Affordable Care Act Requirements for Small Businesses

Posted July 12, 2018 by Justworks in Keeping Compliant
The Affordable Care Act (ACA) was passed in 2010, but the requirements for businesses still apply today. These requirements apply based on the number of employees a company has. Learn how you can stay compliant.

The Affordable Care Act (ACA) was enacted way back in March of 2010. As a refresher, the goals of this health care reform law were to make affordable health insurance available to more people, expand the Medicaid program, and lower the cost of healthcare in general.

For business owners, it’s important to understand the basic requirements of the ACA for both small employers (SE) and applicable large employers (ALE).

In this article, we’ll discuss those requirements in more detail.

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ACA Requirements for Employers

The requirements of the ACA apply based on the number of employees a business had in the prior calendar year. That total number is calculated as follows:

  • Number of full-time employees = The number of employees who provide services an average of 30 hours or more per week, or 130 hours or more per calendar month.
  • Number of full-time equivalent employees (FTEEs) = a combination of all non full time employees that, when aggregated, are equivalent to a full-time employee.
  • To calculate, total the number of hours worked by all non-full-time employees for the month and divide by 120.
  • E.g. If 2 part-time employees each work 15 hours per week, so 60 hours per month, the total hours for the month for these 2 employees is 60+60= 120. Then divide by 120. 120 ÷ 120= 1. These 2 non full-time employees are 1 FTEE.
  • Number of employees = The number of full-time employees plus the number of FTEEs.

Regardless of the size, all employers offering an employer-sponsored group health plan must report the cost of health care benefits on each employee's Form W-2 at the end of the year. The amount, which includes both the portion paid by the employer and the portion paid by the employee, must be reported in Box 12 with Code DD.

Other requirements of the ACA, however, are dependent on the size of the business. What are they?

Small Employers May Be Eligible to Purchase Insurance through SHOP

A small employer (SE) is defined as having at least 1 and as many as 100 employees, depending on the state where the business is located.

The Small Business Health Options Program (SHOP) marketplace is for small employers who want to provide access to health and dental coverage for their employees. Small businesses with 1–50 employees are generally eligible for SHOP.

In 2018, the enrollment process for SHOP coverage was updated. There are now two options:

  • Enroll with your insurance company. Pick a SHOP plan, apply, enroll, manage coverage, and pay premiums through an insurance company without using HealthCare.gov.
  • Work with a SHOP-registered agent or broker. You can use your current agent or broker or find a new one, as long as the agent or broker is authorized to sell SHOP insurance.

Small Employers Must File Forms 1095-B and 1094-B

Every SE that provides minimum essential coverage (MEC) to at least one of its employees must complete Form 1095-B for each employee and give it to the employee before March 31.

All of these forms, along with the transmittal Form 1094-B, must be submitted to the IRS by February 28 (or by March 31 if filed electronically). MEC is defined in the IRS Instructions for Form 1094-B and 1095-B.

Applicable Large Employers Must File Forms 1095-C and 1094-C

An Applicable Large Employer (ALE) is defined as having an average of at least 50 full-time employees, including FTEE, during the previous year.

What makes ALE reporting different from SE reporting? An ALE must report any coverage it has provided to each employee and also report on Form 1095-C every offer of coverage that it has made.

Transmittal Form 1094-C is much more complex - you can learn more on the IRS page, Information Reporting by Applicable Large Employers, and the Instructions for Form 1094-C and 1095-C.

In order to have the information necessary to complete these forms, an ALE must be equipped to track the following each month:

  • Whether it "offered full-time employees and their dependents minimum essential coverage that meets the minimum value requirements and is affordable."
  • Whether or not the employee enrolled in the coverage that was offered.

Lastly, it’s also advisable for ALEs to check out the resources provided by the IRS in order to comply with the requirements of the ACA.

If you’re new to the ACA, consider this blog post just a jumping off point. There’s a lot to tackle. As always, consulting with employment counsel is a best practice.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.