With less than two months until the first wave of the Affordable Care Act goes into effect, there’s a lot of buzz around what exactly is meant by “affordable,” especially as it pertains to what small business owners are and are not responsible for providing. It seems as though most sources are unable to provide business owners with a clear and concise guideline for what is expected of them, and this has left small business owners and individuals alike with many unanswered questions.
Businesses that have more than 50 full-time employees will be required to provide “affordable” insurance. “Affordable” insurance must cost the employee no more than 9.5 percent of his/her household income. If they fail to provide insurance, or if the provided insurance is deemed “unaffordable,” businesses will be subject to fines from $2-3,000 per affected employee.
A major cause for concern in the language used under the Affordable Care Act is the term “household income.” A business is only able to account for its employee’s gross income, not that of the employee’s spouse, or other income such as alimony or child support. Due to the unclear nature of the term “household income,” some alternatives have been devised for employers to utilize to avoid incurring penalties.
One option is that employers could simply look at the employee’s W-2 form, and use the amount listed (which deducts deferrals such as 401K, etc.). Another option is to use the federal poverty level guidelines, to ensure the coverage is definitely affordable. However, the uncertainty of other household contributors’ incomes creates a potentially huge disadvantage for employers.
If an employer uses the W-2 option to ensure the insurance they provide is “affordable,” there is no way to be sure that the employee’s spouse isn’t making as much, if not significantly more, than the employee’s annual salary. This provision that seeks to ensure “affordable” healthcare, meaning that which costs the employee less than 9.5 percent of his/her household income, could ultimately cost significantly less than 9.5 percent, exploiting the employer into paying much more than required by law. Similarly, if the employer chooses to use the federal poverty level as a guideline, the employer is potentially picking up the tab for way more of the insurance coverage than necessary.
The ratio of clarity to gray-area involved in the Affordable Care Act has many small business owners concerned and confused when it comes to what’s best for themselves, their companies, and their employees. Do you feel like you’re prepared for the upcoming changes? What aspects of the law-changes do you want to learn more about? Let us know in the comments so we can find the answers you need!