The Affordable Care Act: How it Affects Small Business Owners

Although Obamacare has received mixed reviews, it’s clear that it has a significant impact on small business owners and their employees.
February 24, 2022
6 Minutes
min read

By: Cicely Childs

6-minute read

The Affordable Care Act

Although Obamacare has received mixed reviews, it’s clear that it has a significant impact on small business owners and their employees.

The Patient Protection and Affordable Care Act (ACA), referred to as the Affordable Care Act or “ACA” for short, was signed into law by President Barack Obama in March of 2010 and aims to extend insurance coverage to uninsured Americans and to slow the increasing costs of healthcare. 

“Obamacare,” as it’s most often referred to, is the most controversial and far-reaching healthcare legislation in decades. The law was designed to increase access to affordable health insurance, but it also has a number of provisions that affect small businesses. As a business owner, you need to be aware of how Obamacare will impact your company. 

Obamacare and How It Affects Small Business Owners

The ACA authorized the creation of new healthcare marketplaces, also known as exchanges, where individuals and small businesses can purchase health insurance. Businesses with 50 or more full-time or full-time equivalent (FTE) employees are required to offer affordable health insurance. 

Businesses with 1-49 full-time employees are not subject to this requirement. However, due to the expensive nature of individual healthcare products from the marketplace, small businesses need solutions to help employees.

ACA Mandates

The Affordable Care Act mandates that all businesses with 50 or more full-time or full-time equivalent (FTE) employees must provide health insurance for their employees. If a company fails to do so, they are subject to penalties. Despite this requirement, many believe the ACA does not help small business owners. Some of these individuals have argued that because of the mandate, small business owners are now paying higher premiums for less coverage, and as a result, are forced to cut back on hiring and other benefits to cover the costs.

In addition, under Obamacare, many Americans are required to purchase private health insurance if they are not covered by an employer or other government-assisted health plans such as Medicaid, Medicare, or TRICARE. The Individual Mandate applies to residents of California, Massachusetts, New Jersey, Rhode Island, Vermont, and the District of Columbia. 

Employer Responsibilities

Employer responsibilities under the Affordable Care Act include offering affordable, comprehensive health coverage to at least 95% of their full-time employees. Health coverage is considered “affordable” if the employee contribution for premiums is no more than 9.12% of household income in 2023 for employee-only coverage. It is “comprehensive” if it provides a minimum value of at least 60% of the total allowed cost of benefits provided by a typical employer plan and includes substantial coverage of physician and inpatient hospital services.

Federal Eligibility and Individual Enrollment Requirements

There are three key federal requirements for ACA Eligibility. These requirements apply in all 50 U.S. States. They are:

  1. Individuals must be either U.S. citizens, U.S. nationals, or non-citizens who are lawfully present in the U.S. for the entire time they plan to have health coverage;
  2. Individuals must not be currently incarcerated, and;
  3. Individuals must live in the United States and meet state-specific residency requirements for the marketplace where they wish to obtain coverage.

When an employee enrolls for a healthcare plan through the marketplace, they may be eligible to receive an advanced premium tax credit to help offset the cost of their monthly healthcare premiums. Certain household income limits must be met to qualify for the premium tax credit. Household income must be at least 100 percent and, for years other than 2021 and 2022, no more than 400 percent of the federal poverty line for family size.

Aside from income, other factors affecting the credit amount include:

  • Cost of available insurance coverage
  • Residence
  • Address
  • Family size

Open Enrollment is the period each year when individuals are allowed to enroll in or make changes to a marketplace health insurance plan. The yearly open enrollment period runs from November 1 – January 15. Outside open enrollment, an individual may still be able to enroll in marketplace coverage if they have certain life events, like getting married, having a baby, losing other health coverage, or based on their estimated household income.

Insurance Market Standards

One of the most important aspects of the ACA for small business owners is the insurance market standards that it sets. Before the ACA, insurance companies were able to discriminate against people with pre-existing conditions and charge women higher rates than men. The ACA outlaws these practices and requires insurers to provide coverage to everyone, regardless of their health status or gender. This has made it easier for small business owners to get health insurance for themselves and their employees.


The Affordable Care Act set out to standardize small-group and individual health insurance plans by creating a colored “metal” ranking for each of three tiers or levels, with each level based on actuarial value. The colors of the tiers are bronze, silver, and gold. 

All new small group and individual health insurance plans, including plans sold in the exchange as well as plans sold in the private market, must fall into one of the metal levels (unless it’s a catastrophic plan in the individual market).

The law requires that all plans offer a minimum level of coverage starting with the bronze tier, which covers 60 percent of an individual's medical costs. Silver and gold-tiered plans are also available, which cover 70 and 80 percent of medical costs, respectively. 

Benefits under a bronze plan can be complex but essentially provide a basic amount of protection at a relatively low cost. A silver or gold plan might work better for those who have more robust coverage needs, such as for families or those with significant out-of-pocket expenses due to chronic conditions. Catastrophic plans are also available, which provide high levels of coverage in case of injury or illness but not for routine, preventive care.

Besides ACA products, other health coverage options include health savings accounts (HSA). HSAs may be a good choice for business owners and individuals because they can contribute to them on a pre-tax basis and withdraw funds from them on a tax-free basis if used for qualified medical expenses. HSAs require consumers to take responsibility for monitoring their own health care costs and providers and may be particularly beneficial for those who are self-employed.

High-Deductible Health Plans (HDHPs), Health Sharing Ministry Plans, Primary Care Memberships, and Private, Non-Marketplace Plans are all health coverage alternatives outside of the ACA. There are many options for small business owners and individuals to choose from based on personal needs and budget.

In addition, the ACA offers small business healthcare tax credits to small businesses that purchase health insurance for their employees through its Small Business Health Options Program (SHOP).


Penalties for Noncompliance or Unsatisfactory Thresholds

If a business with 50 or more full-time employees fails to meet the ACA’s minimum requirements for providing health insurance to its staff, penalties may be levied. 

If an employer with 50 or more FTE employees doesn’t offer coverage to at least 95% of FTE employees, the potential penalty is $2,880 per full-time employee in 2023 (that amount started at $2,000 but has been adjusted for inflation). The first 30 employees are excluded from the calculation. For example, if an employer has 65 FTE employees, doesn’t offer any health coverage, and at least one employee gets coverage in the exchange and qualifies for a premium subsidy, the employer would owe a $100,800 penalty for 2023. The calculation is: (65-30) x 2,880 = 100,800.

On the other hand, if an employer provides a health plan, but that plan is unaffordable and/or doesn’t provide minimum value, the employer would face the lesser of two penalty options: $4,320 per employee receiving premium subsidies in the exchange (this started at $3,000 but has been indexed for inflation), or the $2,880 per full-time employee (minus the first 30) penalty as described above.

To illustrate, consider a business that has 120 full-time employees and offers coverage, but it’s either not affordable and/or doesn’t provide minimum value: If 70 employees get subsidies in the exchange in 2023, the employer would pay a penalty of $259,200 for the year ((120-30) x 2,880 = 259,200). That’s the lesser of the two penalties, with the alternative penalty calculation totaling $302,400 (70 x 4,320).

How to Navigate

As small business owners, we never expect to be faced with the number of challenges that can arise when starting a business. We want the domain and freedom to build something great. Administrating and navigating healthcare has made that unnecessarily difficult. 

The reality is that the Affordable Care Act is now law and most likely here to stay. You can get a broker to help you implement and manage health care for your workers or you can do it on your own. 

Your Health Insurance Alternative

The continued rising cost of healthcare has made it difficult for small (and medium-sized) businesses to operate, including providing healthcare. Many employers are now opting for lower-cost minimum essential care plans as a way to not only reduce their expenses but help employees do the same. 

Meridio offers a solution to the growing problem of rising healthcare costs by providing small businesses with affordable, ACA-compliant, basic health coverage plans for themselves and/or their employees. Anyone can take advantage of our guaranteed acceptance plans with licensed Benefits Guides and a Customer Care team available to assist with enrollment and offer continued support. We remove the administrative burden so that companies can offer quality healthcare without inconvenience or a lengthy process to implement.

We’re happy to answer all your questions and help you decide what’s right for you. For moreinformation you can request information here (link to form below).

Tags: healthcare, employee benefits, affordable care act, small business healthcare (or small business benefits, small business insurance), hr administration 

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