Small Employer Coverage Under the Affordable Care Act

Thursday, February 6, 2014

The Affordable Care Act (ACA) does not require small employers to offer health coverage to their employees.  If coverage is offered, however, the coverage must meet ACA requirements.  The only exception is for grandfathered plans. Grandfathered plans are those health plans that were in effect when the ACA was enacted on March 23, 2010 and have not been changed.

A small employer plan must provide the following Essential Health Benefits. If it does not, the plan must be changed unless it is a grandfathered plan.

  • Ambulatory patient services
  • Emergency services
  • Hospitalization
  • Maternity and newborn care
  • Mental health and substance use disorder services, including behavioral health treatment
  • Prescription drugs
  • Rehabilitative and habilitative services and devices
  • Laboratory services
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including oral and vision care

Small employer plan deductibles are limited to $2,000 for individuals and $4,000 for families. Out-of-pocket expenses are limited to $6,250 for singles and $12,500 for families.   If these limits are exceeded, the plan, unless exempt, must be changed.

The Small Business Health Options Program (“SHOP”) gives small employers the opportunity to go online ( and choose a health plan from among several coverage options and contribution levels.  If an employer selects a SHOP plan, the coverage must be offered to all of its full-time employees (those working 30 or more hours per week on average).  Generally, at least 70% of full-time employees must enroll. The minimum percentage may vary by state; for example, the New Hampshire minimum is 75%. The minimum enrollment requirement does not apply if SHOP coverage is selected during the open enrollment period that runs each year from November 15 to December 15.

A small business that buys SHOP coverage may also be eligible for a health care tax credit.  In order to qualify, the employer must have fewer than 25 full-time equivalent employees making an average annual salary of $50,000 or less. The employer must pay at least half of the insurance premium.  The tax credit is worth up to 50% of the employer’s contribution toward employee premium costs. The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit.