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Blog

Health Care Coverage and Small Business

October 6, 2015

Once again small business is the goat. As much as the politicians profess how wonderful it is that the United States economic structure continues to provide ample opportunities for the small business to succeed and grow, the law givers construct stumbling blocks.

I suppose one question might be what one considers a small business. There are a variety of measurements that one might use- amount of property, sales volume, or number of employees, among others. Let us look at the last unit of measurement mentioned, number of full-time employees. I suspect that if I want to ask the readers to define their concept of small business and its number of employees I would receive a response of about seven to fifteen full time employees.

Under one particular governmental measure the point at which the employer moves beyond small business is fifty full-time employees. Certainly fifty employees is a relatively small number compared to those publicly traded companies with which we are so familiar, managing and accounting for up to fifty individuals requires considerable effort and cost.

Why is this distinction between small and not small business so important? The reason for the concern is that under the Affordable Care Act (ACA) the small business, as of June 30, 2015 may no longer qualify as satisfying the health coverage requirements of the ACA by offering their employees health coverage through arrangements constituting an employer payment plan. This type of plan would ordinarily pay or reimburse employees for individual health policy premiums or Medicare Part B or Part D premiums. The penalty for not meeting the ACA requirements is $100 per employee per day. Even with only two employees in violation the penalty would be $73,000 per year.

We would like to assume all small business readers at this point have been made aware of the risk and have taken appropriate steps to circumvent this penalty. But if not- How do we avoid this result? The employer would need to acquire ACA approved health plans, or plans acquired through Small Business Health Option Program (SHOP).

Another possibility is to have an individual Health Savings Account to which the employee or employer can make tax favored contributions. There are some limitations, a major one being that the employee be covered by a high deductible health plan. An alternative would be to reimburse the employee and call it taxable wages. There goes a long established fringe benefit that even small businesses enjoyed. The final alternative would be for the small business employer to do nothing, and the employee to do nothing. As most are aware, the individual employee without minimum essential health care coverage is subject to a minimum penalty of $95 per 2014, $325 per 2015, $695 per 2016 and an inflation adjusted amount after that.

It would seem that with the aggressive penalty structure, the small business employer and employee will have to resort to the choices for health care coverage under the ACA, at least until Congress speaks again. There is currently bi-partisan legislation before Congress to once again make the employer payment plan, or HRA (Health Reimbursement Arrangement) an acceptable eligible plan for the small business. This would go a long way to restoring the idea that small business is a treasured form of doing business in the United States. Stay tuned.

   

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