Affordable Care Act
Small Business Guide
NATIONWIDE RETIREMENT INSTITUTE®
Small businesses and
the Affordable Care Act
Health insurance reform and insights into employer-sponsored benefits
84% of small business
owners are
expecting
to make changes
to their employee benefits
before 2017.1
1
Nationwide Small Business Owners Survey. Conducted October 2014 with 500 business owners. Results based on those with 50 to 99 employees.
Table of contents
2 Key provisions
4 The employer
mandate
6 Managing costs
8 The future
11How Nationwide
can help
Most small businesses are considering
some type of change because of
the Affordable Care Act.
2
23
%
increase
employee
benefits
fewer or more
% part-time
employees
30
33
46%
change
providers,
plans or options
%
reduce
employee
benefits
37%
ask their
employees to
pay more
Nationwide® is committed to helping America prepare for and live in retirement
with guidance from financial advisors.
The Nationwide Retirement Institute® provides practical thought leadership and comprehensive solutions
to financial advisors and their clients. Through education and insights, client-ready tools and consultative
support, we break down and simplify complex retirement challenges to help advisors and clients plan for a
more secure financial future.
This summary guide is based on the white paper Health Benefit Plans After Reform, Emerging Trends and
Key Considerations by Adam Beck, J.D. from The American College. The white paper is included in the back
of this guide for reference, and it can be found online at nationwidefinancial.com/ACASmallBusiness.
2
More than 100% because employers selected multiple options.
1
The Affordable Care Act
The Patient Protection and Affordable Care Act (ACA), also known as “Obamacare,” was signed
into law in 2010. Its provisions have gradually been going into effect since then. The employer
mandate — a requirement that all employers with more than 50 full-time employees offer affordable
health insurance — is likely to usher in significant changes. Failure to comply with this requirement
can result in a tax penalty.
Experts predict that within 10 years, many Americans will obtain their health insurance not from their
employer but through a public or private health insurance exchange. 3 In the face of such changes,
employers will need to consider the role that other benefits — such as a retirement plan — play as a
means of attracting and retaining employees.
After salary,
employees of all ages value
a generous retirement plan
over
paid
time off
3
4
2
generous
health care
a bonus
guaranteed
retirement 4
Ezekiel J. Emanuel. Architect of Health Law Predicts a Shift Away From Employer Coverage. March 21, 2014.
Towers Watson 2013/2014 Global Benefit Attitudes Survey — U.S. April 2014.
Overview of health care reform
The ACA represents one of the most sweeping pieces of legislation of our generation. While lengthy and
broad in scope, the goals of the legislation can be summed up easily.
At its core, the ACA has three main goals:
1 | Reduce the number of Americans without health insurance
2 | Slow the rate of increases in the cost of health care
3 | Enhance consumer health care protections for insured Americans
Key health care coverage provisions
The ACA features notable changes, such as:
Improving access
to health care
Increasing
consumer protections
Improving quality
and lowering costs
•Creates the public Health
Insurance Marketplace (health
insurance exchanges) to
help consumers comparison
shop providers
•Prohibits health insurers
from denying coverage to
people for any reason,
including health status and
pre-existing conditions
•Health insurers must
pay 100% of preventative
services
•Requires all premiums
be set using “community
rating” rather than medical
underwriting. Plans and carriers
may determine rates using only
one’s age, geographic location,
household size and use
of tobacco
•Prevents health insurers from
charging higher premiums
based on gender and health
status (other than smoking)
•Allows young adults to remain
on their parents’ insurance
until age 26
•Prohibits health insurers
from imposing lifetime limits
on coverage or rescinding
coverage (except in cases
of fraud)
•The law limits annual out-ofpocket cost-sharing to no more
than $6,850 per individual and
$13,700 for a family (2016)
•Plans may not set a dollar limit
on claims that will be paid out
in the course of a year and a
participant’s lifetime as long
as the claims apply to essential
health benefits
3
The employer mandate
The ACA establishes a requirement that all employers with more than
50 employees offer affordable health insurance coverage to full-time
employees. Failure to comply with this requirement can result in a tax penalty.
The mandate for coverage began January 1, 2015 for employers with 100 or
more full-time equivalent employees (FTEEs); it began January 1, 2016 for
those with 50 to 99 FTEEs. The requirement applies to all businesses and
organizations that employ at least 50 FTEEs in a given month. Employers
with fewer than 50 FTEEs are not required to offer health insurance.
Calculating your FTEEs
Full Time Equivalent
Employees per month
=
full-time employees
(30 hours a week)
+
all part-time
employees’ hours ÷ 120
Types of penalties
There are two types of penalties that can be imposed on employers who fail to offer adequate,
affordable coverage.
Penalty for
nonoffering employers
Penalty for
unaffordable coverage
Applies to qualifying large employers
who do not offer minimum essential
coverage to substantially all its fulltime employees and have received
certification from an exchange that an
employee has purchased a plan with a
subsidy. This employer is subject to a
penalty assessed by the IRS.
An employer who offers minimum
essential coverage must also be
deemed to be “affordable.” There are
two tests which must be passed:
•The Minimum Value Test: the plan
must cover at least 60% of the total
allowed costs of benefits
•The Affordability Test: the premium
for the lowest-cost employee-only
plan must not exceed 9.66%5 of
the employee’s household income.
There is a safe harbor provision
that allows employers to determine
affordability by using only the
employee’s W-2 earnings
Federal income tax laws are complex and subject to change. The information in this guide is based on current
interpretations of the law and is not guaranteed. Nationwide and its representatives do not give legal or tax advice.
You should consult your attorney or tax adviser for answers to your specific tax questions.
5
4
Henry J. Kaiser Family Foundation, October 2015.
Understanding the penalty
6
If you have 507 or more full-time
equivalent employees 8
No penalty
YES
Do you
offer coverage?
Does the plan provide
“minimum value?”
YES
(60%+ of the covered
health care costs for a
typical population)
NO
YES
Is the coverage
affordable?
(Less than 9.66% of family
or W-2 income)
NO
Penalty:
$2,160 per FTE
(minus first 30)
applies if one
full-time employee
received federal
premium subsidy
for marketplace
coverage.
NO
Penalty:
Lesser of: $3,126 per FTE receiving subsidy up
to $2,084 per FTE (minus first 30)
The following scenario shows how penalties are calculated.
The penalties are assessed based on months, but to keep it simple we’ll use annual figures.
It’s 2016 and an employer has 80 full-time employees and no part-time employees.
1|
Employer does not provide
coverage at all and at least one
employee received a tax-credit
on the state of federal marketplace:
2|
Employer does provide coverage, but 10
employees got it cheaper and qualified for a
subsidy in the Health Insurance Marketplace:
80 – 30 = 50
50 x $2,160 = $108,000
Maximum is equal to
$2,160 x (80 – 30) = $108,000
10 x $3,240 = $32,400
This scenario is for illustrative purposes only.
6
7
8
Projected 2016 penalties. These penalties are indexed for inflation.
Henry J. Kaiser Family Foundation, October 2015.
50 FTEEs as of January 1, 2016.
5
Strategies for managing the
costs of health insurance
Business owners with more than 50 qualifying full-time employees will
face considerations beyond simply affirming that coverage is offered or
calculating a penalty. Some will continue to offer coverage, others will
adjust wages and some will pay the penalty.
Offering health insurance
Employers will need to make sure their health insurance covers nearly all of their employees and
is considered affordable. It will be critical to monitor the affordability of their plans to ensure that
no full-time employee will be eligible for a tax credit to purchase coverage through an exchange.
Strategies for employers who plan to offer health insurance to help manage costs
Shift some employees to part-time
While part-time employees count toward
the coverage requirement, those working
fewer than 30 hours a week do not have
to be insured.
I ncrease the amount that employees
are required to contribute to their
health insurance
6
•67% of employers surveyed
agreed that their employees would
have to take on greater financial
responsibilities for their health care.9
•Offer a high-deductible plan
with a health savings account
•Increase deductible or co-payments
Convert to a self-funded plan, which
may involve greater risk, but is subject
to fewer ACA requirements
A self-funded plan is not traditional
insurance. Instead, the business pays for
medical claims from a general fund that
includes employee contributions.
elf-funded plans are exempt from these
S
requirements:
•Covering a comprehensive package
of essential health benefits
• Guaranteed issue of coverage
• Guaranteed renewability of coverage
• Medical loss ratio
The cost for employer
health insurance coverage
increased by 25%
from 2009 to 2014 with
the average family
coverage costing
$16,834 in 2014.10
Today, more than 60% of
employer-sponsored plans
are self-funded.10
Not offering
health insurance
Employers may opt to offer other
benefits instead of health insurance,
such as:
Move to a defined contribution model
for health care and related benefits
• 401(k)
retirement plan
• Disability
insurance
mployers could plan for an annual
E
spending increase of a set percentage
each year. This could help control costs
and help employers plan; however, under
this approach, employers could face
unpredicted premium increases.11
• Dental insurance
• Term life insurance
Stop loss insurance can reimburse
for employees’ covered medical
bills after the plan has reached a
predetermined deductible
Pay the penalty
Some employers may determine it’s
economically better to pay the penalty
than to offer health coverage that meets
the ACA requirements.
Employers may increase compensation
to employees and encourage them
to use their own funds to purchase
coverage through the Health Insurance
Marketplace if the company determines
that the penalty plus the increased
payroll spending is less costly than
providing insurance.
ationwide Small Business Owners Survey. Conducted October 2014 with 500 business owners. Results based on those with 1 to 299 employees.
N
Learn more about this and other strategies by reading our white paper by Beck J.D., Adam. Health Benefit Plans After Reform, Emerging Trends and
Key Considerations. October 2014.
11
Henry J. Kaiser Family Foundation and Health Research & Educational Trust. Employer Health Benefits Annual Survey. 2014.
9
10
7
The future of health insurance
and employee benefits
The ACA has created a marketplace where Americans can obtain coverage from
a variety of providers. With the range of options exceeding what most employers
offer, the exchanges may become a desirable alternative.
Employers may shift the benefit picture
If the number of employers offering health insurance declines, as some experts
predict, the implication for other benefit offerings could be significant.12 Employers
will have to compensate their employees in other ways to retain them, such as
salary and wage benefits and/or increasing contributions or matching funds in
retirement plans.
The ACA presents both opportunities and challenges to small businesses.
Smaller employers who aren’t required to offer health insurance may feel
less pressure to offer insurance if they know their employees can find affordable
coverage in the public Health Care Marketplace.
The challenge lies in creating new ways to retain
employees through enhancing benefits packages
above and beyond what’s available to an individual.
Employers need to further incentivize their best
employees to stay with options such as retirement
planning benefits.
8
Top desired benefits
This new era of health insurance has created a shift. Individual consumers can take ownership of
purchasing their health insurance, which in turn offers them greater mobility. The ACA has created
opportunities for entrepreneurs and people wanting to retire early by removing the need to keep a
job just to receive health insurance. Employees rate their employer-provided retirement plan as one
of their top desired benefits.
Younger than 40
most important
Age 40 – 49
pay
pay
generous
retirement
generous
retirement
a bonus
generous
health care
paid
time off
a bonus
generous
health care
paid
time off
important
Employees ranked the top three areas in order of importance, if offered a choice by
their employer.13
12
13
Learn more about this and other strategies by reading our white paper by Beck J.D., Adam. Health Benefit Plans After Reform, Emerging
Trends and Key Considerations. October 2014.
Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S. April 2014.
9
74%
of employees identified their company’s
retirement program as the primary
way they save for retirement.14
In this changing environment, employee retirement
benefits are only going to increase in importance.
Employees are becoming more mobile as a result of
the ACA and employers’ decisions on health insurance.
Because of this, an employer-sponsored retirement plan
becomes a crucial benefit for retaining and attracting
employees — employers also value this option as their
contributions are tax deductible.
10
How Nationwide can help
The Affordable Care Act is changing the nature of the employment relationship and workplace
environment, so employers need to be ready for what lies ahead. A group retirement plan can
benefit your employees and your business.
A quality retirement plan can:
Provide for
employees
Trim your
tax bill
Invest in your
own retirement
A retirement plan is an option
that helps employees now
and in retirement. It’s also an
excellent tool for attracting and
keeping valuable employees,
plus it helps them attain a more
financially sound future.
Establishing an employee
retirement plan may offer tax
benefits because employer
contributions (and often plan
expenses) are generally taxdeductible. The business may
also be eligible for a tax credit
for establishing a qualified
retirement plan.
Invest money for your own
retirement in the plan that’s set
up for employees. A retirement
plan may offer these benefits15:
•Potential growth of
investment earnings
that’s tax deferred until a
withdrawal or distribution
•Reduction of the income tax
bill— now or in the future
•Company matching
ationwide has offered group retirement plans for nearly 40 years, and can
N
help you tailor a plan to meet the needs of your business.
Visit nationwide.com/why-offer-your-employees-retirement-plans.jsp for
more information.
We recordkeep
more than
39,000
plans16
We service
more than
2 million
participants16
We manage and
administer over
$97 billion
in retirement assets16
Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S. April 2014.
Assets withdrawn from a qualified plan may be subject to a 10% penalty tax if withdrawn prior to age 59½ and all may be subject to income tax.
Keep in mind that investing involves risk, so there’s no guarantee investment goals will be met.
16
Nationwide Financial, 2015.
14
15
11
Key employee benefits
Another way to be prepared is to offer top employees a supplemental retirement plan. It offers employees
a chance to save more once they’ve maxed out their contribution to a qualified plan, which can increase
engagement and retention.
•Insurance-based retirement plans can offer employees additional retirement income
and death benefit protection
•Nonqualified deferred compensation plans let key employees defer more current
compensation until retirement
•Supplemental executive retirement plan is an employee benefit designed to establish
an additional retirement option
•
Split dollar plan is a business paid life insurance benefit that provides cost recovery
Nationwide can help you retain top talent with a variety of strategies.
Learn more at nationwide.com/employee-retention.jsp.
An array of group benefits
Nationwide Employee Benefits offers the convenience and flexibility of employer and employee benefits
designed to meet the unique needs of a variety of business owners and their employees.
• Term life insurance can provide peace of mind for employees after the loss of a loved one
•
Dental insurance encourages employees to maintain good oral hygiene
•Disability insurance can protect businesses and their employees against a long- or
short-term disability
•Supplemental accident insurance bridges the gap between an emergency situation and
the financial impact of a high deductible plan or insurance
•
Medical stop loss insurance limits risk while keeping employees safe and healthy
Nationwide provides competitive products with affordable coverage that
allows people to protect what matters most.
Visit nationwide.com/nationwide-employee-benefits.jsp to learn more
about group benefits.
12
Employers
Contact your financial advisor to learn about the
products and solutions Nationwide offers to retirement
plan sponsors.
Financial professionals
For more information about helping clients build a
strong benefits plan, call the National Sales Desk
at 1-800-626-3112.
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specific person. We encourage you to seek the advice of an investment professional who can tailor a financial plan to meet your specific needs.
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