Federal Allies Series on Health Care Reform
Nuts and Bolts in Response to Members’ Requests
By Ralph E. Winnie, Jr.
To ensure compliance with the Affordable Care Act, it must be determined whether the law treats a company as a large employer or a small employer as there are notable financial benefits available to small businesses that comply with the new ACA rules that every member company of Federal Allies should be informed about. Large employers are defined as employing on average 51 or more full-time workers in a given year which is projected to rise to roughly 101 or more employees in 2016. Small employers are defined on average as 50 or fewer full-time workers which could rise to roughly 100 employees or less in 2016. Starting in 2014, employers with up to 50 employees will have access to the new health insurance marketplace through the Small Business Health Options Program (SHOP).
At this time, small businesses can pay on average roughly 18% more than big business for health insurance because of administrative costs. Therefore, it is argued that SHOP will offer small businesses purchasing power and the ability to pay a lower cost. The eligible small business employer must have an office within the service area of the SHOP and offer SHOP coverage to all full-time employees, in 2016, employers retaining up to 100 employees will also be allowed to participate in SHOP. Given the uncertainty in the effective implementation of the Affordable Care Act, many small businesses have decided to keep their existing plans through 2014 when they chose to change the renewal dates to November or December which effectively delayed implementation of the Affordable Care Act for 2014.
Federal Allies would ask its member companies to do an assessment of the risks and benefits of the impact of the implementation of the ACA on small businesses and make a decision whether or not to change the renewal dates in 2013 to delay any negative impact that the ACA may cause to employee retention and productivity in the upcoming business cycle. According to information discussing small businesses and the Affordable Care Act outlined by the Illinois Health Insurance Marketplace, it is worth noting that while part-time employees count toward determining whether a business has 50 or more full-time employees, the penalty itself is only applied if a full-time employee is not offered affordable, quality coverage and receives financial help on the Marketplace to purchase a plan that meets the minimum standards under the Affordable Care Act
It has been alleged by Sarah Charles Wright and Doug Martin of Business Lexington of Lexington, KY that small employers are not penalized if they do not provide group health insurance for their employees because the ACA provides tax credits as an incentive to “offset a portion of the contributions made by certain small employers for group health insurance premium. To be eligible, a small employer must have less than 25 full-time equivalent workers (FTEs), pay average wages per FTE of less than $50,000 per year and contribute at least 50% to their employees’ total group health-insurance premiums. The lower the average annual wages paid and the fewer the workers, the bigger the tax credits available to the employer.”
It is worth noting to member companies of Federal Allies that eligible small business employers are allowed to carry forward the ACA tax credit for up to 20 years as well as apply the tax credits to the previous years’ tax return and deduct excess premiums as expenses according to Business Lexington’s annual report on the application of the ACA to small business.
Finally, according to the Illinois Health Insurance Marketplace, for tax years 2010 through 2013, the maximum credit is 35% of premium contributions for small business employers and 25% of premium contributions for tax-exempt small employers. For tax years 2014 and beyond, the maximum credit will increase to 50% for small businesses and 35% for small tax exempt organizations. Beginning in 2014, the tax credit will be made available exclusively to employers purchasing coverage through SHOP and may only be claimed for two years.
According to Jim Fuss, District Manager of the Maryland branch office of Insperity, a Houston, TX based firm that improves business performance through administrative relief, reduced liability and by providing systematic ways to improve productivity, “The expansion of health care under the ACA is expected to increase business costs for most businesses by 3.5 to 4% or $400 per employee per year and the insurers excise tax is expected to total $18 billion in 2014.” Furthermore, while Mr. Fuss acknowledges that there should be employer shared responsibility in health care reform, “the health insurance marketplace is expected to be volatile and costs will increase significantly by 2014.” Thus, the impact of these increased costs must be weighed heavily by member companies of Federal Allies Institute because, beginning in 2015, employers with more than 50 full-time employees must offer the opportunity to enroll in qualified health coverage that meets minimum value and affordability requirements. According to Jim Fuss, “Minimum value equals 60% of essential benefit costs covered by the plan. Affordable is not to exceed 9.5% of households income.” The issue is whether small and large business employers can meet these requirements which Congress has been concerned may have difficulty being quantified.
Beginning in 2014, insurers will be prohibited from charging businesses more for insurance based on employee health factors, and there will be new limits on charges to those businesses with older employees. Therefore, it will be important for member companies of Federal Allies Institute to pay special attention to ACA notice requirements and regardless of whether an entity is a large or small business, the employer must notify the respective employees that they may purchase individual coverage through a state exchange which Jim Fuss correctly points out is “a market place where individuals and small businesses can view, compare and purchase health care insurance.” According to the requirements of the ACA, small business employers will need to complete a single application for group coverage regardless of the number of qualified health plans offered by competing health insurers on the SHOP exchange. According to Business Lexington, these applications are important to member companies of Federal Allies as they are required to gather all of the information that will be needed to process “open and special enrollment, eligibility and benefits determinations. Premium payments will be made through the SHOP exchange, which will monitor the quality and cost of the coverage that each participating health insurer is providing.”
Federal Allies will continue to monitor the ACA and how it will affect both large and small business employers by reviewing and analyzing the tax credits and alleged financial incentives purported to be offered by Congress. This is designed to encourage small business employers to provide the most up to date info and advice on how to providing the best health-insurance group plans for their respective employees. Healthcare reform is a work in progress and Federal Allies recognizes the importance of keeping track of changes to the ACA as they continue to impact the livelihood of our member companies.