Friday, November 22, 2013

The Afforable Care Act (AKA Obamacare) - How it affects the self-employed and small business owners

Most of my clients are small business owners.  In addition to voicing frustration about cancelled health insurance plans and exchange failures, many of them have expressed their confusion about how the new health care law impacts their businesses.  There has been significant news coverage regarding the very lengthy text of the Affordable Care Act (“ACA”). You may be surprised to learn that in addition to the law itself, there are thousands of regulations being promulgated in connection with it.  The result is a complicated web of legal requirements. Regardless of your thoughts about the functionality of the website or the exchange websites, if you are a self-employed person or small business owner, you should be aware that the ACA has provisions which will impact your business. The following is neither a comprehensive overview nor intended as legal advice, however it should provide you with some helpful information as you navigate this new law and the regulations that flow from it.

Some of the below information applies to both small businesses and self-employed persons so this article addresses both. Small businesses owners should review both sections.  The ACA is rolling out in stages between 2013 and 2014. 


Some of the provisions that may impact self-employed individuals include:

Provisions Affecting Individuals
In 2014, the Individual Shared Responsibility provisions require each individual to have health insurance coverage, qualify for an exemption, or pay a fee/fine [1] when filing their federal income tax return. Individuals will not have to make a payment if coverage is unaffordable, if they spend less than three consecutive months without coverage, or if they qualify for an exemption for several other reasons, including hardship and religious beliefs. Under the ACA “minimum essential coverage” required includes: Employer-sponsored coverage (including COBRA and retiree coverage), coverage purchased in the individual market, Medicare Part A coverage, Medicaid coverage, and various other government plans applicable to veterans and children, etc.

Individual Insurance Marketplaces
Speaking of controversy:  As we are all well aware, the roll-out of the online insurance marketplace websites has been near disastrous.  It is unclear whether they will be fully functional in time to meet the deadlines.  As of the date of this post, the Covered California site is not functioning properly.  The marketplaces for individuals and small businesses should be in place by January 1, 2014.  Open enrollment was supposed to commence on October 1, 2013. The individual health insurance marketplaces should offer four different levels of benefit packages. Individuals and the self-employed persons may qualify for individual tax credits and subsidies on a sliding scale, based on income. 

Medicaid Expansion
If you are self-employed and reading this, you likely are not eligible for this type of coverage.  However, each state operates a Medicaid program that provides health coverage for lower-income people, families and children, the elderly, and people with disabilities. The eligibility rules for Medicaid are different for each state, but most states offer coverage for adults with children at some income level.  In addition, under the ACA, states have the option to expand Medicaid eligibility.

New Tax on Investment Income
Commencing January 1, 2013, a new tax (about 4%) will be assessed on persons earning net investment income.  Income subject to this tax includes income from certain capital gains, dividends, rents, royalties, and interest.  It applies to taxpayers with Modified Adjusted Gross Income over $200,000 for people filing single and $250,000 for married people filing jointly. I suspect my clients are not fans of this new tax.

Small Business Owners

For people employing fewer than 25 employees, the following is a summary of some key items that affect you and your business:

Health Care Tax Credits
A small business Health Care Tax Credit may be available to your company if you employ “low- and moderate-income” employees[2].   Generally, businesses that have fewer than 25 full-time employees and that contribute 50% or more toward their employees’ health insurance premiums may qualify for a small business tax credit of up to 35% to offset some of the costs of insurance.  In 2014, this tax credit increases to 50% and is available to “qualified” small business employers that participate in the Small Business Health Options Program (SHOP).

The SHOP program is open for enrollment now and can be found here:

I have not tested the site and I have no information as to whether it has the same functioning problems that exist with the individual site. Employers with up to 50 employees should be able to access and use the SHOP site. 

Mandatory Employer Notice to Employees
Hopefully you didn’t miss this deadline! On October 1, 2013 all employers covered by the Fair Labor Standards Act (employers with over $500,000 in revenue a year) were required to give written notice to their employees about the ACA Health Insurance Marketplace.  This notice also must be provided to all new hires after October 1, 2013.  The Department of Labor has posted model form notices that you can use.Cut and paste this link for reference:

Increased Medicare Withholding for Higher Wage Earners
Commencing January 1, 2013, the ACA increases the employee portion of the Medicare Part A Hospital Insurance withholding by .9% (up from 1.45% to 2.35%) on single filer employees with incomes of over $200,000 and $250,000 for employees who are married filing jointly.  It is your obligation as an employer to withhold this additional tax, so check with your payroll company for compliance. The employer portion of the tax will remain at 1.45%.

Reduced Waiting Period
If your company decides to offer coverage, employees will no longer be required to wait more than ninety days before their coverage commences. 

New IRS Reporting Requirements
In 2015, the ACA requires employers who sponsor employee self-insured plans to submit new reports to the IRS detailing information for each covered individual. Employers should file their first report in 2016.  The reporting rules are not yet completed so be sure to keep abreast of this requirement in the coming year.

The ACA is riddled with issues and problems. The regulations flowing from it continue to grow and change-thereby impacting your business. It would be wise to request periodic updates from your accountants, payroll vendor, insurance representatives and attorney(s) so that you do not miss, or continue to miss, reporting and/or notice requirements as they arise.

[1] Whether this fee is a fine, tax or penalty is the subject of extensive legal and political debate.
[2] Average annual wages of $50,000 or less

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