This “Small Business Owner’s Guide to Healthcare Reform” will help answer some of the biggest questions you’ll have with regard to the new law. It’ll provide a broad-based overview for you, so you can more easily navigate some of the new legislation’s most important components. This is healthcare reform for the small business owner “in a box.”
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Question #1: Do I have to provide health insurance to my employees as a small business owner?
The answer to this is no. You do not have to provide health insurance to your employees as a small business owner. This leads us right into our next important question.
Question #2: What is the definition of a “small business” with regard to the healthcare reform law?
Small businesses are businesses with less than 50 fulltime equivalent employees for the previous calendar year. “Fulltime equivalent employee” is sometimes abbreviated “FTE.” This is an important concept to understand, because your FTE count does includepart-time employees. A part-time employee is defined as working less than 30 hours per week, and there’s a calculation when determining their “fulltime equivalency.” If you’re a business that is on the cusp of 50 FTE, you’ll want to make sure to have this all squared away. Why? Because there are costly tax penalties that may be incurred if you’re over 50 FTE and don’t provide health coverage. As it stands, employers with over 50 FTE will eventually be mandated to provide coverage.
Question #3: If I’m under 50 FTE and don’t have to provide health insurance, do my employees and I have to find health insurance somewhere on our own?
Yes. The Affordable Care Act requires that most Americans need to carry a “minimum essential coverage” health plan, or pay a tax penalty (there are a few exceptions: Alaska natives, American Indians, exemptions based on religious affiliation, etc).
Question #4: Where do my employees and I find coverage on our own?
If you’re not providing an employer sponsored health plan, there are various places to look for coverage:
Individual Insurance Plans. You can now purchase an individual or family insurance plan without regard to health status (ie: preexisting conditions). In other words, if you apply for coverage, you have to be accepted. It’s called “guaranteed issue” and it’s easier now than ever before to “shop” for a health plan.
Public Health Insurance Exchanges. These new exchanges were a key part of the healthcare reform law. The plans on the exchange are usually identical to the plans off of the exchange, with one big exception: depending on income, you may be eligible for substantial subsidies that can help you pay for premiums.
Spouses. If your spouse has access to a plan via their employer, you may also be eligible to participate.
Other. You may be able to find a plan through unions, associations, or other “group like” arrangements.
Question #5: As a small business owner, I’d like to attract and retain quality employees with a health benefit. Are there some new strategies that can help me do-so?
There aresome new strategies and options that can help small business owners offer their employees a health benefit more affordably. Here are a few of them:
The Small Business Health Options Program (known as “SHOP”).
This is a new program that has been made available on both the federal and state health insurance exchanges. It was specifically designed to help small businesses (under 50 FTE) provide a group health plan to their employees. Depending on the average income and size of your group, you may be eligible for a sizeable tax credit (up to 50% of premiums).
A “Defined Contribution” Strategy.
The term “defined contribution” is a retirement planning phrase. You can Google it and read all about it. Keeping it simple, it’s exactly what it says it is: you “define a contribution” (ie: $200/month), and then employees purchase their own individual plans on or off the exchange. Effectively, it’s an after-tax stipend each month for health insurance. *Note: one of the biggest questions benefits advisors have had over the past couple of years has been whether-or-not this strategy can be carried out on a pre-tax basis through payroll.
Consumer Directed Health Planning.
This can also be referred to as “account based” or “equity based” planning. Small business owners can provide their employees access to a high deductible plan, and then pair it up with an HRA (health reimbursement arrangement) or HSA (health savings account). The HRA or HSA becomes an asset that builds equity over time. You retain funds that would normally go to the insurance companies in the form of premiums, and ownership of the account is with either the employee or business, depending on your strategy.
The #1 goal in health benefits planning is always to improve coverage and save money. This “Small Business Owner’s Guide to Healthcare Reform” won’t answer every question that you have. However, it will give you a great idea about where things currently stand, and where to begin to sort things out as a small business owner. You’ll also want to continue to stay “in-the-know” because there will no-doubt continue to be changes as we move forward with the implementation of this large and far-reaching law in the years to come.
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Tyson J. Lester, RHU, REBC
President, Policy Advantage Insurance Services