Affordable Care Act – Impact on Small Employers

Affordable Care Act – Impact on Small Employers

The Affordable Care Act places a number of requirements on employers geared toward the Act’s purpose of ensuring that all Americans have access to affordable health insurance. They include those related to the “shared responsibility” provisions, as well as reporting and notification requirements.  Penalties may be imposed for failure to meet those requirements; as a result, employers of all size are understandably concerned about understanding and meeting all of its conditions.  Small employers (employers who employ fewer than 50 full-time employees, in combination with full-time equivalent employees) are no less concerned than large employers.  What are the implications of the Affordable Care Act on these “small” employers who employ fewer than 50 full-time employees?

“Small employers” are not subject to the employer “shared responsibility” provisions of the Act, and will not be subjected to those penalties.  So, if the result of the calculation (adding full-time employees and full-time equivalent employees) results in a determination that you are not a “large employer,” you are exempt from the requirement of providing affordable, acceptable health coverage to your employees or be faced with penalty assessments.

If coverage is offered, employees must be provided with a standard “Summary of Benefits and Coverage” (“SBC”) form that explains what their plan covers and what it costs.  Insurers and plan sponsors or administrators of a self-insured group plan are required to provide this summary; penalties may be imposed for non-compliance.  No distinction appears to be made between large or small employers under this requirement, so small employers should ensure the SBC is provided to avoid a potential penalty.

All employers, including small employers, will be required to meet the “non-discrimination” rules, which say that employers must make identical contributions toward health insurance coverage for all non-collectively bargained employees, and may not contribute higher amounts to higher wage employees.  (“Higher wage employees” for purposes of the non-discrimination provision is defined as (a) one of the five highest paid officers, (b) a shareholder who owns more than 10% of the stock of the employer, or (c) among the highest 25% of all employees.)  An employer may be subject to a fine of $100 per day for failure to comply.  The provision was originally set to go into effect on September 23, 2010; however, in December 2010 guidance was handed down that delayed implementation until after further regulatory guidance is issued.  It is anticipated that the guidance ultimately provided will not apply until plan years beginning a specified period after the guidance is provided, in order to provide time to implement any changes required as a result of the regulations.

Small employers are exempt, however, from several reporting requirements under the Affordable Care Act, including:

W-2 reporting of aggregate Health Care Costs. Small employers are currently exempt from the requirement that employers report the aggregate annual costs of employer-provided coverage for each employee on the Form W-2.

Health Insurance Coverage Reporting Requirements. Beginning with coverage provided on or after January 1, 2014, employers who are subject to the shared responsibility rules (50 or more full-time or full-time equivalent employees) must provide the IRS with information about its full-time employees’ coverage under the employer’s plan, and the cost of benefits provided. Small employers are not currently subject to this reporting requirement.

The Affordable Care Act, as originally enacted, contained provisions that would have required all employers, regardless of the number of employees, who offered minimum essential coverage to its employees and paid a portion of the cost, to provide “free choice vouchers” to employees who met certain criteria.  However, this provision of the Act was repealed when President Obama signed into law the Department of Defense and Full-Year Continuing Appropriations Act on April 15, 2011.   Section 1858 of the Appropriations Act repealed the majority of Section 10108 of the Affordable Care Act, which included all of the language related to the free choice voucher program.

While small employers are for the most part currently exempt from the requirements of the Affordable Care Act, additional regulations are being developed to further define and clarify its sweeping terms.  Given the current state of uncertainty, a small employer would be wise to watch for any changes that may affect them.

Naomi Cromwell
Tieszen Law Office, Prof. LLC

View – PPACA – Sumary of Impact on School District Employers.pdf

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