The Affordable Care Act Part 12 – Small Employers

Small Employers

The Affordable Care Act defines “small” as those with fewer than 50 full-time employees (FTEs). Small employers are exempt from the ACA “play-or-pay” penalties. There are, however, incentives to some small employers to offer health care coverage to their employees.

Small Business Health Options Program (SHOP)

While the initial availability date may vary by state, a Small Business Health Insurance Program, or SHOP, that offers small businesses and their employees new choices will become available in each state. Through the SHOP, employers will be able to offer employees a variety of Qualified Health Plans, and their employees can choose the plans that fit their needs and their budget.

Starting in 2014, SHOP or a merged SHOP and individual Health Insurance Marketplace may be offered in your state. Businesses with up to 100 employees will be eligible, although States can limit participation to businesses with up to 50 employees until 2016.

When fully implemented, SHOPs are intended to help small businesses by:

  • Simplifying Choices: SHOPs will provide side-by-side comparisions of Qualified Health Plans, their benefits, premiums, and quality.
  • Expanding Employee Options: SHOPs will enable small businesses to offer their employees a choice of Qualified Health Plans from several insurers, much as large employers can.
  • Preserving Employer Control: Small businesses will be able to decide whether and when to participate in SHOP. It will be possible to choose how much the business will contribute toward employees’ coverage, and make a single monthly payment via SHOP rather than to multiple plans.
  • Lowering Costs: SHOP has the potential to save money by spreading insurers’ administrative costs across more employers. In addition, a small business may be eligible for small business tax credits when it offers health coverage for its employees through SHOP.

Small Business Tax Credits

Small businesses with 25 or fewer full-time equivalent employees and average annual wages below $50,000 may receive a tax credit for offering health insurance to their employees and contributing at least 50% of the cost of the premiums. Beginning in 2014, the credit is up to 50% of the employer contributions (35% for tax-exempt businesses) and is available for two consecutive years for employers that purchase the coverage through a SHOP/Health Insurance Marketplace.

The credit varies by employer size and average wage…employers with 10 or fewer FTEs and average wages of $25,000 or less receive the full 50% credit (35% for tax exempt), with the credit gradually phasing out as number of employees and average wages increase.

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