by Sheren Javdan
May 9, 2014
Business owners, specifically small business owners, often face the difficult decision of whether or not to offer health coverage benefits to their employees. The Affordable Care Act has made this decision even more difficult and confusing to answer.
On a positive note, health benefits help businesses find and hire talented and hire worthy employees. Studies show that more than fifty percent of employees state that health plans are one of the major reasons they stay working for their employers.
On the other hand, small businesses suffer more than large employers with providing health benefits to their employees. The small businesses must pay higher premiums and administrative costs.
Some provisions of the Affordable Care Act are only applicable to small business owners, those with less than 50 full-time employees. Employers of 50 or more full-time employees are subject to the rules for large businesses.
Small business employers are not required by the ACA to provide health coverage for their employees. Large employers who do not offer their employees benefits face penalties of $2,000 per full-time employee. However, the Small Business Health Options Program (SHOP) Marketplace offers employers an exchange to purchase coverage at a premium rate that sets standards on administrative costs.
SMALL BUSINESS HEALTH OPTIONS PROGRAM MARKETPLACE (SHOP)
The SHOP marketplace helps small businesses provide their employees with health coverage. With 4 levels of coverage, employers are able to control the coverage they offer and how much of their employee’s premiums they wish to cover.
SMALL BUSINESS HEALTH CARE TAX CREDIT
Small businesses with fewer than 25 full-time employees that make an annual average of $50,000 may quality for the small business health care tax credit.
This credit allows small businesses and tax-exempt organizations to afford the costs associated with covering their employees. The credit encourages employers to provide health coverage for their employees.
To qualify for the credit employers must, cover at least half of the cost of insurance, have no more than 25 full-time employees, and have annual wages no more than $50,000.
The credit covers up to 50% of an employer’s contribution to his or her employees’ health insurance premiums. Tax-exempt employers will be credited up to 35% of their contributions.
Businesses with fewer than 10 full-time employees paid an annual average of $25,000 or less are eligible for an even higher tax credit.
WHY OFFER INSURANCE IF NOT MANDATED?
Although employers are not mandated by law to provide health coverage, individuals are required to have coverage or pay a penalty.
Low-income individuals purchasing health coverage through Obamacare exchanges are eligible for government subsidies. That is, those that make less than $45,960 a year. In 2014, more than 80% of individuals applying for coverage received some sort of subsidy.
However, for the rest of employees not eligible for government subsidies, this means more money. Employees entering the private market for health coverage might be shocked. Specifically, the older more seasoned employees will face higher premiums based on their age.
Therefore, to ensure they will keep their long-term, experienced, loyal employees, employers should consider either continuing paying for health coverage or at least subsidizing a part of it.
In addition, employers who decide to discontinue their employees’ health coverage will face tax consequences. Currently, employer payments made toward group plans are tax deductible. In addition, the amount employees pay toward their health coverage premiums are made a pretax.
This decreases employers’ compensation costs and ultimately the total amount paid in payroll taxes annually per employee. Furthermore, federal and state taxes will be deducted rom the additional wages paid to employees to purchase their own health coverage.
Should an employer decide to drop his or her employees’ health coverage, they will lose the above mentioned tax benefits.
Before making a final decision, consider all the potential benefits and burdens associated with dropping your employees’ health coverage plans.