Employers with 25 or less employees

Forms and Regs button Videos Other resource links

Important Dates for Small Employers

  • November 15, 2014 - February 15, 2015 - Individual enrollment period
  • November 15, 2014 - Submission of annual enrollment count (For health insurance issuers and Self-insurers)
  • November 15, 2014 - SHOP online enrollment opens, businesses can enroll throughout the year in either SHOP or Private Exchanges. 

Starting in 2014, the Affordable Care Act ushered in numerous regulations that affect all businesses. These regulations will vary depending on employer size. Businesses classified as a "Large Employer" are determined to have more than 50 full-time equivalent employees, whereas "Small Employer" businesses have less than 50 full-time equivalent employees. Under the ACA, employees that work an average of 30 hours per week (130 total monthly hours) are considered full-time. Businesses should use caution when calculating their full-time employee number since part-time employment is also calculated into the final determination number.

Whether you choose to offer health insurance coverage (or not) affects your business model. It affects your allocation of part-time versus full-time employment, compensation/benefits plan, and employee retention and attraction. 

Consult with an attorney, accountant, human resource (HR) consultant, insurance agent, or other advisors when making decisions regarding employer-sponsored health coverage.

►The Health Law Guide for Business offers an Employer Responsibility Flowchart to assist the business owner in making a decision to offer coverage or not.

►The Affordable Care Act requires businesses to pay special attention to Employee Retirement Income Security Act (ERISA) regulations.  Even though your business may not provide retirement plans, ERISA regulations also cover health care benefits.  Check with an attorney to make sure your company guidelines, employee handbooks and other employer communication tools are in compliance.  See also section on Whistleblower protections.

Business Decision Points

What are the costs and benefits of offering, or not offering, a small group health plan for your employees? Answer these questions to help determine whether or not to offer a small group health plan that is best for your business, and your employees.

♦ Talk with your employees about insurance coverage options.

♦ Is it part of your business culture and strategy to continue offering or begin offering health insurance to your employees? What are the consequences of not having insurance? Get feedback on these questions from those that are impacted by your decision.

♦ How difficult is it for you to attract and retain employees?  What type of insurance option will you offer that retains and attracts qualified candidates/employees? Is it needed?

♦ Talk with insurance brokers/agents about your available options and visit the SHOP Marketplace to see what is available in your state.  Seek advice from your tax advisor.

♦ Assess your industry and competition. How is your competition responding to the ACA? Can you develop a competitive edge through costs, employee retention/attraction?

♦ Evaluate financial (costs) and non-financial impacts (i.e., HR compliance reporting), now and into the future.

ADP Research surveyed small employers concerned about compliance issues.

♦ Set a budget. What can you afford, what can your employees afford?

♦ Communicate with all your employees, early!
 

Small Employer Qualifications

To ensure that you meet the 25 full-time equivalent employees or less threshold, use a full-time equivalent calculator such as the Health Law Guide for Business' online FTE-calculator or contact your tax advisor or accountant.

Combining companies under common ownership. For employers that have multiple entities (such as an owner having several restaurants or multiple businesses) the IRS aggregation rules governing control groups apply to the ACA employer determination. This ruling states that all employees of businesses which are under common control are treated as employed by a single employer. If this applies to your business, read more:

Definitions

  • Full-time employees (FT). FT employees work on average at least 30 hours per week or 130 hours per month. When determining the average, use a Measurement Period of not less than 3 months but no more than 12 consecutive months and divide the total hours by the measurement period. For example, an employee has 960 service hours over a six-month measurement period, averaging 160 hours per month. This employee would be classified as full-time since the monthly average is greater than the ACA criteria of 130 hours.  FT seasonal employees are to be added to your FT count only if they had more than 120 days of service hours during the measurement period.
    • Section 4980H defines the employ criteria as having service hours versus hours worked. Service hours include not only hours when work is performed but also hours for which the employee is paid and/or entitled to payment when no hours are worked (i.e. vacation, paid leave).
  • Part-time employees (PT). Hours worked by PT employees are converted to full-time equivalent (FTE) employees by combining all of the hours worked by employees with less than 30 average hours per week and dividing the total by 120. For example, you have 10 PT employees who worked 25 hours per week for a total of 250 weekly hours over the measurement period.  To obtain the FTE, multiply the 250 weekly hours by 4 weeks for a total of 1,000 monthly hours.  Divide the 1,000 monthly hours by 120 to get your 8 FTE employees. (10 employees * 25 hours = 250 weekly hours * 4 weeks = 1,000 monthly hours/120 = 8 FTE)
  • Seasonal exception. Seasonal employees who work full-time for 120 days or less do not affect the full-time count. This ruling may change beyond 2014.
  • Ownership Exemptions. When determining hours and wages, sole proprietors, partners in a partnership, shareholders owning more than 2 percent of an S-corporation and any owners of more than 5 percent of other businesses are disregarded, as are their family members (Source: Health Law Guide for Business)
  • Foreign-based employees.  Generally, employees working overseas will not have hours of service performed in the United States and are not be included in the full-time calculations. 

 

Regulations Affecting the Small Employer

Small Business Health Care Tax Credit

RegulationsAs a small employer with less than 25 employees, you are not required to provide health insurance coverage for your employees. However, the ACA has since 2010, provided small business tax credits to employers that have less than 25 employees, have an average annual wage under $50,000 and contribute 50% or more to FT employee's self-only health insurance premiums. 

  • To calculate the average wage, divide the combined wages paid to the employees during the year by the number of FTEs and then round to the nearest $1,000.

The health tax credit provides up to a maximum 35% of the employer's premium cost in (2010-2013).  CHANGE:  In 2014 & 2015, employers that participate in the Small Business Health Options Program (SHOP) may receive up to 50% of the employer's premium costs in tax credits.  Employers with 10 or fewer workers with an average annual wage less than $25,000 (2010-2013), $25,400 (2014) and $25,800 (2015) may qualify for the maximum tax credit. The credit is on a sliding scale and disappears for firms with more than 25 workers or those that exceed the average wage of $50,000.

To see if you qualify now for the small business tax credit, use the IRS 3 Simple Steps Guide or the Health Law Guide for Business' online tax-calculator or contact your tax advisor or accountant. Also, view a slide presentation on calculating your tax credits - Maximizing Health Care Dollars for Small Employers (Source: Fraser Tribilcock, David & Dunlap, P.C.)

  • Tax credits are retroactive.  If you have not claimed your health tax credits, contact your tax consultant to see if you qualify for prior year credits.
  • In 2014 and 2015, the tax credit increases up to 50% if a qualified small business participates in the Small Business Health Options Program (SHOP).  The tax credit is variable, depending on the total number of employees and the average level of income. Employer premium contributions may be tax-deductible on amounts exceeding the tax credit.
  • Small non-profit organizations are also eligible for health care tax credits, if they meet the above criteria.  Tax credit amounts for non-profits are up to 25% (2010-2013) and up to 35% for 2014-2015.

Small Business Health Care Tax Credit for Small Business (Source: IRS.gov)


Affordable Care Act Presentation for Small Businesses from mschlake

Changes in Health Insurance Regulations

Cost-sharing limitations. Any employer-sponsored group health plan, excluding grandfathered plans, must not exceed the limitations set by ACA section 1302(c)(1) for out-of-pocket costs and deductibles, unless employer qualifies as a small group employer. See EBSA FAQ 12.
  • Deductibles. Limitations on insurance deductibles are not to exceed $2,000 for individuals and $4,000 for a family for large group plans.  On April 1, 2014, the Protecting Access to Medicare Act, Section 213 eliminates deductible limits for the small group employer health plans.   Plans must still meet the "minimum value" criteria and cover at a minimum 60% of total benefit costs.
  • Employee Costs. The maximum out-of-pocket costs (copayments and deductibles) are set for 2014 at $6,350 for individuals and $12,700 for families.  For 2015, the rates increase to $6,600 for an individual plan and $13,200 for a family plan.  The HHS final rule applies maximum out-of-pockets costs to all non-grandfathered health plans.   See also, Latest Guidance on the Affordable Care Act's Rules for Out-of-Pocket Limits and Preventive Services Requirements (Source: Segal Consulting)

Essential Health Benefits (EHB). Individual and small group plans must include services in ten Essential Health Benefits (EHB), unless you have a grandfathered plan or meet the Transitional Policy requirements enacted on March 5, 2014 by President Obama.

Defined Contribution Plans.   ACA implemented new regulations and limitations for the Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) .  More information available under Defined Contributions below. 

Small Business Requirement for Employee Notification. If you fall within the Fair Labor Standards Act (FLSA) regulations, you must provide new employees notification of your intent to provide or not provide coverage within 14 days of the employee's start date. For more information read Small Business Requirement for Employee Notification.  The ACA does require employers to provide the Employee Notification to all part-time and full-time employees starting October 1, 2013.  However, at this time, the ACA regulations do not identify specific penalties for failure of notification.  See EBSA FAQ

Summary of Benefits and Coverage Disclosure (SBC). Each employee must be provided a SBC about their plan. See example. The forms will most likely be generated by your group health insurer, but check with them for clarification. For more explanation about SBC, see video produced by Catalistconsulting: Summary of Benefits and Coverage.

90-Day maximum waiting period. Beginning January 1, 2014, employees who are eligible for insurance coverage will not wait more than 90 days for coverage, or companies will face fines. The IRS issued a Guidance Notice to hold the 90-day waiting period in effect until the end of 2014.  Some conditions of employment, such as completing an orientation period or completing up to 1200 hours may qualify as a condition of eligibility, as long as the requirement do not exceed 90 days. 

Medical Loss Ratio Rebates. Starting in 2012, your insurance company must spend at least 80% of premium dollars on medical care rather than administrative costs. If your insurer does not meet this ratio, they are required to provide rebates to you, the policyholder by August 1, 2014 for 2013 policy year or September 30, 2015 for the 2014 policy year. How you treat this rebate depends on many factors and may affect taxable income for you and/or your employees. Consult your accountant if you receive a rebate. See Medical Loss Ratio Rebates - 2014 Update (Source:  LeavittGroup)

Nondiscrimination Rules. Although the regulations have yet to be written, it is anticipated that the ACA will prohibit discrimination of providing health insurance that favors highly compensated employees. The regulations most likely will cover highest paid company officers, shareholders who own more than 10% of stock and individuals within the top 25% paid employees. If found to be discriminatory, the fine may be as high as $100 per day per employee discriminated against, until the error is corrected. Stay tuned for more details. 

Transitional Reinsurance Program Fees. Starting in 2014, all employer-sponsored health care plans will be assessed fees for each individual covered under the plan (including spouses and dependents). Employers who are self-insured and insurers of group plans are required to pay these fees, assessed at $5.25 a month ($63 for the year).  Effective rates for 2015 will be $44 per enrollee, assessed at $3.67 a month per enrollee. Look for these fees to be added to your insurance costs.

  • Reporting and Payment Requirements for 2014 Benefit Year
    • Submission of Annual Enrollment Count - Due November 15, 2014 - October 20, 2014 Notification of instructions
    • First Payment of fees - January 15, 2015 ($52.50 per covered life; or $63.00 per covered live (full payment))
    • Second Payment of fees - November 15, 2015 ($10.50 per covered life)

The Transitional Reinsurance Program - Reinsurance Contributions (Source:  CMS.gov)

Patient-Centered Outcomes Research Institute (PCORI) fees. PCORI is a nonprofit center established in the ACA that will promote the use of evidence-based medicine and practices. To fund PCORI, the ACA imposes a fee on health insurers and employer self-funded plans. The fee will be $2 per covered life for policies ending prior to October 1, 2014 (payable July 31, 2015 ).  The PCORI fee for policies ending before October 1, 2015 will be $2.08 per covered life, due July 31st  2016 (IRS Notice 2014-56).  Payment will be filed under IRS Form 720.  Look for these fees to be added to your insurance costs.

PCORI & Reinsurance Fees - Keeping Them Straight (Source:  Society for Human Resource Management)

Wellness Programs. Beginning January 1, 2014, the ACA expands the incentives to promote employer wellness programs and encourage healthier workplaces. The proposed rules increase the maximum permissible reward under a health-contingent wellness program from 20 percent to 30 percent of the cost of health coverage, and further increase the maximum reward to as much as 50 percent for programs designed to prevent or reduce tobacco use. See EBSA Fact Sheet, Final ACA Regulations on Workplace Wellness Programs Released (Source: The Bailey Group) and ACA Updates Nondiscrimination Rules for Wellness Programs (Source:  ACAWatch).

Tax Rate Changes. Due to ACA regulations, new employee withholding rates were implemented on January 1, 2013. If you are unsure about your current withholding rates, check with your accountant, IRS Notice 1036 or IRS Affordable Care Act Tax Provisions. A net investment income tax was also implemented in 2013. Rates for 2015 are highlighted in article, Income Subject to FICA Payroll Tax Increases in 2015 (Source:  SHRM)

Coverage with Current or Grandfathered Plan:

If you currently offer health insurance coverage to your employees, you can choose to stay with your current plan and work with your insurance advisor or broker to meet new ACA guidelines.   Plans that were placed into service prior to March 23, 2010 are considered grandfathered plans. These plans are not subject to many of the ACA law changes. Review your existing plan, check with your insurance company, and refer to the article, "What if I have a grandfathered health insurance plan?" for consumer protections your plan must or need not have to qualify as a grandfathered plan. 

UPDATE:  on March 5, 2014, President Obama announced a two-year extension to the transitional policy that allows individuals who have ACA noncompliant insurance policies to keep their current policies for individual and small group health plans.  The extension allows insurance companies to continue to renew non-compliant ACA policies on or before October 1, 2016.  Depending on the policy year, this may extend these non-compliant insurance policies into 2017.  However, some insurers have already elected to discontinue noncompliant policies.  (See Transitional Policy Changes)

More details are available on Grandfathered plans in the 50 or more category on this website.

If you choose to offer your current plan, you will not be eligible for health care tax credits that could be applied toward your premium payments in 2014.  To qualify for the health tax credits, you must purchase employee health coverage through SHOP Marketplace.

Back to top

SHOP Coverage

If you choose to provide health insurance coverage in 2015, you can enroll at the online SHOP Marketplace, starting November 15, 2014.  Work with your broker or agent to complete the enrollment process, see instructions.

To quality for SHOP, you must have an office within the service area of the SHOP and offer the SHOP coverage to all your FT employees. For federally-funded SHOPs, the minimum employee participation rate is 70% of your FT employees.  This may be different in state-run SHOPs. NOTE: Business owners are eligible for the group insurance and are included in the count for participation rates.

In preparation of enrollment, start to gather your information now and use these helpful SHOP guides: 

SHOP Hotline

Employers eligible for SHOP can call 1.800.706.7893 for SHOP questions, available in English and Spanish. TTY users should call 1.800.706.7915. Call center hours - Monday through Friday, 9:00a.m. – 7:00p.m. EST

Acceptance. An employee has a choice to accept or decline your coverage once it is offered. If an employee declines your offer, they can buy coverage in the individual Marketplace. If the coverage offered met the minimum value and was affordable, the employee that declines may not qualify to save money on monthly premiums or out-of-pockets costs on their individual Marketplace plan (See SHOP guidelines). If your employee declines your offer, you are under no obligation to pay a portion of their monthly premiums. However, strategically it may be beneficial to your business to do so. Again, work with your accountant and have a budget.

Back to top

Member-owned CO-OP

Non-profit health insurance cooperatives, called Consumer Operated and Oriented Plans (CO-OPS) are authorized under Section 1322 of the ACA law.  They are an alterative to the individual and small business exchanges operated by state and federal governments.  The CO-OPs are formed as nonprofits and controlled by and operated on behalf of their members.  There are 24 CO-OPs authorized across the United States.  CoOportunity Health, based out of Des Moines, Iowa is authorized for Nebraska and Iowa and will open for business on October 1, 2013.  CoOportunity Health provides services for:

  • Individuals & Families
  • Small Groups - PPO & HSA-qualfied plans
  • Mid-Size or Large - PPO, Defined-contribution plans 

The objective of the CO-OPs is to create a new competitor to help drive down local consumer costs.  Profits made by the CO-OP must be used to lower premiums, improve benefits or sustain programs that with enhance the quality of health care to its members.  There are concerns about the long-term viability of the CO-OPs since they are designed for the higher-risk individual and small business markets.

Concerns

There are concerns about the long-term viability of the CO-OPs since they are designed to operate in the riskier individual and small business insurance markets. Key will be to find a rapidly growing CO-OP that has a sufficient health provider network to meet your employees' needs.

Back to top

Defined Contributions

In a defined contribution health plan the employer provides tax-free contributions to employees to be used toward their health care. The employer can choose to set up one of three contribution plans:

Health Reimbursement Arrangement (HRA).  An HRA is funded solely by the employer and reimburses an employee for medical care expenses incurred by the employee, and dependents, up to a maximum dollar amount for a coverage period. A tax-exempt trust or custodial account is set up with a qualified HRA trustee to pay for qualified medical expenses that are above the High Deductible Health Plans (HDHP) minimum deductible amounts (2015 rates - $1,300/single, $2,600/family). HRAs must be integrated with an eligible employer-sponsored group health plan; HRAs for employees purchasing individual market coverage will not qualify. (See IRS Notice 2013-54) . HRAs can be designed to best meet the needs of the employees and employers.

Health Savings Accounts (HSA). HSAs are savings accounts established by individuals and their employers. HSAs are used to pay for qualified health care costs. The account is owned by the employee. The employee is responsible for maintaining a balance and determining how to spend the monies. HSAs can only be used with a qualified High Deductible Health Plan (HDHP) with at least a $1,200 deductible for an individual plan or $2,400 deductible for a family plan (2014 levels).  Minimum deductables increase in 2015 to $1,300 for an individual and $2,600 for a family plan NOTE: For the small-group employers, the Protecting Access to Medicare Act passed on April 1, 2014 removes the deductible limits.  The maximum out-of-pocket costs (not including premiums) increase to $6,450 for individual and $12,900 for family.  The HDHP must meet the ACA affordability and provide the essential health benefits mandated by the ACA. To offset out-of-pockets costs, the employer and employee contribution limits increase in 2015 to $3,350 for an individual and $6,650 for a family. These funds do not expire and account balances can build.  Note:  For employees under 65 (unless totally and permanently disabled) who use the HSA funds for nonqualified medical expenses will incur a 20% penalty of the funds used.  The funds used for nonqualified expenses will also be subject to income tax.   Furthermore, limitations are in place for children covered by the HSA-HDH:

  • Child must have the same principal living address as the covered employee
  • Child does not provide for more than half of their own support during the taxable year
  • Child is not yet 19 (or, 24 if a student)by the end of the tax year, or is permanently and totally disabled (Source:  Society for Human Resource Management)

Additional information on HSAs:

Flexible Spending Account (FSA). FSAs are employer sponsored accounts that can be used to reimburse participants for qualified medical expenses. Both the employer and employee may make contributions to this account through payment deductions. FSA contributions are pre-tax monies. FSAs have an annual "use or lose it" rule.  For 2015, tax-free contributions will be limited to $2,550 per employee for the year.  See video on Flexible Spending Accounts (Source: Humana). UPDATE 10/31/13 - The IRS issued Notice 2013-71 that became effective immediately to allow individuals to carryover up to $500 each year OR to option for a grace period option giving employees 2 1/2 months extension to spend the remaining FSA funds.  Employers may choose to offer this to their employees, it is not a mandatory ruling.   Because of the change, employees may now be more interested in using FSAs to reduce out-of-pocket costs.

Concerns

Employers who make contributions to a HRA, HSA or FSA will not satisfy the minimum essential health benefits requirement as defined under the shared responsibility provision. Employers will need to evaluate the different costs and configurations of combining high deductible plans, metal levels plans, no coverage, defined contribution plans and/or health tax credits. How the plans fit with human resource goals should also be considered.  

Back to top

No Coverage

As a Small Employer with less than 25 employees, you are not required to provide health insurance coverage for your employees. You are however asked to comply with the Small Business Requirement for Employee Notification within 14 days of the employee's start date.  This is not a mandatory notification required by law.  However, it may be beneficial to your employees should they choose to purchase health insurance coverage privately or through the individual Marketplace. For more information about the individual marketplace, see the Self-Employed category on this website.

Back to top
 

Disclaimer

Information provided here is from a variety of resources managed by government agencies, professionals, organizations, and non-profits. The information is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal or state tax penalties.

There is no implied or intended endorsement by UNL Extension of any website,  information, or videos provided within this website. Nor is there any implied endorsement by the creators of the information and videos used within this website to UNL Extension.  Use of the information is for educational purposes only and is designed to serve as a starting point for you to further discuss your business options with an attorney, accountant, human resource (HR) consultant, or other advisor who is well-versed in the new health care regulations.

UNL Extension ACA Team

For questions or additional information, email:  ACAbizNE@unl.edu

Phone:  Marilyn Schlake (402.472.4138); Carroll Welte (402.374.2929); Jim Crandall (308.995.3889); Charlotte Narjes (402.472.1724)

 

Other business types
Self employed businesses
25 or less employees
50 or less employees
50-or-More

IRS Determination for Small Business Health Care Tax Credit

(Source: IRS) 

To enlarge, click on the open square in the lower right corner of the video.