How The Affordable Care Act Affects Start-Ups
Dan Levenson May 10, 2016
The Affordable Care Act, known colloquially as Obamacare, provides the infrastructure through which individuals and businesses in the US can buy health insurance. Since its implementation in 2014, the law has allowed over 10 million people to access health insurance that they might not have otherwise been able to afford. It has also helped thousands of small businesses to provide health insurance to their employees.
In addition to providing access to health coverage, the ACA imposes new obligations on both individuals and businesses. These new obligations and opportunities are relevant to start-ups at every stage of their development.
Start-ups affected by the ACA are split into four categories: single-person startups, businesses with fewer than 25 employees, businesses with between 25 and 50 employees, and businesses with over 50 employees. A fast-growing start-up may go through all of these stages rather quickly.
Many start-ups begin their lives as a single person with special skills. Individual business owners can purchase health insurance through the individual healthcare marketplace, regardless of whether they operate as sole proprietors or have incorporated into a LLC. Individuals who live in the US and do not meet any of the individual mandate exceptions must have health insurance or pay a fee.
Self-employed people can receive tax credits to pay for some or all of their health insurance premiums. The federal government targets tax credits towards people with a Modified Adjusted Gross Income (MAGI) that fall between 138% and 400% of the Federal Poverty Guideline. For an individual in 2016, this range is $16,242 to $47,080. Individuals can decrease their MAGIs by contributing to a tax-deductible retirement plan. Individuals whose income falls below the minimum can use Medicaid if they live in a Medicaid-expansion state.
Start-Ups with Fewer than 25 Employees
Businesses with more than one employee can use the Small Business Health Options Program (SHOP) to buy coverage for their workers. SHOP provides small employers with increased purchasing power to help them provide better coverage. The SHOP marketplace eliminates the need for businesses to negotiate with health insurers in order to get a plan.
In addition to having access to SHOP, some employers with fewer than 25 employees can claim the Small Business Healthcare Tax Credit. The tax credit provides businesses with a refund of 50% of their contribution to their employees’ health care premiums. In order to qualify, a company’s average salary must be less than $50,000 and the employer must pay at least 50% of its employees’ premiums. Employers do not have to offer coverage to dependents or to employees who work fewer than 30 hours per week to get this tax credit.
Start-Ups with Between 25 and 50 Employees
Start-ups with between 25 and 50 employees are not thought to be as much in need as those with fewer than 25 employees. Much like companies with an average annual salary of $50,000 or more, these larger businesses cannot claim the small business tax credit. They do retain access to the Small Business Health Options Program and can continue to benefit from SHOP’s negotiating power.
Start-Ups With 50 or More Employees
Larger employers, specifically those with at least 50 employees, do not have access to the Small Business Health Options Program. However, they do have responsibility to provide health insurance to their employees. These larger start-ups are subject to the Employer Shared Responsibility Provisions of the ACA. If these employers do not offer affordable coverage to those employees who work at least 30 hours per week, they may be required to pay a fee if one or more of their employees purchases individual health insurance from the marketplace and gets a premium tax credit.
The Affordable Care Act provides start-ups with access to affordable health insurance for their employees. It also imposes some requirements on employers. The types of tax credits and marketplace access available can change as a start-up grows.
Of course, there are exceptions to these general rules, and the requirements can vary depending on the circumstances of each individual business. For more information about providing health insurance to your employees, please contact us.