Small Businesses: Choosing Health Insurance Penalty

After the Affordable Care Act passed last year, a lot of analysts and business owners began discussing the impact that it would have on small business health insurance. The law requires small businesses with at least 50 employees to provide health insurance to their employees who work 30 or more hours per week, on average.

Though it is considered a “requirement,” the alternative is for business owners to pay a $2,000 penalty for every full-time worker beyond the first 30 in lieu of providing health insurance. As it turns out, a number of employers plan on paying the penalty, instead of providing health insurance, as it is a more affordable option for their businesses.

A recent article in the Wall Street Journal cites small business owners who have done the math and determined that it makes more sense to pay the penalty than to provide small business health insurance. There’s a pretty basic formula that you can utilize to figure out what makes the most sense for you.

Write down your total number of employees working at least 30 hours per week and subtract 30 from it. Multiple that number by $2,000, and you’ll have your annual cost in penalties. Compare that number with the cost of small business health insurance and you will have the basis for your decision.

There are alternative methods to get around the problem though, as the Wall Street Journal also talked to employers who plan on cutting down some of their full-time employees to fewer than 30 hours per week in order to classify them as part-time employees. They can then continue to run their business without paying for small business health insurance or facing any legal penalties.

Obviously there are some considerations beyond the basic monetary formulas to take into account, such as employee happiness and what your business can afford. In some cases, cutting down your better employees to fewer hours could cause them to look elsewhere for better work and that could impact your bottom line. Thus, if the finances come out close, you may be better off providing coverage. That premise is backed up by a survey conducted by the National Small Business Association.  The survey found that 71 percent of employers who already offer health insurance, plan to continue providing it; with only three percent intending to opt for the $2,000 penalty instead.

As long as you’re thinking about your small business health insurance now, you have time to figure things out before the law goes into effect.  It makes sense to consult a professional, so contact your Third Party Administrator (TPA) now to go over the scenarios for your specific business situation.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

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