President Obama recently signed the Protecting Affordable Coverage for Employees (PACE) Act. PACE changes the Affordable Care Act’s (ACA) definition of a “small employer.” News was released in December of 2015 that ACA deadlines will be extended.
Businesses with 51-100 full-time employees were supposed to move into the small group market on January 1, 2016. But, with PACE, businesses with 51-100 employees will remain in the large group market.
Originally, the federal government would have considered businesses with 51-100 full-time employees as small businesses to enlarge the pool of businesses in the small group market.
The ACA requires small group health plans to meet certain minimum requirements (discussed below), as well as fill out IRS Forms specific to each business’s ACA classification. The requirements limit health plan options in the small group market. With limited options, businesses that would have entered the small group market on January 1 might have experienced disrupted coverage and higher premiums. The small group market could get tax credits for health insurance if they go through the Small Business Health Options Program (SHOP).
Note: While federal law excludes businesses with 51-100 full-time employees from the small group market, each state can include them if it has its own health marketplace. The decision is left up to each state’s government, so make sure you check your state’s laws.
ACA small group plans
Plans in the small group market must cover 10 essential health benefits:
- Preventive services
- Emergency services
- Ambulatory services
- Hospitalization
- Laboratory services
- Mental health services and treatments
- Rehabilitative services and treatments
- Maternity and newborn care
- Pediatric services
Small group plans must also fit into the ACA’s actuarial value levels and take part in the risk adjustment program. Plans can consider only age, location, family size, and tobacco use when setting insurance rates.
Small group insurance options
Small businesses have three options for health insurance:
- Do not offer health insurance to employees. You can instead direct employees to the individual insurance market where they can get health insurance.
- Buy employee health insurance through the Small Business Health Options Program (SHOP).
- Buy employee health insurance directly from a health insurance company.
You must also provide your employees with a Summary of Benefits and Coverage form. This form explains the offered health care plan and its cost. You may face a penalty if you do not provide this form to your employees.
Small business tax credit
Businesses with 25 or fewer full-time employees might qualify for the Small Business Health Care Tax Credit. The credit only applies to plans purchased through SHOP. To qualify, you must pay employees an average wage of less than $50,000 a year. You must also pay at least half of the employee health premiums.
With the Small Business Health Care Tax Credit, you may be able to receive a 35-50% tax credit. The IRS provides tools to help you estimate your tax credit.
ACA large group plans
Plans in the large group market are not required to meet any of the small group plan requirements. This allows insurance companies to offer a wider variety of plans than available to small businesses.
A business with more than 50 full-time employees should offer health insurance to its employees. A large business may be subject to penalties if it does not provide health coverage or does not provide affordable coverage.
If your business has fewer than 50 full-time employees, but is part of a group that has more than 50 full-time employees, your business is subject to large employer rules.
Large employers must report health coverage information annually to the IRS. You must also provide your employees with a Summary of Benefits and Coverage.
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