There has been a lot discussion recently regarding the recent Supreme Court ruling that upholds the Affordable Care Act (Obamacare) and how it affects individuals – it is now the law of the land that individuals are generally required to have health insurance starting in 2014 or pay a penalty. However I have not seen much discussion on what Obamacare means for small business owners. Small business owners have struggled with the cost of health insurance for themselves and their employees as prices of health plans continue to skyrocket each year. In fact, the percentage of small firms with 10 to 24 employees that offered health insurance decreased from 77% in 2001 to 71% in 2011. And only 48% of smaller firms with three to nine workers offered insurance in 2011, a 10% drop in the past decade.
Businesses such as sole proprietors or others that have no employees are treated in the same manner as individuals with respect to the insurance mandate. If you are in this category, especially if you are younger, you may not even have any coverage currently because of the high cost. Starting in 2014 failing to have health insurance will result in penalty (or a tax as the Supreme Court determined). The top annual penalty will ultimately be $695 or 2.5% of income, whichever is greater.
Considering that many insurance plans can cost at least that much or more for an older individual, many small business owners may consider paying the penalty if they don’t want to buy health insurance.
Although businesses are not required to provide insurance for their employees businesses with at least 50 full time employees (part time employees are not counted) will face a penalty if they fail to provide coverage. To avoid the penalty the insurance must also provide minimum benefits and the premiums charged to the individual employees must be deemed “affordable.” The insurance premiums cannot exceed 9.5% of the employee’s household income to be considered “affordable.” The penalty for violating this requirement will be $2,000 for each full-time employee in excess of 30 full-time employees not provided “affordable” coverage (there is no penalty for not covering part time employees). Employees who cannot afford to pay for the insurance may be eligible for a subsidy.
Small businesses with less than 50 full time employees may be eligible for a tax credit if they provide health insurance. The credit is limited to 5 years and is subject to a phase out and other limitations.
It is obvious that the provisions of the Affordable Care Act are very complex and will have significant impact on all small businesses. As a small business owner you need to prepare yourself to incur substantial costs in 2014 and beyond. Failing to plan will result in incurring additional and unnecessary costs and penalties (or, if your prefer – additional taxes).