An alarm company in suburban Atlanta and its 36 employees face the possibility of changing health insurance plans three times in the space of four months, in response to rising rates and changing rules. Many other small companies are in the same boat—but not all of them realize it.
The landscape is changing dramatically because of the Affordable Care Act (ACA), known as Obamacare, which imposes penalties on individuals who fail to obtain health insurance and on large companies that fail to provide insurance to their employees (though these large-company penalties have been delayed until 2015). But companies with 50 or fewer employees face no penalties. That has convinced some small-business owners and employees that Obamacare doesn't affect them. They're in for a shock. Obamacare is bringing big choices and changes to small-business health insurance.
Six things you need to know about Obamacare if you own a small business or work for one…
Small-business owners no longer determine the number of hours an employee must work to qualify for health benefits. Starting in 2014, any employee who works at least 30 hours per week, on average, must be offered whatever health insurance benefits are offered to the company's full-time employees. Business owners previously set this benefits bar wherever they chose, often at 32 or 36 hours.
Some employers have responded to this new rule by scaling back certain employee schedules to 28 or 29 hours per week.
The new health insurance rules don't necessarily apply to your plan starting January 1, 2014. You might have read about the new health insurance rules that will take effect in 2014. Health insurance plans will be required to cap out-of-pocket expenses at $6,350 ($12,700 for families)…small group health insurance plans—that is, plans for businesses with between two and 49 employees—generally must cap deductibles at no more than $2,000 a year ($4,000 for families)…and coverage must include a broad range of "essential health benefits," such as maternity, mental-health and pediatric services including oral and vision care.
What many people don't realize is that these new rules don't apply to a company's health insurance plan until it reaches its first health insurance renewal date in 2014. So, for example, if your company's plan year begins July 1, your insurance probably won't feature Obamacare's new benefits or increased costs until then. In fact, some employers, such as the alarm company referenced above, are moving up their next renewal date to December 2013 so that they can continue to offer insurance under the old rules until December 2014.
Exceptions: "Self-funded" insurance plans are not required to comply with many Obamacare rules (see below). Group insurance plans established prior to March 23, 2010, that have not had significant changes since that date might not have to comply with the new rules, either. Employers can ask their insurance companies whether their plans qualify as "grandfathered." Employees can ask their company benefits administrators if and when the new health insurance rules apply to them.
Employers no longer need to worry that an older or unhealthy employee will push up the companies' health insurance rates. In the past, just one or two expensive-to-insure employees could push a small business's rates through the roof. But starting with plans that take effect in 2014, the age and health status of employees and their covered dependents will not affect the rates.
Bonus: This might reduce one of the roadblocks faced by older job hunters.
Small-business employees in most states won't be able to shop for coverage as extensively as originally promised. Starting October 1, small companies are able to shop for insurance through a Small Business Health Options Program (SHOP) exchange—comparable to the much publicized Obamacare individual insurance exchanges, also known as insurance marketplaces. Coverage purchased through these exchanges will take effect as early as January 1. But the SHOP exchanges won't be what small businesses were told to expect when Obamacare was unveiled.
The original idea was that a small-business owner could select a level of coverage—say, bronze or silver—and decide how much money to contribute toward that coverage for each eligible employee. His/her employees would then choose among a number of insurance companies and plans available at that level through the SHOP exchange. But it turns out that the number of insurance companies most employees will be choosing among is…one. The requirement that multiple insurance companies be offered has been delayed until at least 2015.
Exceptions: Connecticut and California have announced that they will offer employees choices in their SHOP exchanges in 2014.
Small-business owners should investigate the SHOP option even without the employee-choice component. As many small-business owners know, Obamacare offers a tax credit to small companies that provide their employees with access to health insurance if those companies fall below certain staffing levels and average wage limits, among other requirements. But not all small-business owners realize that starting in 2014, this tax credit will be available only if the company buys its health insurance through a SHOP exchange or a SHOP-recognized health insurance company.
Speak with your tax adviser or contact the government's Health Insurance Marketplace for Small Employers (800-706-7893) to find out if your company could qualify for these tax credits.
Rates are likely to rise for many small businesses. The new rules and requirements imposed on small-business insurance plans by Obamacare come at a cost—higher premiums than were charged for previous bare-bones plans. Early indications are that rates could increase by 30% or more for many companies, though this will vary by state and company. Some of that rate increase probably will be passed along to employees in the form of higher premiums.
Employees might receive better coverage, however. And small businesses that have a significant number of employees or covered dependents who are past age 50 and/or unhealthy actually could see their rates decline. So could some small businesses that already provide coverage that offers the now-required essential benefits and relatively low deductibles.
Self-funding is coming to small-business health insurance. When companies "self-fund," they serve as their own insurers, paying employee medical bills rather than purchasing outside health insurance to do so. (The administration of a self-funded plan still is likely to be outsourced.) Self-funding has become popular among large companies because it frees them from certain taxes and Obamacare rules.
Small businesses historically have shied away from self-funding because a single major health problem can ravage a small company's bottom line. But insurers increasingly offer hybrid options that feature catastrophic coverage to protect self-funded small companies if they incur greater-than-expected medical costs.
Helpful: Self-funding makes particular sense for companies with workforces that are young and healthy.
Some small-business employees will be better off if their employers don't offer health insurance. Starting in 2014, if your household income falls below 400% of the federal poverty level—that is, if your income is below $45,960 for an individual…$62,040 for a married couple…or $110,280 for a family of five, for example (these figures will increase slightly with inflation)—you're likely to qualify for a tax credit to help pay for health coverage purchased through the new Obamacare individual insurance marketplaces. The tax credit could make individual coverage more affordable than employer-provided health insurance.
There's a catch—you will not be eligible for Obamacare's individual insurance tax credit if you have access to an "affordable" employer-provided health insurance plan.
But the fact is, many small employers feel that they can't eliminate their health insurance plans, even if both they and most of their employees would save money if they did. The most skilled, highest-paid and hardest-to-replace workers often earn too much to qualify for a tax credit in the individual market, and these employees likely would defect to other companies in large numbers if their current employers dropped their health plans.
Source: Victoria Braden, president and CEO of Braden Benefit Strategies, Inc., a group health insurance consulting firm based in Johns Creek, Georgia, that works with employers that have fewer than 300 employees. She has twice testified before congressional committees regarding small-business benefits issues. BradenBenefits.com