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Health Care Confusion for Small Businesses

© Justaa | - Choices Of A Businessman Concept PhotoThe Affordable Care Act, or ACA, also known as Obamacare, was intended to bring down the cost of coverage for small businesses and encourage them to provide health insurance for their workers. How’s that going?

Things are very confusing and many anecdotally report that their cost savings haven’t materialized (at least to the extent expected). Here are some confusing issues that I’d like to comment on, and hopefully offer some clarity.

Coverage flexibility

The government created a health insurance marketplace exclusively for small businesses called the Small Business Health Options Program (SHOP). Employers who obtain coverage for their staff through the SHOP may be eligible for a 50% tax credit for their premiums (no credit if purchasing coverage outside of the SHOP).

The confusion: The purpose of the SHOPs was to give employees the flexibility of choosing their own plans from a menu of options (as long their plans were within the same metal level, such as silver or bronze). The reality is that there just isn’t a choice in many locations; there is only one option within a metal level. There are no good statistics about signups on the SHOPs but, as discussed in Forbes earlier this year, they appear to be very, very low compared with projections.

The answer: It’s really up to employers to find a health care solution that works best for their staff. This may mean going outside of the SHOP (e.g., accessing private exchanges or directly to insurers). Whatever solution chosen, make sure it complies with ACA requirements for minimum essential coverage and affordability.


ACA requires applicable large employers (ALEs), which are those with 50 or more full-time and full-time equivalent employees, to report health coverage. The form used for this purpose is IRS Form 1095-C. Instructions to this form are provided by the IRS.

The confusion: In 2015, those with 50 to 99 employees are not penalized for failing to offer health coverage. However, they are still considered ALEs for purposes of the information returns.

The answer: Per instructions to the form, all ALEs, including those exempt from the penalty in 2015, must file the form for employees. Failure to do so can result in a non-filing penalty. Owners are advised to speak with their CPAs or payroll providers now to make sure they have amassed the necessary information to complete the forms.

Note: Non-ALEs that offer self-insured health plans, such as health reimbursement arrangements, must file Form 1095-B. Non-ALEs with only insurance coverage for staff do not have to file; the insurance companies complete the forms. Again, if you have to complete Form 1095-B, make sure you have the information that you’ll need to enter (or provide to your CPA or payroll provider for entry).


It has been the practice for many years for some small businesses to reimburse employees for the cost of their individual health coverage rather than providing a company benefit. These small businesses saw it as a cost saver even though the reimbursement is taxable to employees while employer-provided health insurance is nontaxable.

The confusion: The IRS previously concluded that the reimbursement arrangement violates ACA requirements and, thus, triggers a $100 per employee per day penalty. However, back in February, the IRS said  it wouldn’t impose the penalty for reimbursements through June. Potentially, the penalty applies for reimbursements on or after July 1, 2015.

The answer: Many are hoping that the IRS revisits this matter and extends the penalty waiver. Hopefully, Congress can address this problem directly and carve out an exemption ACA rules for these reimbursement arrangements. In the meantime, those who want to reimburse employees can do so safely if the amount of the added compensation isn’t tied to health coverage and employees are not required to buy health coverage with the reimbursements.


Now is the time of the year to focus on getting health care in place for 2016. If you’re confused, experts that can help include:

  • ACA-certified insurance agent
  • CPAs
  • Payroll providers