Changes

{{Blog PostBlogPost|Project TitleHas title= The Affordable Care Act and Small Business (Blog post),|Topic Area=Entrepreneurship, Social Factors in Entrepreneurship, Health Care,|OwnerHas author=Meghana Gaur,|Start Term=Fall 2016,|End Term=n/a,|Status=Active|Stage=DRAFTED,|DeliverableHas content status=Blog Post,Tabled|AudienceHas Graphics status=General Public,None|Primary BillingHas processing notes=AccMcNair01,Tabled pending further information about possible ACA replacement.

The Patient Protection and Affordable Care Act was passed by Congress and signed into law by President Obama on March 23, 2010. Together, the Health Care and Education Reconciliation Act of 2010 and the Affordable Care Act (ACA) transformed the existing healthcare system in the United States by instituting changes that affected “insurance coveragereforms to increase the quality, affordability , and accessibility of insurance, the financing on medical care, coverage and the operation of the Medicare programexpand Medicaid.” [https://www.cbo.gov/topics/health-care/affordable-care-act]

Whether a “small business” small business will be directly penalized affected by ACA mandates depends strictly on its size. While the Small Business Administration's (SBA) Office of Advocacy defines a small business as any independent business that employs fewer than 500 employees (for a more detailed description of SBA’s small business classifications by industry and sector , see [https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/summary-size-standards-industry-sector SBA guidelines]), the ACA mandates that affects only small businesses with greater more than 50 full-time employees to provide health insurance. Small firms employing fewer than 50 full-time employees constitute an overwhelming majority of small businesses and are exempt from the employer mandate (also known as the Employer Shared Responsibility Payment or "Play or Pay" penalty). [http://payroll.intuit.com/support/kb/2001632.html]

Under the ACA’s employer shared responsibility provisions, these Applicably Large Employers (ALE) employing 50 or more full-time equivalent (FTE) employees are required to offer “affordable” minimum essential coverage that provides “minimum value” to their employees and their dependents. If an ALE fails to provide health insurance to 95 percent of its full-time employees and their dependents, the business must make an employer shared responsibility payment, of $2,000 (indexed for future years) for each full-time employee beyond the first 30 employees, to the IRS.[https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions]

Employer Shared Responsibility provisions apply If a firm fails to provide health insurance to employers that employed 50 or more 95 percent of its full-time equivalent employees during and their dependents, the previous calendar year. [http://www.hhs.gov/healthcare/] Fullbusiness must make an employer shared responsibility payment of $2,000 (indexed for future years) for each full-time employees are considered those who work on average employee beyond the first 30 hours or more a week for more than 120 days in a year, while part-time employees are those who work on average less than 30 hours per weekto the IRS. Furthermore, but firms that employ more than 120 days per year. To find the total number of full-time equivalent employees50 workers must contribute, at a minimum, the aggregate number 60 percent of hours worked by part-time employees should be divided by 30 and added the the number of full-time cost for employees' coverage. [https://www.healthcareirs.gov/shopaffordable-calculatorscare-fteact/employers/employer-shared-responsibility-provisions]

It is important Employer Shared Responsibility provisions apply to note employers that many employed 50 or more FTE employees during the previous calendar year. [http://www.hhs.gov/healthcare/] FTE employees are those who work on average 30 hours or more a week for more than 120 days in a year. Part-time employees are considered those who work on average less than 30 hours per week, but more than 120 days per year. The number of FTE employees can be found by totaling the aggregated number of hours worked by part-time employees divided by 30 with the aggregated number of hours worked by full-time employees. [https://www.healthcare.gov/shop-calculators-fte/] Most small businesses are not subject to ACA requirements. Deutsche Bank Global Markets Research Census data from 2010 and 2012 reveals shows that an overwhelming majority of U.S. firms employ fewer than 20 employees, as firm size in the U.S. (number of workers employed by American businesses) follows a fat-tailed skewed distribution. Therefore, most small A majority of businesses are not subject to actually employ fewer employees than the ACA’s employer-sponsored insurance mandateaverage firm size. Firms with over 500 employees, however, employ the greatest share of the workforce and contribute the most toward total employment jobs in our economy. [http://www.businessinsider.com/us-employment-by-firm-size-has-a-fat-tailed-distribution-2015-6%5D]

The biggest complaint about Whether the ACA concerns the trend of rising premiumsis to blame for premium hikes is another story. The Congressional Budget Office (CBO) has found points out that while “premiums for private insurance have grown relatively slowly many of the ACA’s regulations increase costs, the spike has been more apparent in recent years, they have usually grown faster than” average income and the economy as a wholenon-group market. From 2005 to 2014For example, in selling policies, premiums for employmentinsurers must now “accept all applicants during specified open-based insurance increased by 48 percent for single coverage plans enrollment periods” and by 55 percent for family coveragelimit their reliance on age in determining rates. What’s moreAdditionally, the CBO ACA disallows carriers from evaluating premiums on the basis of health and Joint Taxation Committee (JCT) forecast restricting coverage for preexisting health conditions.The CBO’s report claims that these regulations increased premiums to increase at a comparable growth rate for in the next ten yearsnon-group market, averaging roughly two percentage points faster than per capita GDP annuallybut effects on other markets were more limited. [https://www.cbo.gov/publication/51130]

Whether this increase is due primarily ==How can small businesses alleviate the rising costs of healthcare?==Although small businesses that employ fewer than 50 full-time employees are not required to provide health insurance to their employees under the ACA is another story, many do. The CBO points out while many These firms find themselves paying higher premiums as the cost of health insurance continues to rise. If small employers are unable or unwilling to pay the ACA’s regulations increase health premiums, the spike has been more apparent in the nonthey may be forced to discontinue their employer-group market. For examplesponsored healthcare coverage, in selling policies, insurers must now “accept all applicants during specified open-enrollment periods” and limit their reliance on age in determining rates. Additionallyconsequently, the ACA disallows carriers from evaluating premiums on the basis of some workers might seek alternative employment to gain access to health and restricting coverage for preexisting health conditions. Finally Small businesses that employ greater than 50 employees can mitigate increased costs by increasing employees’ deductibles, insurers “must cover specified categories of health care services” and pay at least 60 percent of the costs associated with those services. The CBO claims that these aforementioned regulations “increased premiums noticeably in the nonnegotiating private insurance plan prices, or switching from a group plan to individual employer-group marketsponsored options, such as Health Savings Accounts (HSA), Health Reimbursement Accounts (HRA),” while other markets experienced more “limited effectsor direct primary care.” [httpshttp://www.cbocnbc.govcom/2015/01/publication08/511305-smart-ways-small-firms-can-slash-health-care-costs.html]

==How can The SHOP (Small Business Health Options Program) Exchange, created by the ACA, provides another option for small businesses alleviate the rising with fewer than 50 FTE employees. SHOP utilizes group plans and tax credits to offer lower healthcare costs and increased employer choice functions, by enabling employers to choose from a larger pool of healthcare?==available coverage options. [http://digital.library.unt.edu/ark:/67531/metadc501935/m1/1/high_res_d/R43181_2015Jan15.pdf]

Although The exchange grants small businesses with increased buying power in the group-plan market - an advantage usually enjoyed by larger firms - and provides a simple mechanism for small businesses to compare the price, coverage, and quality of plans. Small businesses that purchase insurance through the SHOP exchange and employ fewer than 50 full-time 25 FTE employees are not required to provide health insurance to their employees under may also be eligible for the ACA, many doSmall Business Healthcare Tax Credit. [https://www. These firms will find themselves paying higher premiums as the cost of health insurance continues to risehealthcare. If gov/small employers are unable or unwilling to pay the health premiums, they may be forced to discontinue their employer-sponsored healthcare businesses/provide-shop-coverage, and consequently, some workers might seek other employment to gain access to health coverage./shop-marketplace-overview/]

Small The requirements for a small business to qualify for the small business tax credit can be found [https://www.healthcare.gov/small-businesses/provide-shop-coverage/small-business-tax-credits/ here]. The tax credit can be worth up to 50 percent of a business’s contribution toward its employees' premium costs (up to 35 percent for tax-exempt employers), depending on the firm’s number of employees and wages. The tax credit is highest for small businesses that employ greater fewer than 50 10 employees can avoid paying the increased costs , with average annual salaries of insurance coverage. Alternatives include increasing employees’ deductibles$25, negotiating private insurance plan prices 000 or switching from a group plan to individual employer-sponsored options, such less; as Health Savings Accounts (HSA)Healthcare.gov states, Health Reimbursement Accounts (HRA)the “smaller the business, or direct primary carethe bigger the credit. ” [httphttps://www.cnbchealthcare.comgov/2015/01/08small-businesses/5provide-smart-waysshop-coverage/small-firmsbusiness-cantax-slash-health-care-costs.htmlcredits/]

==How has the ACA affected small business hiring practices?==The SHOP (Small Business Health Options Program) Exchange, created by more readily available effects of the ACA, provides another option for on small businesses with fewer than 50 are on employees to purchase more affordable insurance. SHOP utilizes group plans Some small businesses report slowing or halting their hiring practices and tax credits cutting employees’ hours. In 2012, two years after the introduction of the ACA, Gallup and Wells Fargo conducted a survey of 600 small business owners. The survey revealed that 48 percent of small business owners pointed to offer lower "potential healthcare costs and increased employer choice functions, by enabling employers to choose from " as a larger pool of available coverage optionsreason for not hiring more employees. [http://digitalwww.librarygallup.unt.educom/ark:poll/67531152654/metadc501935/m1/1/high_res_d/R43181_2015Jan15.pdf] The exchange grants small businesses with increased buying power in the grouphealth-costs-gov-plan market regulations- an advantage usually enjoyed by larger firms curb- and provides a simple mechanism for small businesses to compare the price, coverage, and quality of plans-business-hiring.[9aspx] Small businesses that purchase insurance through the SHOP exchange and employ fewer than 25 employees may also be eligible for the Small Business Healthcare Tax Credit.

The requirements for a small business According to qualify another survey conducted by the Society for the Human Resource Management of more than 600 small business tax credit can be found [https://www.healthcare.gov/owners, more than four out of ten small-businesses/provide-shop-coverage/small-business-tax-credits/ here]. The tax credit can be worth up owners have delayed hiring due to 50 percent uncertainty about the effects of a business’s contribution toward its employees' premium costs (up to 35 percent for tax-exempt employers), depending on the firm’s number of employees and wagesACA. The tax credit is the highest for One in five small businesses business owners reported that employ fewer than 10 they have cut their number of employees, with average annual salaries of $25,000 or less. “The smaller the business, the bigger the credit.” [httpshttp://www.healthcarencpa.gov/small-businesses/provide-shop-coverageorg/small-business-tax-creditspub/st356]

==How has the ACA affected small business hiring practices?==The visible effects of the ACA on For small businesses, if any yet, that are mostly being felt by employees, as some businesses are slowing or halting their hiring practices and cutting employees’ hours. In 2012nearing the 50th FTE mark, two years after the introduction of 51st hire evidently presents a large marginal cost to the ACAfirm. Specifically, Gallup firms that employ 50 or more FTEs and Wells Fargo conducted refuse to provide qualified health insurance coverage must pay a survey tax penalty of 600 small business owners$2,000 for each uninsured employee beyond the first 30 employees. The survey revealed that 48 percent of small business owners pointed to "potential healthcare costs" This increased marginal cost serves as a reason for not hiring more employeeswhy many critics believe that the ACA is “killing jobs.[http://www.gallup.com/poll/152654/health-costs-gov-regulations-curb-small-business-hiring.aspx] According to another survey conducted by ” However, the Society government delayed penalties for Human Resource Management of more than 600 small business ownersbusinesses that employed between 50 and 99 employees until 2016, as a transitional relief from the employer mandate. In 2016, more than four out of ten these small business owners have delayed hiring due businesses will be for the first time subjected to uncertainty about the effects burden of the ACA, and one in five small business owners reported that they have cut their number of employees.[http://www.ncpaACA’s employer mandates.org/pub/st356]

For Going forward, these small businesses that are nearing 50th employee mark, the 51st hire presents a large marginal cost business owners may be forced to the firm. Firms that employ 50 or employees and refuse to provide qualified health purchase insurance coverage must pay a tax penalty of $2,000 for each uninsured employee beyond the first 30 their employees. Furthermore, firms from a market that employ more than 50 workers must contribute, at a minimum, 60 percent of the cost for employees' coveragecontinues to hike up premium rates. [http://www.ncpa.org/pub/st356] This increased marginal cost for While the 50th employee serves as a reason why many critics long-term effects of the ACA believe that the ACA is “killing jobs” and also why many Affordable Care Act on small business owners have concerns about expanding their businesses. Howeverremain largely unknown, regulators delayed penalties against firms who employ between 50 policymakers should adopt prudent and 99 employees until 2016 as a transitional relief necessary measures in order to mitigate increased healthcare costs for small businesses from the employer mandate.

2. httphttps://payrollwww.intuitirs.comgov/supportaffordable-care-act/kbemployers/2001632.htmlemployer-shared-responsibility-provisions

3. httpshttp://www.irshhs.gov/affordable-care-acthealthcare/employers/employer-shared-responsibility-provisions

4. httphttps://www.hhshealthcare.gov/healthcareshop-calculators-fte/

5. httpshttp://www.healthcarebusinessinsider.govcom/shopus-calculatorsemployment-fte/by-firm-size-has-a-fat-tailed-distribution-2015-6%5D

6. http://www.businessinsider.com/us-employment-by-firm-size-has-a-fat-tailed-distribution-2015-6%5D 7. https://www.cbo.gov/publication/51130