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

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

By John Rosman, KPBS

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.

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.”

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.

Video by John Rosman, KPBS

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.

Speak City HeightsThe 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:

  1. 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.
  2. 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.
  3. Scally’s employees would choose from the menu of plans she’s put together.
  4. Scally would pay her portion of the premiums in a single payment to Covered California each month.
  5. 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.

Tax 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?

Voice of San Diego is a nonprofit that depends on you, our readers. Please donate to keep the service strong. Click here to find out more about our supporters and how we operate independently.


Megan Burks

Megan Burks

Megan Burks is a reporter for Speak City Heights, a media project of Voice of San Diego, KPBS, Media Arts Center and The AjA Project. You can contact her directly at meburks@kpbs.org or 619.550.5665.

  • 110 Posts
  • 5
    Followers

Show comments
Before you comment, read these simple guidelines on what is not allowed.

4 comments
Mark Giffin
Mark Giffin

I have a different take than Kelly's. Jean. Timing is everything and the time is not right. Let your contract employee and new employees cover themselves. From the story it appears your a start up thats landed a good contract. Bravo. I remember the excitement of that. Fact still remains your still working on building your business. the costs of adding employees (workmans comp), building reserves to get you through lean times, being deliberate about your retirement savings and working capital. You can always pick up the costs later but until you get to the comfort zone on finances I would advise to put off that expense.

Mark Giffin
Mark Giffin subscribermember

I have a different take than Kelly's. Jean. Timing is everything and the time is not right. Let your contract employee and new employees cover themselves. From the story it appears your a start up thats landed a good contract. Bravo. I remember the excitement of that. Fact still remains your still working on building your business. the costs of adding employees (workmans comp), building reserves to get you through lean times, being deliberate about your retirement savings and working capital. You can always pick up the costs later but until you get to the comfort zone on finances I would advise to put off that expense.

Kelly Abbott
Kelly Abbott

I have had a pre-existing condition since my birth which traditionally has made it difficult to find affordable healthcare as an individual. As a business-owner I'm sensitive to the needs of my employees because I know how nice it was for me to covered in jobs past under my employer's plan. Even though we are small and every cent we earn goes back into the business I will always find a way to invest into their happiness by way of paying for their healthcare. It makes me very happy that we are now able to get money back for being good citizens as well as good businesses.

Kelly Abbott
Kelly Abbott contributormember

I have had a pre-existing condition since my birth which traditionally has made it difficult to find affordable healthcare as an individual. As a business-owner I'm sensitive to the needs of my employees because I know how nice it was for me to covered in jobs past under my employer's plan. Even though we are small and every cent we earn goes back into the business I will always find a way to invest into their happiness by way of paying for their healthcare. It makes me very happy that we are now able to get money back for being good citizens as well as good businesses.