, it can completely avoid paying the fee, as its first 30 workers would be exempt, while it did not change its total number of FTE hours. Unfortunately, these loopholes caused some companies to reduce employee hours down to a 27-hour part-time status, which can be cost-effective for employers, but is not good for employees who would receive lower income without employer-based health insurance. Withal, it is important to remember that the point of the law is not to encourage small businesses to find loopholes, but to hold larger companies accountable for employee health care.
The ACA employer mandate has already led many businesses to reduce hours from their FTEs to ensure that they are granted the part-time status. Though less than 1 percent of companies in the US are having more than 50 FTEs and are not providing health insurance, a lot of people are finding their hours reduced.