Small-business owners who are anxiously waiting for regulators to finalize rules that will define the three-year-old Affordable Care Act remain uneasy. Their anxiety is justified since they are waiting for rules that will be enacted next year and no one knows what growing pains lie ahead.
But they shouldn’t necessarily view the ACA as a bad thing for business.
“Beginning in 2014, purchasing insurance coverage should become simpler and more streamlined,” said Jon Pettibone, managing partner of Quarles & Brady in Phoenix. “When a small business purchases a new insurance policy, insurance rates will vary only due to the following limited factors: family size, age, geography, and tobacco use. Insurers will no longer be able to base insurance rates on pre-existing conditions, claims history, gender, size of employer, and/or occupation of employees. In addition, insurers cannot deny a small business’s application for insurance if the business fails to meet the plan’s minimum participation or minimum contribution requirements as long as the small business applies for coverage between November 15 and December 15. Although coverage may not become cheaper, increases from year- to-year will be based on a significantly larger risk pool and so may become somewhat more predictable.”
According to Scott B. Carpenter, an attorney with Carpenter, Hazlewood, Delgado & Bolen, the ACA will require all business with 50 or more employees to provide affordable, minimum essential coverage or face a penalty of $2,000 per employee, excluding the first 30 employees.
“An employer with 60 employees, for example, that does not provide coverage, will pay a penalty of $60,000,” Carpenter said. “If a small business owner decides to pay the penalty, the amount of the penalty is not a deductible business expense.”
So what happens if an employer realizes that a $60,000 non-deductible penalty is still less than what she would pay in health insurance?
“That decision will force those employees into the individual market or ‘exchange,’ where there is no guarantee that the subsidies and premium tax credits will make the insurance affordable for that employee based on the wages they receive,” Carpenter said. “In other words, employees who do not receive coverage through their employer may seek employers who do provide coverage. This is one of the biggest unknowns – the behavior of employees who do not receive coverage through their employer.”
Pettibone said a small business owner should analyze the “shared responsibility” payment it might owe if it makes no changes to its health insurance program.
“In some cases, a small business owner might discover that it could have a small — or even zero — shared responsibility payment,” Pettibone said. “In that case, the business owner may decide to make little change to its health insurance program. In other cases, the small business owner might discover that it could have a very large shared responsibility payment and thus needs to develop a strategy to minimize the amount of the payment. Developing a plan now will help avoid an unwelcome surprise later.”
Carpenter also suggested that small business owners need to make sure that they are outsourcing non-critical functions — including payroll processing, IT support, etc. — to reduce headcount, if possible.
“From there, an attorney can be utilized to make sure that employee and independent contractor policies are ironclad and that possible business restructuring options are pursued,” Carpenter said. “ There is no question that today there is an incentive, until the Affordable Care Act and the various markets it will create — both good and bad — become more mature, to stay under 50 employees. Companies under 50 employees will have maximum flexibility.”
While the potential impact of the ACA remains anything but clear for small-business owners, there is one major misunderstanding that needs to be cleared up, even for companies with fewer than 50 employees.
“The biggest misconception out there,” said Rich Boals, president and CEO of Blue Cross Blue Shield of Arizona (BCBSAZ), “is that health insurance is going to be free. That’s not going to happen.”
The cost of health insurance has been a growing concern for small businesses, said Jeff Stelnik, senior vice president of strategy sales and marketing for BCBSAZ. Overall, about 71 percent of firms with 10 to 24 employees offered health insurance in 2011, compared with 77 percent in 2001, according to a 2011 Kaiser Family Foundation survey. Of firms with three to nine workers, 48 percent offered insurance in 2011, compared with 58 pecent in 2001.
“While the Affordable Care Act gives more people access to health insurance coverage, it doesn’t address the affordability issue,” Stelnik said. “In the coming year, small businesses will see higher premiums that are the result of the ACA provisions including essential health benefits, guaranteed issue, ratings and taxes/fees. These increased premiums are a weight that could have a significant impact on the bottom line of small businesses.”
Another misconception is that many small business owners don’t think there are not many requirements if they stay under the 50 full-time employee or 50 full-time employee equivalent threshold, but experts said that is not the case.
“Small employers still need to be educated on their compliance responsibilities,” said Shay Bierly, director of client services for MJ Insurance’s employee benefits department. “Those compliance responsibilities include maximum waiting periods, how to distribute medical loss ratio rebates, SBC (Summary of Benefits and Coverage) disclosure rules and reporting requirements, to name a few.”
Bierly said that all business owners — no matter the size of the business — need to educate themselves and prepare a strategic plan with a professional consultant or advisor so that they don’t fall prey to the many misonceptions that are floating around regarding the ACA.
“The law is here and is not going away before the big implementation date of January 1, 2014,” Bierly said. “Business owners need to understand the expectations, possible financial impact and prepare themselves and their employees.”
Bierly said the ACA provides an opportunity for employers to assist their employees in becoming educated consumers.
“With the possibility of moving to a consumer driven health plan, employees will have more skin in the game and, by necessity, find the need to understand the cost and quality of services they need,” she said. “It is all about working smart and staying in the know. Employers must be engaged in what the market demands from a recruiting and retention standpoint while creating a responsible, healthy workforce.”
To make sure they are ready for the arrival of the ACA, Stelnik said business owners should do these things:
* Understand if your business has a grandfathered health plan.
* Know how your business is classified under the ACA. For example, businesses with 51 or more full-time employees will have to pay a penalty if they do not offer employees health insurance. Small businesses with fewer than 25 full-time employees may be eligible for tax credits to assist with cost of insurance.
* Balance the decision to offer health insurance by weighing corporate finances, culture and the best interests of your employees.
* Begin looking into unique, new offerings specific to small businesses. Companies like BCBSAZ is tailoring plans to meet the needs of small businesses.
“For some businesses, a number of employees may be eligible for subsidies through the ACA, lessening the employer’s responsibility to offer health insurance,” Stelnik said. “Employers might also see improved employee satisfaction and quality of life as a result of the increased access to healthcare.”
Ultimately, experts said the ACA may drive small businesses in Arizona to new levels of success and innovation.
“Currently, many people who would like to start businesses do not do so because they cannot obtain affordable insurance in the private market and must rely on employer-provided coverage,” Pettibone said. “If those budding entrepreneurs can obtain subsidized coverage on the individual insurance marketplace, they might be more likely to take career risks and start new businesses. It’s thus possible that the Affordable Care Act will enable more people to pursue entrepreneurial activity and create more small businesses.”
5 THINGS TO KNOW FOR SMALL BUSINESSES
On average, small businesses pay about 18 percent more than large firms for the same health insurance policy because they lack the purchasing power that larger employers have. The Affordable Care Act provides tax credits and gives small businesses the ability to shop for insurance in the new Health Insurance Marketplace, which should help close the cost gap.
1. If you have up to 25 employees, pay average annual wages below $50,000, and provide health insurance, you may qualify for a small business tax credit of up to 35 percent (up to 25 percent for nonprofits) to offset the cost of your insurance.
2. Under the health care law, employer-based plans that provide health insurance to retirees ages 55-64 can now get financial help through the Early Retiree Reinsurance Program. This program is designed to lower the cost of premiums for all employees and reduce employer health costs.
3. Starting in 2014, the small business tax credit goes up to 50 percent (up to 35 percent for nonprofits) for qualifying businesses.
4. In 2014, small businesses with generally fewer than 100 employees can shop in the Health Insurance Marketplace, which gives you power similar to what large businesses have to get better choices and lower prices. Open enrollment begins on October 1, 2013.
5. Employers with fewer than 50 employees are exempt from new employer responsibility policies. They don’t have to pay an assessment if their employees get tax credits through an Exchange.