Notebook titled "Affordable Care Act"

ACA Impact on Businesses

The Employer Shared Responsibility Provisions of the Affordable Care Act (ACA) require companies with over 50 full-time employees to offer minimum essential health care to at least 95% of their full-time-equivalent employees or pay a penalty. Whether an employee is considered full-time depends on the number of hours they work.

This legislation left business owners deciding how to balance their workforce between full-time and part-time employees. As a result, economists anticipated a trend in 2015 following the onset of this new law, with businesses leveraging more part-time employees to avoid being required to offer healthcare to them in an effort to manage their operational costs.

The ACA also offers tax credits to small businesses that aren’t required to offer healthcare, but still choose to. The Small Business Health Options Program (SHOP) is a marketplace of healthcare plans tailored for small businesses, and the ones that take advantage can put some money back in their pocket.

There are many pros and cons to the Affordable Care Act and now, years after it was first passed, we’ll take a look at what impact this provision actually had on the American workforce.

ACA Penalties for Employers

The IRS defines a full-time employee as “an employee employed on average at least 30 hours of service per week, or 130 hours of service per month.” This left business owners deciding whether or not to reduce employee hours below that amount.

The reason this decision was so critical for business owners was because the provision also includes penalties to be paid per employee by the business in certain scenarios. This meant weighing the cost of paying those penalties against the cost of offering them healthcare, which, for some companies and industries, is expensive and varies from month to month.

Shared Responsibility Payments

There are two types of healthcare options at play: those available through the company and those available on the ACA marketplace. Individuals who utilize plans from the ACA marketplace are eligible for a premium tax credit.

Put simply, if an employee chooses to leverage the ACA marketplace rather than the healthcare options from their employer, the company they work for gets penalized. How they are penalized depends on if they offer healthcare to 95% of employees or not.

If they don’t, their first 30 employees are excluded but, after that, a $2,000 penalty is imposed for each employee, regardless of how they get their healthcare.

For example, Company ABC has 100 employees and offers healthcare to 60 of them. Since that’s below 95%, Company ABC owes a penalty. After we exclude the first 30 employees, there are 70 employees remaining. The fee of $2,000 applies to all 70, totaling to $140,000.

Companies that do offer minimum essential coverage to at least 95% of employees are still subject to a penalty if at least one of their employees opts out of the company-sponsored health plan and receives the premium tax credit for purchasing a plan through the ACA marketplace. This is a fee of $3,000, but only for the individuals who utilize the ACA marketplace.

For example, let’s say Company ABC has 100 employees and offers healthcare to 95 of them. If one person leverages the ACA marketplace for healthcare – because the coverage isn’t sufficient, they can’t afford it or they aren’t included in the 95% offered healthcare through the company – then Company ABC owes a total of $3,000 in shared responsibility penalties.

Analyzing the Trends

Research has shown that businesses in all industries remained mostly unchanged in terms of how their workforce was composed. Rather than reducing part-time employee hours and increasing the number of workers, businesses largely aimed to keep their workers and maximize their hours. The number of full-time employees actually increased slightly while the number of part-time employees decreased slightly.