An overview of ‘Obamacare’

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Volume 26/Number 18/January 21-28, 2013

What does the Affordable Care Act mean for small business owners

by Jenna Lippin

For small businesses, providing health benefits often proves to be a challenge.  On average, small businesses pay about 18% more than large companies for the same health insurance policies. Because of this cost difference, smaller businesses are currently less likely to offer health insurance coverage to their employees than larger companies. Fifty-seven percent of small businesses with 50 or fewer workers offered health benefits to employees, compared to 92% of businesses with 51 to 100 workers, and 97% of businesses with 101 or more workers in 2011.

Going forward, several provisions of the Affordable Care Act (ACA), also known as “Obamacare,” will likely have significant effects on medical coverage for small businesses, their employees and their families. The areas of the ACA that will affect small businesses the most are the creation of new insurance exchanges, tax credit subsidies and penalties for some employers if they do not offer coverage.

Here are a few key points of the ACA:

1. Small businesses will have the option to purchase insurance through a new market called the Small Business Health Options Program (or SHOP Exchange). The exchange will be designed to offer individuals and small employers an easier way to compare and purchase insurance plans. Employers may continue to purchase insurance through the market outside of the exchange, and applicable insurance reforms will exist throughout, both within and out of the market.

2. Though small businesses are not required to offer health insurance, starting in 2014 some with more than 50 employees will have to pay a penalty if they do not offer affordable coverage. Fifty-one or more full-time employees means the company will be fined $2,000 per employee (excluding the first 30 
employees) if they do not offer coverage for employees who average 30 or more hours per week. There is no penalty for part-time employees not offered coverage. Businesses with 50 or fewer full-time employees are exempt from penalties.

Note that two half-time workers are basically equivalent to one employee. For example, 20 half-time employees are equivalent to 10 full-time workers. That makes the number of full-time employees 10 and not 20.

3. To avoid penalties, employers must offer insurance that covers at least 60% of the calculated value of the cost of benefits. The coverage must also be affordable to employees, meaning an individual employee’s premium cannot exceed 9.5% of his household income. If the coverage offered does not meet this affordability standard, employees may receive tax credits to purchase insurance on their own through the SHOP Exchange. If this is the case, small employers will either have to pay $3,000 per employee receiving the tax credit, or pay $2,000 per employee excluding the first 30 workers—whichever amount is less.

4. The ACA permits those small businesses that wish to keep the insurance plans they currently have to do so. In 2011, approximately 72% of small businesses with 100 or fewer workers had at least one plan grandfathered (meaning it was in place before March 23, 2010) under the ACA. So-called “grandfathered” group plans are subject to fewer requirements under the ACA. If a company’s plan is grandfathered under reform, the plan remains grandfathered even if the company enrolls new employees in the plan. Businesses wishing to keep their grandfathered plans may even change insurance carriers and keep grandfathered status if the benefits and costs to employees don’t significantly change.

5. Beginning in 2014, all health insurance plans must guarantee the availability and renewal of coverage regardless of health status. Small employers with 50 or fewer employees already have guaranteed issue in all states, but this provision of the ACA expands the guaranteed availability of insurance.) Furthermore, young adults may remain on their parents’ plan until age 26.

6. New (non-grandfathered) plans will cover a set of minimum benefits, called Essential Health Benefits, beginning in 2014. Based on initial guidance issued by the Federal government, each state would determine its benefit package according to a range of benchmark plans in the state. All plans, regardless of whether they are grandfathered, will be prohibited from imposing exclusions for pre-existing conditions (effective since 2010 for children under 19; effective in 2014 for adults).

7. As of 2014, premium rating based on health status will be prohibited for new (non-grandfathered) plans. Premiums for new plans will only be allowed to vary by age, tobacco use, policy type (individual or family) and geographic location. Health plans may reward participation in a qualified wellness program by providing up to a 30% discount on the cost of coverage, so long as reasonable alternatives or waivers are made available for employees with medical conditions that would preclude them from participating.

Jorge Silva-Puras, regional administrator for Region II of the U.S. Small Business Administration, wrote a short article explaining, in laymen’s terms, how the Affordable Care Act will benefit small businesses. In addition to tax credits/breaks and insurance exchanges, Silva-Puras noted how the ACA will help “[strengthen] America’s entrepreneurial spirit.” Because the new law will do away with existing health insurance guidelines, individuals can escape what he calls “job lock” and start new businesses. The new law will also prohibit insurance companies from increasing premiums for a small business when one worker gets sick.

According to the U.S. Small Business Administration, “The Affordable Care Act will provide enormous benefits to the millions of small business owners and the tens of millions of small business employees by expanding coverage options, lowering costs and giving consumers, not insurance companies, control over their own health care.”

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