The most comprehensive health-insurance reform since Medicare is now the law of the land. The Patient Protection and Affordable Care Act (PPACA), signed into law by President Barack Obama, touches every aspect of U.S. healthcare.
First, know that no employer is required to provide health insurance. However, some employers will pay penalties if they do not provide insurance and their employees buy insurance from the new statewide insurance pools.
Here’s some good news: The PPACA “is really looking out for the smallest of small businesses,” says Shawn Nowicki, director of health policy at New York Business Group on Health (NYBGH), a coalition of 175 employers, unions and healthcare providers in New York state, Connecticut and New Jersey (http://www.nybgh.org).
How so? Right out of the gate, the bill provides a tax break. If your answers to these three questions are “yes,” you may well receive a tax credit of up to 35% of your contribution toward your employees’ health insurance, now through 2013. The credit will increase to up to 50% for tax year 2014 and 2015.
- Do you have 25 or fewer full-time employees?
- Are their average annual wages below $50,000?
- Do you contribute more than 50% of your employees’ total premium costs?
For this year through 2013, the full tax credit is available to employers with fewer than 10 employees whose average annual wages are less than $25,000. The tax credit gradually scales down as workforce sizes and average wages increase.
Here’s an example. Suppose your operation employs 10 full-time workers with an average wage of $25,000. If your annual employer healthcare costs are $70,000, you are entitled to a $24,500 credit each year for 2010 through 2013. Starting in 2014, the credit will be $35,000.
For some help calculating your own credit, see the guidance recently posted on www.irs.gov. (Search for “Small Business Health Care Tax Credit” including the quotation marks.)
Businesses with 50 or fewer employees benefit from another tax-related benefit: They may opt out of providing insurance with no penalties. Got more than 50 employees? You are not required to offer health insurance. However, if you opt out and one or more of your employees goes to the new state insurance pools to purchase coverage, you will pay $2,000/full-time employee, excluding the first 30 employees from the assessment.
Choice in policy marketplace
Choice in the insurance-policy marketplace is another issue that’s expected to change (with the network of state-level insurance exchanges, slated for 2014).
“The exchanges will make buying insurance a lot easier for small-business owners,” says Terry Gardiner, national policy director for the Washington, D.C.-based advocacy group Small Business Majority (www.smallbusinessmajority.org).
“The exchanges will negotiate with insurance companies and come up with the best deals they can find,” says Gardiner. “All the employer will have to do is say, ‘Here is the amount I will contribute toward premiums and here is the employee share.’ The employees can then go to the exchanges and select what plan they want.” Policies will be available for each of five benefit tier levels.
The carriers will want to market their insurance policies through the exchanges because of the vast pool of customers they represent, Gardiner says.
Bottom line: “Small employers will be able to offer choice instead of a single plan – at reduced administrative costs – so they can become more competitive with big-business competitors.”
The exchanges would provide a standardized process to make it easier to go online and select plans, says Nowicki. “And while the competition will theoretically make insurance cheaper, it’s hard to say whether it will in actuality.”
Improvement in plan quality
Overall health plan quality should also improve. Carriers are required to meet minimum standards that erase some perceived abuses of years past. Here are some examples of the new parameters effective this year:
- All policies must now cover children younger than 19 with pre-existing conditions. That mandate extends to all adults in 2014.
- A ban on lifetime dollar limits.
- Elimination of rescission – the practice of canceling coverage after someone gets sick.
- A requirement to extend coverage to age 26 for dependent children.
Finally, the legislation prohibits the practice of raising premiums when workers get sick. Carriers will be allowed to adjust rates only on the factors of family composition, tobacco use, age and employer location. That should eliminate the sudden spike in premiums that so often occur for small employers.
“Many small businesses don’t even know why their insurance gets jacked up,” says Gardiner. “The smaller your company, the worse it is. Now everyone will be in one large pool.”
The end of price discrimination by health status, along with the bill’s requirements that everyone buy insurance, should encourage worker mobility. Thus, smaller employers will find it easier to recruit top-performing workers.
Don’t overlook a hidden expense: the administrative overhead required to understand and comply with the law’s provisions.
“There is a hidden cost in labor and time required to manage all the changes required by the legislation,” says Cynthia Van Bogaert, employee benefits attorney at Boardman, Suhr, Curry & Field, Madison, WI (www.boardmanlawfirm.com). “Employers will have to learn about the legislation and monitor additional guidance from agencies such as the U.S. Department of Health and Human Services.”
Some employers are saying, “Maybe it’s easier to just pay the penalty [required of larger employers who do not provide insurance] and let employees buy whatever they want?” says Joan Smyth, partner at the New York City-based Mercer consulting firm (www.mercer.com). “That’s scary, because we do not know what the state exchanges will look like and how they will be priced.”
Concerns that higher carrier costs will trickle down to the real world of monthly premiums seems to ring alarm bells everywhere. “Congress will come back to the table in future years to address healthcare inflation,” says Gardiner. Reforms to control costs have not gone far enough. Some $2.4 trillion flows into the healthcare industry each year. Every part of the industry has a lobby group that says ‘Don’t tweak my part of the budget too much.’”
Answers to common questions
Will your premiums go down? Yes, if you are hit by huge price increases from an uncompetitive marketplace or one employee’s serious illness.
Will it be easier to shop for policies? Yes, once the state exchanges are up and running. Will the quality of the policies be higher in terms of coverage? Yes.
Will you be protected from those price hikes that so often occur when one employee in a small group gets seriously ill? Yes.
What should you do now? Put together a game plan that tackles the provisions of the law that kick in this year and next. Lay the groundwork for those provisions slated to take place over the next five years. However, the legislation’s finer points may get tweaked a lot. Watch for regulations interpreting the law from the U.S. Department of Health and Human Services (http://www.hhs.gov).
- The U.S. Department of Health and Human Services (HHS)’s website at http://www.healthreform.gov. See especially the link to a YouTube video: “Health Reform and Small Business.”
- The Kaiser Family Foundation, http://healthreform.kff.org. See especially the document titled “Summary of New Health Reform Law.”
- The Small Business Administration (SBA) has posted information on how healthcare reform will affect small businesses. Go to http://www.sba.gov and click on “Health Care Reform.”
- Mercer, the New York based consulting firm: http://www.mercer.com.