Affordable Care Act

Summary

Despite all of the backlash the Patient Protection and Affordable Care Act, or Obamacare, has received for its perceived potential destruction on small businesses, for the most part, small businesses with under 50 full time employees are not greatly affected by the Act. In fact, companies with under 50 employees, which make up a large portion of small businesses, are not penalized at all for not providing comprehensive and affordable health care to their employees. Companies with between 50 to 99 employees are required to provide insurance, but the penalties imposed for not complying with the ACA requirements were delayed until 2016, while the penalty for companies with >99 employees was delayed until 2015.

"Four years after President Barack Obama signed the Affordable Care Act (ACA) into law, there is still uncertainty regarding its effects, due to delays and exemptions granted by the Obama administration and challenges still pending in the courts. So far, however, there is plenty of evidence that the ACA, or Obamacare, is raising the cost of health insurance to employers and individuals. The effects on business vary - by state, firm size and the composition of firms' workforces - but the impact on small businesses is especially acute. Whereas large corporations typically self-insure - paying their employees' medical bills and hiring insurers to administer health benefits - small businesses purchase group health coverage from insurers and face cost-increasing regulations as they go through the annual ritual of renewing their coverage. Over the next few years, as regulations and mandates are finally implemented, Obamacare will affect how businesses operate - including hiring, employee compensation, growth and so forth." NCPA

Although, health care is not a mandatory service for small businesses with under 50 FTE, many small businesses still provide health insurance for their employees. These companies, along with most larger companies, are seeing rising premiums on their insurance due the ACA stipulation that health care companies cannot deny coverage when considering an individual's health. However, there are options to compensate with these increased (non-mandatory operating cost), the most obvious of which, includes stopping the provision of health insurance or increasing the employee contribution to their coverage.

"Nearly two-thirds of Americans with health coverage have employer-sponsored health insurance - approximately 171 million people. Slightly less than three-fourths (71 percent) of firms that employ 10 to 24 workers offered coverage in 2011. In contrast, only 48 percent of firms employing three to nine workers offered coverage in 2011. The proportion of small employers offering health coverage has been declining for years. Under the Affordable Care Act, many firms will find it in their self-interest to abandon their company health plans." NCPA

Obamacare Effects on Small Businesses with 50-99 FTE

Small businesses with fewer than 50 FTE are exempt from the penalties of ACA; however, as soon as a company reaches the 50th employee mark, the hire becomes much more expensive, thus dis-incentivizing small businesses from expanding their labor force. Firms that employ 50 or more workers and don't provide health insurance must pay a tax penalty of $2,000 for each uninsured employee beyond the first 30.Furthermore, firms with 50+ workers are required to contribute at least 60 percent of the cost for individual minimum essential coverage.

"The consequences for employers (and individual workers) who must purchase coverage are already becoming apparent. A 2014 survey of 148 insurance brokers by the investment firm Morgan Stanley found that rates in the small group market have risen substantially. For instance:

Premiums for firms renewing in 2014 jumped 11 percent in the small group market. For firms with coverage through BlueCross, the year-over-year renewing contract premium hike is nearly 16 percent. For individuals, the increase was similar - about 12 percent.

However, premium increases were much higher in some states than others. The survey found that since December 2012, rates for small employers grew 588 percent in Washington state, though this astounding increase is likely due to the small sample size and additional state regulations. Premiums rose 66 percent in Pennsylvania, 37 percent in California, 34 percent in Indiana, 30 percent in Kentucky and 29 percent in Colorado.

Some employers are reducing their costs by passing on more of the cost to workers. Some employers are raising copayments for workers; others are boosting costs for dependent coverage, according to Mercer, a benefit consulting firm.

The Affordable Care Act is also affecting personnel decisions. A survey of more than 600 small business owners by the Society for Human Resource Management found that more than four-in-10 small business owners have delayed hiring due to uncertainty about the effects of the ACA. One in five reported they have cut the number of workers they employ. Employers are not required to offer coverage for employees who work less than 30 hours per week. Those employees are eligible for subsidized coverage in the health insurance exchange. Mercer reports that 12 percent of employers nationwide plan to reduce workers' hours as a result of Obamacare." NCPA

In summary: "Employers have three ways to reduce the burden of the employer mandate: 1) limit the workforce to fewer than 50 workers; 2) limit the hours worked per week by some employees to fewer than 30 hours; or 3) fail to offer coverage and, thus, pay a $2,000 per (full-time) worker fine. These perverse economic incentives will cause many firms to avoid growing beyond 49 employees." NCPA

SHOP Exchange (Access to Exchanges for Firms with Fewer Than 100 Employees)

"The Affordable Care Act contains financial incentives for states to establish health insurance exchanges where qualifying individuals and small businesses can purchase subsidized, individual health insurance. Employers with fewer than 100 employees will be able to purchase coverage in a health insurance exchange rather than buy insurance in the small group market. This so-called SHOP exchange (Small Business Health Options Program) is behind schedule in the 33 states that will not be running their own health exchange. The federal government announced that the rollout of the SHOP exchanges will be delayed until 2015. In the SHOP exchanges, however, workers will not be eligible for the subsidies individuals receive when they buy their own insurance. Also, just as insurers selling in the exchange will not be allowed to charge premiums based on health status, neither will small group health insurance policies sold outside the exchange. Thus, there does not appear to be a financial advantage to using the exchange." NCPA

Options for Small Businesses to Avoid Rising Health Care Costs

There is a health insurance tax credit available to firms with fewer than 25+ employees, but most firms will not meet these requirements.

"The ACA includes a temporary health insurance tax credit for small employers with moderately-paid workers. The credit is only available for six years, and the only firms that qualify are those with 25 or fewer employees and whose average wage is less than $50,000.

Most businesses will not meet the strict (and complex) criteria for claiming the credit. In fact, fewer than one-third of small businesses qualify, according to the National Federation of Independent Business.12 The credit is not available to sole proprietors and their families." NCPA

Understanding the ObamaCare Small Business Mandate

"Beginning in 2016, Small Businesses with over 50 full-time employees that choose not to provide insurance, provide insurance that doesn’t meet the minimum standards set forth by ObamaCare ( that must provide the minimum benefits of a “bronze” plan bought on the ObamaCare health insurance exchange), or provide insurance that exceeds 9.5% of family income (for employee only insurance) will have to pay a shared responsibility fee. (For those with 100 or more FTE this started in 2015).

Please note that the Affordable Care Act counts full-time equivalent employees, not the number of full-time employees an employer has. Full-time equivalent employees include part-time hours, plus the number of full-time employees a firm has. In other words cutting workers to part-time won’t save a company from being responsible for offering health insurance to full-time workers alone." Obamacare Facts