A Health Insurance Guide for Small Business Owners

Health insurance is a big sector and companies have to provide insurance to the employees. However, it is not mandatory for small businesses. The government defines a “small business” as one that employs fewer than 50 individuals.

According to the 2012 U.S. Census, there are 28 million small businesses in the U.S. that employ close to 52.6 million Americans. Though these businesses are not compelled by law, still nearly 57% of them provide health insurance to their employees. They see providing the health insurance as an important tool to recruit and retain top talent.

The problem till the new provisions for Affordable Care Act (ACA) came into effect was these small business owners faced significant obstacles if they tried to provide the insurance cover. The major hindrance was that the insurance companies treated businesses as typical group plans. So, if significant expenses were incurred by any beneficiary in the group the premium for everyone else used to spike. Also, if the insurer felt that the arrangement is not profitable, he had an option of dropping out.

The new provisions of ACA are designed to encourage small business owners to provide health insurance. If a business now has 25 or fewer people on the roll with an average salary of less than $50,000, then they can receive a federal tax credit.

The employers who fulfil the prerequisites can receive a credit of up to 50% of employer costs. Non-profit entities may receive a tax credit of up to 35%. This tax credit can be taken for two successive years. It helps in reducing the cost burden of providing health insurance to employees significantly.

ACA’s strict guidelines prohibit the insurers from charging smaller groups higher premiums, which were a common practice earlier. They can also no longer drop the company because the arrangement doesn’t prove to be profitable.

The new provision also stipulates that insurance companies spend at least 80% of income from premium payments on actual medical care, and the administrative costs cannot be more than 20%.

Though it is not obligatory for a small business owner to provide health insurance, taking one could benefit the bottom line and make the company a more attractive place to work.

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