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Obamacare & Small Business: What You Need to Know

Shutterstock.com | Casper1774 Studio
Shutterstock.com | Casper1774 Studio

Shutterstock.com | Casper1774 StudioShutterstock.com | Casper1774 Studio

Finding quality, affordable health insurance has never been easy. The Affordable Care Act (ACA), passed in 2010 and also known as “Obamacare,” was introduced in part to solve the health insurance conundrum for employers.

Has the law succeeded? Reports from the field suggest that the ACA in its early stages can best be described as “a mixed bag.”

Continuing Premium Hikes

Nine out of 10 employers responding to a recent survey by the International Foundation of Employee Benefit Plans (IFEBP) stated their health care costs had increased as a result of the ACA. While the median increase they reported was four percent, one in seven respondents said their rates went up by more than 10 percent. Some small businesses claimed spikes of 20 to 50 percent.

In 2014 the premium for employer-provided family coverage averaged $16,834, a rate three percent higher than the previous year, according to the “2014 Employer Health Benefits Survey” from the Kaiser Family Foundation. The average annual premiums for such coverage have risen 26 percent over the past five years.

While these increases are unwelcome, the Kaiser Foundation points out that they are smaller than the escalations for the previous five-year period. And some higher premiums came with advantages.

The End of ‘Experience Ratings’

One ACA benefit seems certain: Small employers are no longer penalized with skyrocketing premiums when one employee incurs an expensive treatment. That’s because the ACA eliminated what insurers call “experience rating,” or the assessment of premium levels by the medical history of participating employees.

The end of experience ratings has resulted in an overall leveling effect. “Before the ACA, employers with healthier employees would have seen premium discounts, while employers with less-healthy employees would have seen premium surcharges due to poor experience,” says Julie Stich, director of research at the IFEBP.

Finally, any assessment of the ACA has to consider whether premiums might be higher without the law. That is indeed the conclusion of at least one expert on health care costs. “There has been a two-percentage-point downward pressure on insurance premiums,” estimates Steven Eastaugh, a Washington, D.C.-based health economist and consultant. “This has been caused by a combination of consumer comparison shopping and competition among insurance companies.”

SHOP and Save

The ACA provides employers with several resources and advantages. One is the dedicated Internet-based insurance marketplace called the Small Business Health Options Program, or SHOP. Although it’s a seemingly great solution available to employers with 50 or fewer full-time workers, the program is struggling to take hold.

The SHOP exchanges were delayed until late 2014 while energies were devoted to fixing the public exchanges for individuals. In many states employers were required to fill out paper applications. The inelegant process led to dismal results. “SHOP certainly has been slow-growing,” Eastaugh says. “The program is barely working in 15 states. Perhaps it will get up and running in 10 more sometime in 2015.”

Furthermore, in those 15 states, participation has been low.

Another problem with the nascent SHOP program is the lack of economies of scale. The small businesses that patronize SHOP do not have enough employees to attract competitive pricing from insurance carriers.

Tax Credits

Many small employers enjoy another ACA benefit: the tax credit program intended to assist organizations that offer their workers health insurance. These credits are available for employers with fewer than 25 employees and average wages of less than $50,000 a year. The credits are worth up to 50 percent of employer contributions to employees’ premium costs, and the program is good for two consecutive years. Employers that take advantage of the tax credits must offer coverage through the SHOP marketplace.

Despite the allure of tax credits, employers have not taken advantage of them as much as anticipated.

Perhaps the program’s benefits need to be adjusted. “My feeling is that the tax credits were not of sufficient size, and the fact that they expire in two years doesn’t help,” Eastaugh says. “Maybe the carrot needs to be made bigger: Perhaps the tax credits should be 80 percent and they should go on for five years.” He adds that a more generous tax credit policy might also allow employers to offer plans with lower deductibles.

Private Exchanges

While the SHOP exchanges and their attendant tax credits are potentially valuable resources for smaller employers, businesses large and small can take advantage of an unexpected offshoot of the ACA: private health insurance exchanges. These are set up by private-sector companies such as insurers, brokers or consultants.

Like their SHOP counterparts, the private exchanges offer a variety of plans to employers and opportunities to reduce administrative overhead. Basic human resource functions (such as tracking which employees are signed up for which policies) are done automatically by the organization running the private exchange.

But there are also differences. Private exchanges offer more choice and plan customization than SHOP. They also provide the opportunity for employers to contribute toward premiums in the form of a fixed amount rather than a percentage. That can help reduce costs as premiums rise.

“Private exchanges are growing like wildfire,” says Larry Boress, president and CEO of the Midwest Business Group on Health, a Chicago-based consortium of more than 120 employers. “Our surveys show that 40 percent of our member employers plan to look at private exchanges as possible sources for health insurance.”

Public Exchanges

Thanks to the ACA, employers can take advantage of a third type of exchange: the state public exchanges, where people can shop for a health insurance plan that meets the ACA minimum-coverage guidelines. Smaller employers who decide health insurance is too expensive to provide as a benefit might decide to send their employees to these marketplaces to shop for coverage.

But which employers can send their workers to the public exchanges without incurring fines?

As of January 1, 2015, businesses with 100 or more full-time employees (FTE) must provide health benefits to at least 70 percent of their full-time employees (95 percent by 2016) or pay a $2,000 annual penalty for each employee, excluding the first 30. The deadline is later (January 1, 2016) for businesses with 51 to 99 FTEs.

Employers with 50 or fewer FTEs are not required to offer any coverage at all. These are the employers who are most likely to either utilize the SHOP exchange or send their workers to the public exchanges, since doing so will not result in an ACA fine.

Experts caution against instituting a program that gives employees after-tax payments for purchasing insurance on the open market, including the state individual exchanges. Doing so violates the ACA and can trigger fines of $100 per day (or $36,000 per year) per employee.

An alternative and legitimate arrangement is to increase the salary of employees with the idea that they can—but are not required—to use their additional income to buy their own insurance. Such an increase, though, is subject to payroll taxes. And the increased salary on its own does not constitute health insurance coverage.

Prime Benefit

If the costs and complexities of an employer-provided health insurance program seem like more trouble than the benefit is worth, opting out is a possibility. In the IFEBP survey, one in 10 respondents said they had reduced hiring to stay below the threshold. Still others said they were reducing work hours so more employees fall into the part-time worker category for which health insurance is not required.

Despite those reports, the fact remains that most employers seem determined to continue offering what they deem a benefit valued by employees and thus vital to business success. In the IFEBP survey, 93 percent of employers with 50 or fewer workers stated they “will likely” or “definitely will” continue to offer coverage. Fewer than one percent of survey respondents stated that they will definitely discontinue health insurance coverage.

“None of our employer members are planning to drop health insurance coverage,” Boress says of the Midwest Business Group on Health. “They all feel it is necessary to recruit and retain talent.”

For all these reasons, the annual search for affordable quality health insurance is not likely to end any time soon. “It’s good for all businesses to have employees with health insurance,” says Kaya Bromley, an Incline Village, Nev.-based attorney who counsels employers nationally on the ACA. “It means a healthier, happier and more productive work force.”

For more on implementing the ACA in your business, see HF’s June/July 2014 story “Obamacare and Your Business: How Will the Affordable Care Act Affect You?” at www.woodfloorbusiness.com/JJ14Obamacare.

 

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