You thought you could breathe easy when the “get health insurance for all your employees” law exempted companies with fewer than 50 employees.
But then you didn’t read the fine print.
No, there’s still no mandate for your business to insure its employees. But because of some new definitions and regulations the Affordable Care Act has brought about, many small employers are facing increased premiums or, in some cases, being kicked off their plans altogether.
If You’re A Sole Proprietor
Seventy-eight percent of the 28-million-or-so small businesses are sole proprietorships. And while the IRS still considers your zero-employee business a business, the Affordable Care Act does not. For health insurance purposes, a business is now any corporate entity with two or more employees. Which means you no longer qualify for those nice business health plans you were used to getting. This could - and probably does - mean higher premiums and/or fewer benefits than you were getting before.
If You’re Pooling With Other Small Businesses
Perhaps you found strength in numbers, and joined a local small business or trade association to improve your buying power. And while the discounts or lower premiums might have proved financially advantageous for your employees, under the new system those may be a thing of the past.
If the buying organization you belong to is made up of companies with fewer than 50 employees - and those employees are paying separate rates - it will be considered a “small group plan.” Under new guidelines, your insurance company will no longer be able to do things like charge more for riskier candidates, and therefore premiums - for most of your workers presumably - will go up. While for a select few they will go down.
What does this mean? Well, in the face of increased group premiums, you may find your employees will end up with more money in their pocket if you just scrap the plan and let them shop on their own.
If You Hire Independent Contractors
When all the stylists in your beauty salon or brokers in your real estate firm are acting as independent contractors, that whole payroll tax saving thing is great. And until recently, paying these folks to do some sort of service qualified you as an employer, and therefore eligible to participate in small employer insurance plans.
HA! Says the Affordable Care Act. DOUBLE HA!
Now, since those contractors are not full-time employees, you are not considered a small business (unless you’ve got two or more people you still employ as payrolled, full-timers) so your company can’t enroll anymore. Unless you want to switch from a contractor-only employment model to a full-time employment model, you are going to need to find another option.
So, What Can You Do?
Many small businesses, when faced with this dilemma, have opted to scrap health insurance benefits altogether and just give the value of said benefits to their employees as a taxable bonus, then let them find their own plans on the open marketplace. And while this seems like an easy solution, it may create more problems than it solves.
First, that additional money you give them is subject to payroll tax, and as such will cost you more. Your employees have to pay tax on that money as well, which may not matter a whole lot unless the extra money now means they won’t qualify for the ACA’s tax subsidy. In which case the extra money you’re giving them leaves them with less at the end of the day.
Also, you have no guarantee your employees won’t take that money and spend it on big screen TV’s and X-Boxes, which could mean serious trouble for you down the road if one is hurt and won’t get help because he didn’t spend his money where he was supposed to.
If your premiums are increasing, look into meeting with employees and seeing if they are willing to take a small pay cut to continue insurance coverage. This might not go over well, but it could ultimately net them more money anyway.
For sole proprietors, your best option is to go it alone and buy insurance in the marketplace like so many formerly-uninsured Americans. This may increase your premiums from where they were before, but it’s the best route to take.
So, yes, while it’s nice the government isn’t forcing you to pay hefty insurance premiums, you’ve still got some serious headaches. And while none of the solutions are necessarily what you’d prefer, they are however, inevitable. So be prepared, plan accordingly, and talk to your employees about how they want to stay covered without driving you out of business.
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