In our previous two installments, we discussed how the Affordable Care Act would affect individuals and what it might mean to large businesses. Now, we’re going to look at the group that, if you listen to a lot of political speeches, are the perfect, unfailing drivers of all things that are wonderful in our country: small business owners.
What Does Obamacare Mean to Small Business?
The question of what health care reform really means to small business depends on how one defines small business. Whatever number of employees used to define the border between small and large business, it’s possible that the threshold defined in the law is going to become the new defining number. As discussed in last week’s entry, businesses that have 50 or more full-time employees (or full-time equivalents) will have to make health insurance available to their employees or most likely pay a tax penalty, something commonly known as the "employer mandate." As such, it seems entirely possible that less than 50 employees will become an effective definition for “small business” in the future.
So, with that out of the way, the questions remains: will small businesses have to get their employees coverage? In a word: no. Large business don’t HAVE to get their employees coverage either, they’ll just pay out the nose if they don’t. For businesses with less than 50 employees, though, there’s no tax penalty or legal repercussions. If you don’t want to pay for health insurance for your employees, you just won't and Uncle Sam will be none-the-wiser. (Though, Uncle Sam will still very much be interested in whether a small business owner is personally covered as being a small business owner doesn't exempt one from the individual mandate.)
However, most small businesses already offer a health plan. Not because anyone's forcing them to, but because it's an attractive perk that helps them attractive top talent to their growing firm. Or because the size of their firm means they're more personally connected to their employees and leaving them without health coverage is just unthinkable.Or because the owner of the business is sole decision maker and needs health insurance themselves.
That's why, as of 2011, 57 percent of small businesses with 50 or fewer employees already offered health coverage. That's low when compared with the 92 percent of those with 51-100 employees and 97 percent of those with more than 100 employees, but it still demonstrates a pretty clear economic incentive to offer health insurance outside of tax penalties. As such, the new creates a new set of incentives to get small employers to offer insurance.
Small Business Exchanges
The Small Business Health Options Program, or SHOP exchange, is intended to create an open marketplace where businesses with 50 or fewer full-time employees could go to find a health plan. Operating on much the same principle as the individual exchange, the intent is to expand the risk pool to include all employees of small firms and keep premiums at a reasonable level for everyone as a result. Small businesses can no longer be denied coverage because of the health status of their employees, and small group plans will now include certain essential benefits that have to be covered. What’s more, small businesses would be able to offer their employees a selection of different plans from different carriers, much like large employers can do now.
The hope is that the expansion of the risk pool paired with new options will help to push down premiums for small businesses, making it more affordable. However, initially intended to open at the same time as the individual exchanges, the SHOP exchanges were delayed by one year earlier in 2013 when it became clear that just getting the individual exchanges off the ground was going to be trouble enough.
Not only are small businesses off the hook for any tax penalties associated with failing to offer a health plan, some can even get a tax credit for offering coverage. Small businesses with average wages of less than $50,000 a year and 25 of fewer employees may be eligible for a tax credit of up to 35 percent of their costs for offering a health plan. And that can increase to 50 percent if the plan is purchased through the SHOP exchange. The credit's on a sliding scale and, in order to receive the maximum, a firm can't have more than 10 employees or pay average wages of more than $25,000, but it may convince some very small firms with low-wage workers to offer a plan where they might not have otherwise.
However, for those businesses that simply can’t afford to offer employees insurance, the health care law may still open up options. Namely, small business owners with personal incomes low enough that they qualify for subsidies on the individual exchanges may opt to drop their group coverage plans and simply secure health insurance for themselves and their families on the individual market, a move that could save their business thousands of dollars a year in health care expenses.
And, while their employees would suddenly find themselves without insurance, they would also be able to head to the exchanges themselves. There, they would have more options in picking a plan and potentially have subsidies available (assuming their owners aren't so generous that they're collecting lower wages than all their employees). What's more, depending on the employees' income and any required contributions to premiums from the small-group plan, it's entirely possible that the employees will also end up approximately the same or even less than they did under the old plan. At the very least, employers dropping coverage would now know that their employees would have some sort of safety net protecting them from going without health insurance.
Every set of circumstances would be different, clearly, but it’s not hard to imagine something like a small, family-owned store or restaurant where this presents an attractive option for everyone involved, especially if employees had to make steep premium contributions under the old plan.
While some small businesses with just over 50 full-time employees may be facing new challenges over the next few years, those businesses that are small enough to fall beneath the threshold for the employer mandate could be the big winners in health care reform. They’ll have access to a new exchange system that should give them a lot more flexibility when shopping for plans, and insurance companies won’t be able to deny them coverage based on how healthy (or, more specifically, not healthy) their employees are, making it easier and potentially even cheaper to offer coverage. And for those not offering coverage, their employees will have more options than they did in the past, and they won’t be subject to the tax penalties that larger firms or individuals might have to pay. On the whole, small businesses win out.
Unless, that is, the law’s critics are correct about new regulations driving up premiums. If the end result of the law is that small group plans become significantly more expensive, the other benefits offered may not seem so valuable in retrospect.
As with most of this law, only time will tell.
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