	Introduction

The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 and P.L. 111-152 ) contains several provisions to encourage employer-sponsored health coverage, particularly among small businesses. The provisions that most directly relate to small businesses are (1) an employer penalty for not providing health insurance, (2) a tax credit to increase the affordability of health care for the smallest firms, and (3) small business health insurance exchanges designed to increase plan options and lower plan costs. On July 2, 2013, the Obama Administration announced a delay in the implementation of the employer penalty for all applicable firms until 2015, citing the need to simplify administrative complexities for businesses and give businesses more time to comply with an appropriate plan. This report analyzes several ACA provisions that are most relevant to small business. Third, it analyzes each provision for potential economic effects on small businesses. Lastly, this report presents several approaches that could address some criticisms of the ACA's employer penalty and reduce its effects on small businesses. 3. Small Business Insurance Exchanges

Since 2014, small employers seeking health insurance coverage for their employees have been able to use the ACA's SHOP exchange. A March 2013 survey of very small employers (those with between 2 employees and 10 employees) that would not be subject to the employer penalty under the ACA found that 56% of respondents misunderstood portions of the ACA's employer penalty, with 32% believing they will be required to provide group health insurance in 2014, regardless of the number of employees, and 24% believing they will have to pay a penalty for failing to provide group coverage. These exempt businesses accounted for 27.6% of all workers. Although the firms with more than 50 employees account for 72.4% of all employees (as shown in Table 1 ), only about 2.4% of all employees work in larger firms that do not already offer health insurance. First, many business owners felt the credit was too small of an incentive to begin offering insurance. Second, even if these small employers offered health insurance, some employees declined coverage because they felt they could not afford their share of the premium. Firms with healthier employees, however, could see a rise in cost. Change the Definition of "Full-Time" to 40 Hours Per Week

In the 114 th Congress, the Save American Workers Act of 2015 ( H.R. 30 ) would change the ACA's definition of "full-time" from 30 hours per week to 40 hours per week. In addition, proponents of the revision argue that the 30-hour definition encourages employers to reduce the number of hours allotted to each worker (thereby reducing each worker's pay) to decrease the number of full-time workers and reduce employers' compliance costs with the ACA (or the size of their employer penalty, because the penalty is only based on full-time workers). Exempt More Firms with Low-Income Employees

Some are concerned that the effects of the employer penalty could be concentrated among smaller firms in certain industries that are large enough to be over the 50-FTE-employee threshold and that primarily employ low-income workers (who are less likely to be able to afford out-of-pocket premium costs of an employer-sponsored health plan). Expand the Small Business Health Care Tax Credit

Although not directly related to the employer penalty, the current small business health care tax credit could be expanded to encourage more small businesses to offer health care coverage (and potentially avoid the employer penalty).
The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 and P.L. 111-152) contains several provisions to encourage employer-sponsored health coverage, particularly among small businesses. The provisions that most directly relate to small businesses are (1) an employer penalty for not providing health insurance, (2) a tax credit to increase the affordability of health care for the smallest firms, and (3) small business health insurance exchanges designed to increase plan options and lower plan costs.
Several events have altered the ACA's implementation since its enactment in 2010. Most notably, the Obama Administration delayed the implementation of the employer penalty and part of the small business health exchanges from 2014 to 2015 to allow more time for developing these provisions and allowing firms to come into compliance. Subsequently, the Administration suspended the penalty for employers with fewer than 100 full-time equivalent (FTE) employees for an additional year (until 2016). These delays have added to uncertainty over the potential effects of the ACA on small businesses.
First, this report explains how employer-sponsored insurance can be used to address concerns about health insurance coverage and cost. Second, it summarizes the three ACA provisions most relevant to small businesses, listed above. Next, it analyzes these provisions for their potential effects on small businesses. Finally, this report presents several approaches that could address some concerns associated with these provisions (particularly the employer penalty).
According to analysis of the most recent employer size and insurance coverage data, the ACA's employer penalty is structured so that it could exempt approximately 96.2% of employer firms simply because these firms would be too small and thus fall below the employer penalty threshold of 50 FTE employees. These exempt firms account for approximately 27.6% of all workers. After accounting for firms that already provide insurance, less than 1% of employer firms could be subject to the employer penalty. Although 72.4% of all employees work for firms that are large enough to be potentially subject to the penalty, only about 2.4% of employees work in firms that do not already offer health insurance.
Less than 4% of small businesses that could have been eligible for the small business health care tax credit in 2010 actually claimed it. According to a report by the Government Accountability Office (GAO), many business owners felt that (1) the credit was too small of an incentive to begin offering insurance; (2) even if these small employers offered health insurance, some employees declined coverage because they could not afford their share of the premium; and (3) the rules were too complex. President Obama has proposed simplifying and expanding the credit.
Small business health exchanges could help to reduce some barriers to accessing relatively affordable health coverage in the small-group market. By pooling risk among multiple businesses and reducing administrative costs, average insurance costs could reduce costs for these firms. Firms with relatively healthier employees, however, could see a rise in insurance costs.
One issue of concern is the incentive for firms to reduce part-time employee hours below the 30 hours that define full-time employment (under the ACA) as a means to exclude these employees from coverage. The Save American Workers Act of 2015 (H.R. 30, approved by the House on January 8, 2015) would increase the definition of full-time to at least 40 hours per week. This change would reduce the incentive at 30 hours per week, but it also would introduce an incentive to reduce hours among those who work around 40 hours (a larger share of all workers).