Affordable Care Act: Health Insurance Exchanges and Other Issues for Small Employers

by Wilson Elser

The Affordable Care Act (ACA) has a variety of implications for small employers and their employees. Under the Qualified Health Plan and Health Insurance Exchange provisions of the ACA, the term “small employer” is defined as one that employed an average of at least one but not more than 100 employees on business days during the preceding calendar year and employs at least one employee on the first day of the plan year. Prior to 2016, states have the option of defining a “small employer” as either one with 100 or fewer employees or one with 50 or fewer employees.

It is important to note that employers with 50 or more full-time employees are considered “Applicable Large Employers” for purposes of the Shared Responsibility excise tax provisions of the ACA. As a result, an Applicable Large Employer for purposes of the Shared Responsibility provisions of the ACA may be a “small employer” under the Qualified Health Plan provisions of the ACA. In addition, the small business tax credit provisions of the ACA apply only to small employers with 25 or fewer employees.

Grandfathered Plans
The ACA permits small businesses to retain insurance plans that were in place as of March 23, 2010. These so-called “grandfathered” plans are not required to comply with certain aspects of the ACA. For example, these plans do not need to cover preventive services without cost sharing or provide Essential Health Benefits. These plans can maintain their status even where certain events occur, including enrollment of new employees and a change in insurance carriers (provided that benefits and costs are largely the same).

Certain events will eliminate a plan as a grandfathered plan, such as to (1) increasing copayments, deductibles, out of pocket expenses or co-insurance rates; (2) decreasing annual limit amounts; or (3) instituting annual limits or eliminating coverage for treating or diagnosing a specific condition.

Small Business Health Options Program
The ACA requires each state to maintain a State Health Insurance Exchange, or insurance marketplace, where individuals and small employers can purchase private insurance effective January 1, 2014.

These exchanges can be operated by the state, the federal government or both and must offer “qualified health plans” to their customers. Each such exchange must operate a Small Business Health Options Program, or SHOP, to enable qualified employers to offer insurance programs to their employees. A qualified employer is a small employer that elects to make all full-time employees eligible for one or more qualified health plans and either has its principal place of business in the Exchange service area or offers coverage to each eligible employee through the SHOP serving that employee’s primary worksite.

A qualified employer deciding to offer coverage to its employees completes a single application. A single application is also submitted for the employees seeking insurance. The SHOP then determines eligibility for coverage based on the criteria set forth by the Department of Health and Human Services (HHS). If the employer and the employees are eligible for coverage, the SHOP then assists with the enrollment of the employees in qualified health plans. Open enrollment periods will be established by the SHOP and must be followed by the employees seeking coverage. Under the HHS rule, the SHOP must permit small employers to choose all qualified health plans that it wants to offer to its employees at a single level of coverage. However, under a new proposed amendment to that rule, SHOPs would not have to offer this employee choice option for plan years starting on or after January 1, 2014, and before January 1, 2015. As a result, the premium aggregation requirements applicable to SHOPs where employers have employees enrolled in multiple qualified health plans is optional for plan years beginning before January 1, 2015.

Small Business Tax Credits
While the ACA does not require employers to contribute toward the cost of employee health coverage, the law does provide an incentive to certain small employers to pay a portion of this cost.

  • A tax credit may be available to small employers with 25 or fewer employees with average income of $50,000 or less that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement. 
  • Credits are also available to small tax-exempt employers such as charities. However, only businesses with 10 or fewer employees and average salaries of $25,000 or less are eligible for the full credit. 
  • Once the business reaches 25 employees or $50,000 in average salaries, the credit is completely phased out. For tax years 2010–2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers. 
  • Enhanced credits become available January 1, 2014; in general, 50 percent and 35 percent, respectively. However, the small employer tax credit is available only for qualified health plan coverage through an exchange, and an employer may receive the credit only for a maximum period of two (2) consecutive years. Business expense deductions for the cost of the premium are still available. The credit can be applied to other tax years. Tax-exempt small businesses may be eligible for refund if no tax was owed.

Wellness Programs
The ACA provides rewards to employers who establish wellness programs as defined by the law. Beginning January 1, 2014, the maximum reward for maintaining such programs will be 30 percent of the cost of health coverage, and a maximum of 50 percent of the cost of coverage may be granted for programs targeted at reducing or preventing tobacco use. These incentives do not apply to grandfathered plans.

Notice of Coverage
The ACA mandates that employers notify their employees of the existence of the State Health Insurance Exchange and certain information relative to the Exchange. The effective date of this requirement has been delayed until the Department of Labor issues sample notices and/or further guidance relative to this matter.

W-2 Reporting
The ACA generally requires employers to report the cost of health coverage on the W-2 forms. Employers filing fewer than 250 W-2 forms do not have to comply with this requirement until the IRS issues further guidance. Such guidance shall give employers at least six months’ advance notice before any new mandates will be imposed.

Scope of Compliance
The information set forth above provides a general overview of the factors that a small employer needs to consider in determining the impact of the ACA on its business. Federal regulations include additional provisions and transition rules that may impact a particular business. Application of these rules must be performed on an employer-by-employer basis based upon each employer’s discrete circumstances.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Wilson Elser | Attorney Advertising

Written by:

Wilson Elser

Wilson Elser on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.