Second Opinion: Do I Have to Cover My Three Employees Under Obamacare?

Jean Scally runs Jeanius Marketing out of her Encinitas home. She wants to grow her business from a staff of one to a staff of two or three, but she’s worried Obamacare will put hiring help out of reach. | Photo Credit: John Rosman, KPBS

By Megan Burks

Love it or hate it, Obamacare is moving forward as law, and that means you need to get in the know about health reform now. We’re here to help. Second Opinion is a weekly Q-and-A series that answers questions from San Diegans on the Affordable Care Act. Ask yours here.

The Question: Do small businesses have to offer their employees health plans under the Affordable Care Act?

Jean Scally runs the marketing firm Jeanius Marketing from her Encinitas condo. She meets with clients throughout the country via a webcam in her home office. The space is peppered with personal keepsakes – signs she’s a Bostonian, a rock climber, a surfer and also a “solopreneuer.”

Photo Credit: John Rosman

That’s what she calls someone who owns and operates her business solo. Scally does it all, with help from the occasional independent contractor.

But she just scored a contract with the Las Vegas Convention and Visitors Authority and is looking to grow from a staff of one to a staff of two or three. She said she’d like to serve the local economy by hiring single moms and veterans, but she’s worried she can’t afford to pay their salaries and health insurance.

Here’s her question:

“How does [the Affordable Care Act] impact small businesses and, specifically, businesses that might use a lot of virtual employees or part-time employees?”

The Takeaway: Businesses with fewer than 50 employees don’t have to offer coverage.

The Affordable Care Act mandates that businesses with 50 or more employees must offer their workers health plans by 2015, so Scally is in the clear. Her employees would be responsible for finding and paying for health insurance themselves.

But the law does try to incentivize buy-in from small businesses with tax breaks for those with 25 or fewer employees. If Scally chooses to insure her new hires, she’d be eligible for a return of up to 50 percent of what she pays toward their premiums.

Here’s how it would work:

Scally would work with a private insurance broker or the state’s insurance exchange, Covered California, to select a level of coverage for her employees and set the percentage of their premiums she’s willing to pay. To qualify for tax credits, she must offer Covered California plans (private brokers can help with these, too) and pay at least 50 percent of her workers’ premiums. Scally’s employees would choose from the menu of plans she’s put together. Scally would pay her portion of the premiums in a single payment to Covered California each month. Any tax credits she’s eligible for would be calculated and paid out when she claims those payments on her taxes.

What will it cost her? We’re not sure yet. Covered California is scheduled to release rates for its small business plans next month. But we can take a look at the math using last year’s average premium for employer-sponsored plans.

Businesses spent an average of $5,615 per individual last year. If Scally covers half of that, she’d pay $2,807.50 per person annually. She’d get back up to $1,403.75 per employee.

Credits will vary.

The 50 percent credit used above applies to businesses of 10 or fewer whose employees make $25,000 or less a year. Generally, as business size and salary go up, credits go down. Nonprofit and tax-exempt business should also expect to see lower credits. And the tax breaks are only available for two consecutive years.

The Orders: Post those job listings.

Scally can grow her business up to 49 employees without having to worry about covering their health costs. If she wants to offer them benefits, she can call a broker or work with Covered California to find coverage starting in October.

What happens if Scally hires 50 workers? Check back next week for how the Affordable Care Act impacts businesses of 50 to 100.

Check out last week’s Second Opinion: Does Obamacare cover Acupuncture and Chiropractors?

If you have a question about the Affordable Care Act, ask it at kpbs.org/source.