The Patient Protection and Affordable Care Act of 2010, otherwise known as "Obamacare" or the "Health Care Law," affects small and large businesses in several ways. How the health care law affects your business depends on the number of people you employ, either full time or part time (not counting independent contractors).
Businesses that employ fewer than 25 full-time equivalent (FTE) employees may be eligible to receive a small business health care tax credit for providing health care coverage to employees. First, you must determine the number of full-time equivalent (FTE) employees, including each part-time employee as a percentage of a full-time employee. Then you must cover at least 50 percent of the cost of health care coverage for some of your employees, based on the single-person rate, and you must pay average annual wages below $50,000. If you meet all of these qualifications, you must apply on IRS Form 8941 (PDF) to receive the tax credit when you file your business tax return.
For Larger Employers
The implementation of the employer mandate described in this section has been delayed until January 1, 2015.
The health care law doesn't "require" larger employers to provide health care to employees, but beginning in 2014 the law imposes penalties on businesses with over 50 employees that don't provide "affordable" health care to employees. Here are the details of this portion of the law:
- Starting January 1, 2015, large businesses (those with 50 or more full-time workers) that do not provide adequate health insurance will be required to pay an assessment if their employees receive premium tax credits to buy their own insurance. These assessments will offset part of the cost of these tax credits. The assessment for a large employer that does not offer coverage will be $2,000 per full-time employee beyond the company's first 30 workers.
- To be deemed "affordable," the health care insurance provided by the employer must pay for at least 60 percent of covered health care expenses, and employees may not be forced to pay more than 9.5 percent of their family income (before deductions and adjustments) for coverage offered by employers. The question of how an employer is supposed to know the amount of "family income" is not yet addressed.
- If a business fails to provide any coverage or the coverage is deemed not to be affordable, the amount of the penalty is $2,000 per worker, but the first 30 workers are excluded from the calculation.
Minimum acceptable health care plan
To avoid the penalty imposed on larger businesses, the health plan they offer their employees must meet a minimum acceptable requirement. The U.S. Department of Health and Human Services (HHS), on their healthcare.gov site, describes a "comprehensive package of items and services, known as “essential health benefits.” Essential health benefits must include items and services within at least the following 10 categories: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, including behavioral health treatment, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services, including oral and vision care."
Largest employers - over 200 employees
The Affordable Care Act requires the largest employers (those with over 200 employees) to automatically enroll new employees who are eligible for the company's health care plan. An employee must opt out if he or she doesn't want this coverage.
Self-employed Business Owners
Self-employed individuals may be eligible to take a tax credit for the cost of health care for themselves and their families. Before 2011, this tax credit could be taken against income taxes and also self-employment taxes (Social Security and Medicare taxes), but effective January 1, 2011, the tax credit can no longer be taken against self-employment taxes.
Read more about the self-employed tax credit.
Timeline for Provisions
Some of the provisions of the new health care law went into effect in 2011. The major provision affecting businesses is the requirement that employers must report the value of health benefits on employee W-2 forms. But the IRS has issued a delay in this reporting requirement.
- Employer reporting on cost of employee health care premiums was not required for 2011.
- Smaller employers(those preparing fewer than 250 W-2s) do not have to include employee premium costs on 2012 W-2s (those prepared in 2013).
For more information on the requirements of the Affordable Care Act for employers, go to the HHS's Healthcare.gov site.