Between the myths and the hype, the implementation of the Affordable Care Act (AFA or Obamacare), remains one of the top concerns for small business owners.
What will it cost?
How will it affect my bottom line?
What about all the red tape?
All of these questions are valid concerns. The key to understanding what Obamacare will mean for your cash flow is understanding which provisions of the Act affect you, whether to opt into them and how to plan for any impact on cash flow.
Here’s what you need to know.
What the Affordable Care Act Means for Small Business
Let’s look at the facts.
Much of the initial panic over Obamacare and its impact on small business hiring and cash flow may be overblown. For starters, very small businesses—those with fewer than 50 full-time workers—are exempt from a key provision of the Act which requires that larger employers must offer health care insurance (known as the Employer Shared Responsibility). According to CNBC, that leaves some 96 percent of all U.S. businesses off the hook.
In addition, if you have less than 50 full-time employees and do choose to offer insurance, starting on January 1, 2014, you can use the Small Business Health Options Program (SHOP) to access lower-cost coverage offered by private insurance companies. In essence, SHOP creates a level playing field for smaller businesses that traditionally couldn’t find affordable coverage because insurers were reluctant to take on a small insurance pool. With SHOP, these businesses can get up to a 50 percent subsidy on coverage.
Note: Although, health coverage through SHOP starts as soon as January 1, 2014, you can enroll now and begin coverage any time after January 1, 2014.
Other AFA cost savings come in the form of tax credits. Qualifying businesses (those with less than 25 full-time equivalent employees making an average of about $50,000 a year or less) can also take advantage of the small business health care tax credit worth up to 50% of your premium costs (beginning 2014 the tax credit is available only for plans purchased through SHOP).
If you have more than 50 full-time employees, you are required to offer insurance, although employers can offset some of the cost of the premium by passing it along to the employee. The truth is, according to government data, 96 percent of businesses with 50+ workers already offer health plans! Get more facts from Healthcare.gov.
Some employers may find that employees don’t sign up for coverage, choosing to enroll in the Health Insurance Marketplace instead. Younger employees may also stay on their parents plans or decline coverage entirely because they are in good health.
Note: If you are self-employed, SHOP won’t apply to you. Instead, you can use the Health Insurance Marketplace for individuals & families
How Will the Affordable Care Act Affect Your Cash Flow?
For most small businesses, the law won’t be as painful as first feared but it’s important to know what to expect with your business’ health care premiums. Here are a few steps you can take to get answers:
- Talk to your insurance agent or broker and be sure to fall back on them to help you comply with the form-filling and reporting aspects of the law.
- If you already offer employees coverage, determine whether SHOP is a better option for your business’s finances.
- Talk to your tax advisor about credits. Your tax advisor can also help you understand your eligibility for the Small Business Health Credit and ensure you don’t incur any penalties for non-compliance.
- Get assistance from the government. If you have questions about the SHOP marketplace and have fewer than 50 employees, take advantage of the government’s free hotline. Call 1-800-706-7893, Monday through Friday, 9 a.m. to 7 p.m. EST. The Small Business Administration also blogs regularly on the topic and hosts webinars to help small businesses understand the law and its impact on them. Visit SBA.gov/healthcare for details
Next, set a budget and decide how much you can afford to contribute towards your employees or your health care plans. You are only required to pay what you can afford. Don’t forget to factor in any tax credits to your calculation.
Remember, small businesses with less than 25 full-time employees are not required to offer health insurance; however, it’s an attractive benefit that can help boost your appeal to potential employees and retain existing ones.
The Bottom Line
Do your research now to prevent any cash flow issues down the line. Determine whether you are going to offer this benefit to employees. Where will you buy coverage from (SHOP or directly from an insurance provider)? What credits are you eligible for? Get informed.
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