By Entrepreneur & Innovation Student
Since 2010, there is probably no topic that has been more hotly debated than “Obamacare.” Obamacare, also known as the Patient Protection and Affordable Care Act (ACA) was designed to provide affordable health care to as many U.S. residents as possible. Over the last six years, the ACA has been slowly implemented to give individuals and businesses in America the time they need to adjust to the new health insurance industry standards and requirements. Almost the entire bill is nowimplemented. That means that businesses across the country could be facing big changes in regards to the health care coverage that they offer their employees and the costs associated with those changes. Whether you are starting a business or growing a successful one, it is important to understand the costs and obligations associated with choosing to offer health benefits to your employees.
1. Understanding The Employer Mandate
Maybe the most frequently discussed feature of the ACA is the employer mandate. The employer mandate requires companies of a certain size to provide health care benefits to its full-time employees. Specifically, the ACA requires that “large employers” provide “minimum essential coverage” to at least 95% of its full-time employees. With the latest provisions of the ACA being rolled out this year, the federal definition of a “large employer” is one that employs 50 full-time equivalent employees.
Counting to 50
This number is a bit misleading on its face, as 50 full-time equivalent employees is a more complicated calculation than simply counting to 50. To start, an employee who works an average of 30 hours a week will be considered a full-time employee. In addition, part-time employees’ hours will be counted as fractional hours towards the large employer trigger. To calculate these fractional hours, a company must take the average number of hours worked by part-time employees and multiply that by the number of part-time employees. Dividing the product of those numbers by 30 will give you the additional number of full-time employees that the company must count towards the large employer trigger. If math isn’t your thing, TriNet provides an online calculator for employers to determine whether or no they are a “large employer”. The consequences of this kind of calculation means that employing a lot of part-time employees could lead to putting you over the 50-employee minimum for large employers and thus trigger your company’s obligations under the employee mandate. It is important to note, however, that the employer mandate simply requires an employer to provide minimum essential coverage to 95% of its full-time employees, not the part-time employees whose hours counted towards the employer mandate trigger.
Consequences of Non-Compliance
For a growing start-up that is constantly hiring new talent, this issue could pop up sooner than one might think. So, it is important to understand that non-compliance with the employer mandate can result in financial penalties for your company. If an employer is subject to the employer mandate but does not offer health coverage to its employees, it can be subject to a $2,000 fine for every full-time employee, so long as one-full time employee is receiving a federal subsidy for coverage on one of the ACA’s healthcare exchanges. Obviously, if you have many full-time employees this could be a huge fine. Yet, due to the way this fine is calculated, many smaller to medium sized companies with full-time employees have found it more cost effective to simply pay the imposed fines rather than taking on the costs of providing healthcare to its employees.
2. Professional Employer Organizations (PEOs)
For the growing startups in places like Silicon Valley, employers are using Professional Employer Organizations (PEOs) like TriNet which are human resource companies that are attempting to help growing startups with the administrative hassle and costs that come with managing functions such as employee benefits. As most entrepreneurs would attest, they do not want, nor do they have the time to manage an employee benefits program. Companies, like TriNet, are there to ensure that entrepreneurs are in compliance with all the federal and state laws governing employee benefits. PEOs can also help entrepreneurs focus on their core business while allowing the PEO to implement a competitive benefit package to attract better talent to the company.
3. Talk to Your Employees
So what is the deal for small companies that are not anywhere close to having 50 full-time employees on their payroll? Well, the answer is simple, those companies are not required to provide healthcare for their employees. In this case, it might be a good idea for the employer to speak to its employees about their options on the ACA’s healthcare exchanges. If you are a small employer and you are not offering a very large salary, it is very possible that your employees could qualify for a federal subsidy on the healthcare exchanges. If the employee’s income falls within 400% of the federal poverty level they would qualify for one of these federal subsidies to receive health coverage.