What is the Affordable Care Act (ACA), how does it affect small businesses, and how do California employers benefit? Learn all about it here.
The ACA in California
The Affordable Care Act (ACA) is credited with implementing the most significant healthcare reform in the United States since Medicare and Medicaid. Given that the ACA has helped provide health insurance to 20 million Americans who would not otherwise have it, you might be wondering how it might impact your small, local business in California.
The ACA has made it possible for small businesses across California to access equal, affordable, and high-quality healthcare for themselves and their employees. Because of the ACA’s ongoing development, nearly 4.7 million Californians have been able to access health care benefits through Medi-Cal and Covered California since March 2016.
In this article, we’ll explain how the ACA affects all Californians and how it may impact the responsibilities and premium expenses of your local business. We will also discuss the benefits of the ACA for small businesses and examine how it can offer qualifying companies tax credits and incentives to help them succeed.
What Is The ACA In California?
The Affordable Care Act, also known as “Obamacare,” is a law signed by President Barack Obama in 2010. It’s often referred to as “Health Care Reform” throughout the media. The official name is “Patient Protection and Affordable Care Act,” seen under public law 111-148.
The ACA’s main goal is to reduce the cost of health insurance and make healthcare more accessible and affordable across the United States. It has increased the responsibilities of insurance companies to justify costs and take on greater insurance risks, which has also increased consumer protections.
For instance, providers are now required to insure individuals with chronic or pre-existing medical conditions at no additional cost, and all premium increases exceeding 10% must be reviewed by the state or the federal government. This enables those who might not have previously been eligible for insurance to now have access to high-quality medical treatment.
Under the ACA legislation, insurance companies are required to spend at least 80% of their premium dollars in ways that provide greater healthcare benefits for consumers. This is achieved through the use of profit expenditure laws, maximum profit limits, and rebate mandates.
The ACA also established The Small Business Health Options Program (SHOP), an online marketplace where small business employers can compare and purchase group health insurance. This improves insurance availability and transparency, making it easier for Californians who were previously unable to afford it to obtain affordable health insurance.
As of 2014, the ACA allowed the state of California to expand Medicaid to include low-income individuals under 65 who were previously ineligible for insurance. The ACA has also successfully increased the number of Californians eligible by setting a new income eligibility threshold of 138% of the federal poverty level.
With the implementation of the ACA, businesses and their employees have had to adapt to new standards and policies. Employers need to ensure they comply with the ACA’s requirements to avoid penalties, and they also need to consider how they can provide the best health insurance options for their employees while staying within budget.
California ACA Employer Responsibilities
As a California business owner, it’s important to stay up to date on the key changes and ongoing updates of the ACA, as it can impact your company in a variety of ways. Revised responsibilities for employers include providing affordable health insurance options, ensuring your coverage meets minimum requirements, reporting information, and complying with tax laws.
To avoid penalties or legal issues, and support your employees’ healthcare needs, consider working with a tax professional for guidance and support. Here are a few key legal provisions that small business owners should be aware of:
Provide Employees With Information About The Marketplace
All California employers covered by the Fair Labor Standards Act (FLSA) are now required to share information about the state’s Marketplace with their employees, regardless of whether they offer health insurance or not. This information includes the availability of coverage through the Marketplace and the possibility of receiving financial assistance.
Employers must notify their employees of the availability of Marketplace coverage at the time of hiring, and each year thereafter. The notice must include information about the coverage offered (if any) by the employer, as well as information about the Marketplace and the availability of financial help available.
Employers who offer health insurance to their employees must also provide them with a standard Summary of Benefits and Coverage (SBC) that outlines the cost-sharing, coverage limits, and other important details of the health plan. The SBC must include information about deductibles, copayments, out-of-pocket limits, and other important features of the plan.
The SBC must be provided at various times, including at the time of hiring, when there are changes to the plan, and upon request. Overall, these requirements are aimed at ensuring that employees have access to clear and accurate information about their healthcare options, and can make informed decisions about their coverage.
Employer Shared Responsibility Payment
The “Employer Shared Responsibility Payment,” often known as the “Employer Mandate,” is a requirement of the ACA that will apply to some Californian small businesses. This mandate requires businesses with at least 50 full-time or full-time equivalent employees, to offer a minimum standard health insurance coverage to their employees and the employees’ dependents.
Not meeting these standards will incur the business with a paid penalty for each full-time employee who receives a premium tax credit or cost-sharing reduction through the Marketplace. The penalty amount is established on the number of full-time employees and the length of time the employer was not compliant.
Overall, the employer shared responsibility payment is designed to encourage businesses to offer affordable health insurance to their employees and to ensure that employees have access to quality healthcare coverage.
Flexible Spending Accounts (FSAs)
Employees can use Flexible Spending Accounts (FSAs) to set away pre-tax income to help cover specific medical expenses. Under the ACA, employers now have two options to help their employees carry over any unspent FSA funds into the following plan year.
First employees can choose to roll over a maximum of $610 in unused health-related funds into the following plan year. Alternatively, companies can provide employees 2.5 months at the conclusion of the plan year to use the remaining funds from their FSA. With this option, any funds not used after the grace period would be forfeited.
Overall, both alternatives are intended to help employees in maximizing the most of their FSA benefits while minimizing their risk of losing any unused funds at the end of the plan year. Employers should think about which option is ideal for their workplace and clearly convey the rules of their chosen choice to their employees.
How Small Businesses Benefit From The Affordable Care Act
The ACA has provided profitable benefits for small businesses in California through new rebates and improved wellness incentives. Here is a detailed outline of the advantages small businesses may now qualify for under the ACA legislation:
Employers implement Workplace Wellness Programs that support healthier workplaces. The ACA encourages businesses to participate in employee wellness programs focusing on health improvement in addition to their group health insurance.
Employers implementing wellness programs focusing on improving their employee health can now receive rewards up to 30% of the cost of health insurance. For initiatives aimed at preventing or lowering tobacco use, the maximum incentive is now 50%.
Improved wellness incentives will result in lower insurance premiums and reduced healthcare costs for both employers and employees. This will also prevent and manage expensive chronic health conditions and promote healthier lifestyles and longevity.
Small Business Health Care Tax Credit
Employers who enroll through SHOP can qualify for this tax credit to avail lower premium costs. The Small Business Health Options Program (SHOP) is designed to help small businesses in California with only 1 to 100 full-time equivalent employees in providing insurance coverage to their staff.
The ‘Small Business Healthcare Tax Credit’ is an additional benefit for small businesses who enroll in SHOP insurance under the ACA legislation. This credit is only offered to companies with fewer than 25 employees or to tax-exempt employers, and its amount is scaled according to the cost of premiums paid and the number of employees.
The credit is a sliding scale, with small business owners being able to receive up to 50% of the premiums paid, and small tax-exempt businesses being able to receive up to 35% of the premiums paid. Generally, the smaller the business, the bigger the credit.
Medical Loss Ratio Rebates
Employers provide a group health plan but insurance companies don’t spend at least 80% of premium dollars on medical care. So, they can receive premium rebates.
As previously mentioned, the ACA mandates insurance companies to spend at least 80% of their premium dollars on medical care services that benefit the consumer. The Medical Loss Ratio Rebate is the percentage of premium dollars that an insurer spends on claims and quality improvement activities.
If an insurer spends less than the required percentage on these activities, they must provide rebates to policyholders. The rebates are typically paid to the employer for group plans.
Employer group plans can then distribute the rebate to employees or use it to reduce future premiums. This ensures that insurance companies are held accountable for providing cost-effective and quality healthcare services to their customers.
How Does It Work If You Already Have Employee Health Insurance?
Even if your California business already offers health insurance through SHOP, it is still required to provide detailed information to employees about marketplace options.
This requirement of the ACA is in place to help employees make informed decisions about their healthcare coverage and to ensure that they have access to all available options for obtaining affordable insurance.
Let Us Help Your Business Thrive & Comply With Affordable Care Act
The ACA has benefited small businesses in California by providing assistance in navigating the complex healthcare system and improving access to equitable and affordable healthcare for all residents.
Our team at J.R. Martin & Associates can help small businesses take full advantage of the benefits offered by the ACA, including determining eligibility for tax credits and guiding through reporting requirements.
We ensure that businesses are following all ACA rules and regulations, saving on healthcare costs, preventing penalties, and providing employees with the healthcare they deserve.
Our firm can help small businesses comply with any relevant provisions of ACA. Talk to us about our premier tax resolution services today!