Will the Affordable Care Act (ACA), also known as “Obamacare,” batter or bolster your bottom line? If you have 50 or fewer employees, you have a good chance of turning the new federal law to your advantage.
“Generally speaking, the law is more favorable to smaller businesses,” says Shawn Nowicki, director of health policy at Northeast Business Group on Health, a coalition of 175 employers, unions and health care providers. Nowicki points to a number of advantages geared toward smaller operators. These include competitive statewide insurance exchanges, premium reform, and tax credits.
Here’s a rundown of how you may benefit from some of the law’s provisions:
•Competitive exchanges. Competition is good. That’s the theory behind the new statewide health insurance exchanges, which are designed to allow small businesses to shop for plans from competing carriers. These exchanges will be available for employers with 50 or fewer people in 2014.
“To understand how the exchanges will work, imagine navigating to a travel website that aggregates airfares,” says Karl Ahlrichs, benefits consultant for Indianapolis-based insurance broker Gregory & Appel. “You type in your parameters, the site sorts your options, and you pick what you want. That’s what employees will be doing with the exchange sites.”
Under the best of conditions, the new exchanges will also help trim the human resources overhead, by providing a host of robust administrative services. “Businesses that send employees to the health insurance exchanges will be getting out of the health insurance management business,” he notes.
• Premium reform. Small businesses have long been the targets of prohibitive premium hikes when one employee is hit with a costly illness. The new law levels the playing field.
“Starting in 2014, insurance carriers won't be able to set premiums based on health status, sex or claim history,” says Julie Stich, director of research at the International Foundation of Employee Benefit Plans, a research organization based in Brookfield, WI. “That will help small group plans where one catastrophic claim can cause health costs to go up.”
• Penalty exemption. If you have 50 or fewer fulltime employees, you're exempt from penalties for not providing health insurance. If you have more than 50 employees and your employees purchase insurance from the new state exchanges, you will pay a fine of $2,000/employee that does so, excluding the first 30 employees from the assessment.
• Tax credit. Finally, the law provides a tax credit for businesses with 25 or fewer employees if the company pays at least half of the employee premiums (see “Figuring the tax credit”).
• Downward pricing pressure. The law may also encourage more transparency in fees for medical services, Ahlrichs says. In consumer-driven health plans, people will be given a set amount of money to shop for services. They'll be able to go to a website, enter a service such as an “appendectomy,” and get a list of physicians who perform the procedure, a quality rating and a cost. “Comparison shopping should put downward pressure on prices,” Ahlrichs notes.
• Transparency. Do you know how much your broker is being paid for arranging your insurance? Today, such commissions are buried in your premiums. This may change under the new law as pressure mounts to reduce administrative costs. Brokers may start charging fees for their services, which may well dampen overall costs while promoting accountability and performance.
Another potential benefit of the new law is it may provide smaller businesses access to higher-quality personnel. Under the current system, some workers are tied to their jobs because they may be uninsurable if they change jobs.
“They may have a daughter or wife who is diabetic or a cancer survivor, or they themselves may have some chronic condition. As a result, they're handcuffed because of healthcare,” Ahlrichs says. When the exchanges come online, the handcuffs come off. “This could be a huge benefit to small entrepreneurial organizations that position themselves as places where talented people can exercise some freedom,” he adds.
Many business owners are upset about the minimum level of benefits required by the new law. In some cases, those levels are higher than what's currently being offered in the workplace. That means greater expense in the form of higher premiums.
Will employers, as a result, drop health insurance coverage completely and opt to pay the fine? Ahlrichs thinks some will be tempted to pay the $2,000/employee fine.
But there are additional ramifications for employers who opt to not offer insurance, Ahlrichs points out. First, the $2,000 fine isn't tax deductible. Second, employees who go to the exchanges find out insurance isn't free.
“Maybe the premium for a family is $8,000 annually,” Ahlrichs says. “Who pays it? If the employer wants to keep the employees, the employer may want to make them whole and give them the $8,000 needed to pay for their insurance.”
The story doesn’t end there, Ahlrichs adds: “The premium payments are now taxable, so paychecks have to be grossed up to around $10,000, in the above example, so the employees can pay premiums out of after-tax dollars.”
Put it all together and cessation of a health insurance program can backfire, Ahlrichs concludes.
Realistically, though, the decision to retain or drop health insurance might depend less on the costs of noncompliance than on what other businesses in the same market are doing. No one wants to lose top talent to other employers offering better benefits.
As a result, many businesses seem to be playing a waiting game. “We keep hearing statements such as, ‘We’re afraid to be the first one to drop coverage, but we’re not afraid of being the second or third,’” Nowicki says.
Maybe that’s why most employers say they'll continue to offer health insurance. “Employers see health insurance plans as important tools for employee satisfaction, retention, and for attracting talent,” Stich says. “In our surveys, only 1-2% of employers say they won't provide health insurance coverage.”
What steps should you take today? Start getting up to speed on the opportunities and requirements of the new law.
“Now is the time to get some education,” Nowicki says. “Meet with your broker or health insurance advisor and learn what’s coming down the pike from the perspectives of benefits and taxes.”
Employers need to look at their current health insurance plans and make the necessary changes to be in compliance. Then communicate these changes to employees, and revise the plan descriptions and handbooks.
The decision on whether to continue or drop coverage altogether will need to be made before the end of 2013. The so-called “play or pay” provision will activate in 2014. That means employers with over 50 employees must either offer health insurance with minimum requirements or pay a fine.
“It's not too early to look at this area,” Stich says. You'll need to determine if your organization falls over the 50-employee threshold. That can be more difficult than it seems. You'll need to calculate how many casual, part-time and seasonal individuals fall into the category of “full-time equivalent” employees.
As you tackle the vagaries of the ACA, remember that the law is a work in progress. The federal government will continue to issue regulations that interpret the law for real-world operations. State governments will jockey to set up exchanges of various kinds, or opt to let the federal government do the job. Finally, organizations competing for your employees may or may not set up attractive health insurance programs.
Perhaps the only thing certain is that change is on the way. Now is the time to get a handle on how the marketplace is changing, then design a health insurance program that maximizes employee satisfaction while minimizing cost.
Do you have 25 or fewer fulltime employees? Are their average annual wages less than $50,000? Do you contribute more than 50% of your employee’s total premium costs?
If the answers are “yes,” you may be eligible for assistance with your health insurance premiums under the ACA. You may be entitled to a tax credit of up to 35% of your contribution toward your employee’s health insurance for this tax year. The credit will increase to up to 50% for tax year 2014 and 2015.
For 2013, the full tax credit is available to employers with 10 or fewer employees whose average annual wages are $25,000 or less. The tax credit gradually scales down as workforce size and average wage increase.
Here’s an example. Suppose your business employs 10 full-time workers and the average wages are $25,000. If your annual employer health care costs are $70,000, you're entitled to a $24,500 credit in 2013, and $35,000 in 2014.
For help on calculating your credit, visit www.irs.gov. Click on “Affordable Care Act Tax Provisions” then see “Small Business Health Care Tax Credit.” Or visit www.smallbusinessmajority.org and go to “Healthcare Tax Credit” in the upper right hand corner. Click on “Go to Calculator.”
For more information on the Affordable Care Act, check these resources:
Phillip Perry is a New York-based freelance writer on business topics.