The Impact Of The ACA On Small Business Owners

Eric Lee’s excellent article on the consequences of the Affordable Care Act (ACA) on married taxpayers is an outstanding examination of how this law affects a very select, but rather small portion of American taxpayers (approximately 2.9% of all married couples have taxable income of $250,000 or more). Businesses, additionally, making over $250,000 in profit must pay a .9% increase on the current Medicare part ‘A’tax on that portion of their income over that amount. The tax is split (.45% each) between the employer and employees making over $200,000 individual or $250,000 family.

About three quarters of all U.S. business firms, however, have no payroll. Most are self-employed persons operating unincorporated businesses, and may, or may not, be the owner’s principal source of income. Since nonemployers account for only about 3.4% of business receipts, they are not included in most business statistics, for example, the majority of Economic Census reports. In 2008, there were 21,351,320 nonemployer firms in contrast to 5,930,132 employer firms.

Individuals now have the opportunity to obtain health care insurance at rates substantially lower than large corporations during the health insurance exchange (marketplace) open enrollment periods along with the assistance of a tax credit system. In June, the Office of The Assistant Secretary for Planning and Evaluation of the Department of Health and Human Services released a report, which examined the cost of premiums for individuals:

• Individuals who selected plans in the Federally-facilitated Marketplace (FFM) with tax credits have a post-tax credit premium that is 76% less than the full premium, on average, as a result of the tax credit reducing their premiums from $346 to $82 per month.
• 69% of individuals selecting plans with tax credits in the FFM have premiums of $100 or less after tax credits, nearly half (46%) have premiums of $50 or less after tax credits.
• Individuals choosing silver plans in the FFM tended to select lower premium plans, 65% chose the lowest or second lowest cost silver plan.

The Affordable Care Act (ACA), however, does have a significant impact on all small and medium size companies and their employees. For the first time in its history, the United States gives almost all of the citizens the opportunity to be covered with health care insurance. The New England Journal of Medicine released a study estimating that 10.3 million uninsured adults gained health care coverage following the first open enrollment period in the Health Insurance Marketplace.

Tens of million of people who previously were excluded from coverage due to pre-existing conditions, gender discrimination, or because they became sick and were dropped from coverage, are now able to acquire and afford health care insurance. Millions upon millions of people, who previously were uncovered have already signed up for coverage, many for the very first time.

In the 2014 Small Business Health Care Survey, conducted by National Small Business Association, the number one factor that business owners had in determining how, or if, they offer or purchase health insurance was “cost of plans.” Small business owners have had a much harder time providing themselves and their employees with insurance due to rising health insurance costs. A 2006 report showed the nation’s smallest firms pay an average 18% more in health insurance premiums for the same benefits than those in the largest firms.

96% of all business firms in the United States, or approximately 5.8 million out of 6 million total firms, have under 50 employees. The ACA provides small businesses with affordable insurance options, cost assistance and increased buying power by means of the SHOP exchanges—the Small Business Health Options Program. These exchanges are state specific, online marketplaces, where employers can purchase employee insurance in a controlled market, giving them the same buying power as larger firms.

Businesses with less than 25 full-time employees can apply for tax breaks of up to 50% of their contributions to employees’premiums. To qualify, these businesses must pay for at least 50% of their employees’premiums and their workers’average annual wages can not be more than $50,000 a year (adjusted for inflation starting in 2014). The ACA offers small businesses with less than 25 employees big tax breaks to provide quality health benefits to employees.

Small businesses with over 25 full time employees will not have access to the same tax breaks as those businesses with less than 25 employees. Tax credits are available for small businesses on a sliding scale, depending upon the number of employees and average annual wages.

Note that companies with less than 50 full time equivalent employees are also exempt from the employer mandate, while businesses with 50 or more employees are exempt from the fee on their first 30 full-time employees. This greatly reduces the negative affect the law could have on those businesses that just barely qualify as a large firm.

Small employers can see up to a 50% reduction in their share of the cost of employee premiums. The amount that employers do pay is tax deductible and can be carried forwards or backwards. As a result, small employers are now able to offer better quality benefits to employees due to the increased benefits, rights and protections afforded by the ACA.

Small business employers who do not owe tax during the year can carry the credit back, or forward, to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

With few exceptions, The ACA provides a means where most small business employers and their employees can now acquire health care insurance for themselves and their families, at affordable rates with the desired level of coverage and benefits, which suit themselves. Small businesses can now offer the same health care benefits to its employees that their largest competitors offer at rates that are equal to, or lower, than them. New employees now may join small companies without fear that health insurance will not be available. The dread of non-coverage, with its horrendous consequences in the case of a sudden illness, can now be eliminated.

The Affordable Care Act is complex, comprehensive, and not entirely operational, yet, but from the studies of what has been implemented, each enacted phase is producing surprisingly positive results in terms of enrollment and an reduction in overall costs. Small business owners can embrace the law.