When is "Small" Considered "Large?" Fixing ACA Inconsistencies Will Reduce Administrative Burdens on Small Businesses


As a result of the 2014 mid-term elections, the Republicans gained a majority in both chambers of Congress. However, they are still short of the two-thirds of votes needed in both the Senate and the House to overturn a presidential veto of legislation to totally repeal the Affordable Care Act (ACA).  So, potential legislative action most likely will lead to only limited changes to the health reform law in early 2015.

This does provide an opportunity for the new Congress to make some small but important changes to the ACA to help small businesses.  Simply fixing some of the inconsistencies in key definitions across provisions in ACA (such as “full-time” and “small employer”) would be a huge step in reducing the potential administrative burden on small businesses. For example, my September blogpost discussed differences in how full-time is defined across the provisions.  This is one area where there seems to be interest on both sides to provide a consistent and uniform definition of full-time as 40 hours a week. This would not only reduce potential employer penalties (by about $38.6 billion over 10 years according to CBO), but it would eliminate the need for employers to use a confusing and convoluted look-back measurement process to measure who is full-time and who is not.

Also problematic are inconsistencies across ACA provisions in the definition of “small” and “large.”  One area where inconsistencies lead to an unfair advantage for certain employers is the interaction of new federal insurance requirements for the individual and small group market with the employer-shared responsibility payments for “applicable large employers.” Specifically, businesses with fewer than 100 employees are considered part of the “small group” insurance market in 2016 and hence subject to new federal insurance requirements (including essential health benefit requirements and premium rating restrictions). These insurance requirements are not levied on larger employers with 100 or more employees.

However, those small employers (with between 50 to 99 FTEs) currently not providing health insurance coverage would have to meet the new federal insurance requirements for any newly purchased health insurance policies for their workers and themselves. The irony is that these small employers may also face potential financial penalties for not providing health insurance coverage to their full-time workforce in 2016 and beyond. This is because, for purposes of the employer-shared responsibility provision, an “applicable large employer” is a firm with 50 or more employees (including FTEs).  In addition, so-called “applicable large employers” must also report to the IRS the details of their insurance coverage (or lack thereof) for each and every full-time worker (referred to as IRC Section 6056 and 6055 reporting requirements).

So this leaves a “Catch-22” for those firms with between 50 to 99 FTEs.  They will be penalized in 2016 if they don’t provide “adequate and affordable” coverage, yet the insurance requirements they must adhere to are more stringent than those of their larger counterparts. And to add insult to injury, they must file the IRS Information reports for each and every full-time worker.  

The Fix:  Classifying those firms with between 50 to 99 FTEs as “small” rather than as an “applicable large employer” will not only eliminate their exposure to potential employer penalties but would also significantly reduce their administrative burdens associated with the IRS reporting requirements.  

Janemarie Muley, Ph.D. is the author of Health Reform: What Small Businesses Need to Know Now!