Affordable Care Act Countdown: Pros and Cons for Small Business

Here are a few highlights, at a glance, of Obamacare -- including key pros and cons associated with the new reforms.

The Affordable Care Act, enacted in 2010 by the US Congress, aims to put people “back in charge of their health care. Under the law, a new ‘Patient’s Bill of Rights’ gives the American people the stability and flexibility they need to make informed choices about their health,” according to the U.S. Department of Health and Human Services.

FOXBusiness reports, “Beginning Oct. 1, any business with at least one employee and $500,000 in annual revenue must notify all employees by letter about the Affordable Care Act’s health-care exchanges, or face up to a $100-per-day fine. The requirement applies to any business regulated under the Fair Labor Standards Act, regardless of size. Going forward, letters are to be distributed to any new hires within 14 days of their starting date, according to the Department of Labor.”

With less than 100 days to go until the new health insurance marketplace launch, proponents of the federal health care reform law are kicking outreach efforts into high gear. While, the requirement that all Americans obtain health insurance goes into effect Jan. 1, 2014, Oct. 1 marks the opening of the new marketplace created by the Affordable Care Act.

The rationale behind the act is to increase health coverage among Americans and to lower the cost of healthcare. A provision in the act mandates Americans to maintain “minimum essential” health insurance coverage.

Non-compliance with the healthcare insurance mandate will subject an individual to IRS assessment and payment. However, for purposes of debate, a number of Supreme Court justices made it clear that this penalty is not in the nature of a tax, but rather, is a penalty. Yet regardless of how you look at it, it appears to be a tax because the government would reach back into the pockets of countless Americans who choose not to comply.

Here are a few highlights, at a glance, of Obamacare — including pros and cons associated with the new reforms:


Affordable Care Act: Pros

For small business owners, the Affordable Care Act may not be as bad as it looks. There are a number of benefits that the act provides.

A considerable advantage is that it provides tax credits to small business with under 25 employees to help offset the cost of insurance premiums paid. Individuals are also entitled to the tax credit — a specified deduction on an outstanding tax balance.

Also, not all businesses are required to procure the mandatory health insurance coverage; only those with more than 50 employees are required to procure health care insurance. Thus, the new law impacts only 4% of businesses in the U.S. given 96% of small businesses fall below the 50-employee threshold. However, you can opt to procure coverage given the law provides for a lower health insurance premium starting on January 1, 2014.

Additionally, an employee who procures health insurance is entitled to a government subsidy. This means that the government will redistribute the costs among all taxpayers when an individual procures health coverage.


Affordable Care Act: Cons

Businesses with 50 or more employees that do not comply with the new mandate will face high penalties — $2,000 for each full-time employee, with a 30-employee deduction threshold.

U.S. News Money reports, “The law says employer-offered health insurance is not affordable if the cost to purchase coverage totals more than 9.5 percent of an employee’s wage income per a W-2 statement. This test applies to even the lowest-paid qualifying employee.” So, ‘Employers offering health benefits will face a tax penalty of $3,000 for every full-time employee who receives subsidized coverage through an exchange,’ ADP says, ‘and who would have been required to pay more than 9.5 percent of their wages toward self-only coverage under the employer’s lowest cost plan that provides minimum value.'”

Cash crunched small businesses will undoubtedly be impacted greatly given they are required to procure insurance coverage for employees who work for more than 30 hours per week. The impact could be far reaching such as retrenchment, lay offs or decreased work-day hours to save on overhead expenditures and tighten belts due to the new mandate. This expenditure will in effect, will become a new ‘and required’ operating expense.

Starting January 2014 individuals and businesses, required to have insurance, who do not procure coverage will have to pay a penalty deducted from their taxable income — gross income minus allowable deductions and exemptions provided for by the law.

After deductions, your net income is where the tax enters. For example, if your income is $5,000 per month, after deductions and exemptions, the number arrived at would be $1,500, this amount will receive an imposed tax. Thus if you do not comply with the new Obamacare law, a penalty will be deducted from your net income; which simply means your income after taxes (i.e. take-home income) will decrease.

That being said, business owners and individuals alike can expeect more changes in 2014 and onward. Overall, the Affordable Care Act has proved to be a divisive issue with lawsuits pending and proponents pushing forward.

Learn more about the Affordable Care Act here.


Joy Mali is an active finance blogger who is fond of sharing interesting finance related articles to encourage people to manage and protect their finances.


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