Small business: The Affordable Care Act, Part II

Earlier this year, I wrote a post about ways that Obamacare might help small businesses. At the time, the Supreme Court had just released it’s decision upholding most of the Affordable Care Act’s provisions and the dust was still settling on what it would all mean. Last month, President Obama won re-election, effectively removing the threat that the law would be repealed, and now these provisions are going into full effect, many starting in the next 12 months. Every small business person, accountant, benefits manager, and employee I have spoken with has expressed confusion, provided me questionable information, or just stared at me with a blank expression, often accompanied by a quivering lip.

The implications for small business are just beginning to come fully into focus, and these are complex but in balance are beneficial to most small businesses. The act defines a ‘small business’ as one employing fewer than 200 workers, but for this post I want to focus on the smallest of businesses – those with fewer than 25 employees and with annual revenues of under $1,000,000. This is a very specific, and huge, slice of the small business community. These businesses are almost always owner-managed, which means that they don’t have an HR person to figure it out and they may not have an accountant sophisticated enough to provide reliable answers on what the law requires.

There are a number of requirements that businesses with fewer than 25 employees need to keep in mind as we approach January of 2014 when most f the law’s provisions will have kicked in. The most important questions for these very small businesses are: 1) Am I required to provide health insurance for my employees? 2) What are my options if I do provide coverage ? and 3) When must I do something?

1. Do I have to provide coverage? Short answer for businesses with fewer than 25 employees (in actuality, any with less than 50 workers) is “no.” There is in fact no requirement in the law that requires small businesses to provide heath coverage to their workers. Having said that, the reality is that many of these businesses already provide insurance because they believe it is the best thing for their employees and their companies. And, we may well see many more small businesses offering coverage to employees over the next few years as they look to take advantage certain aspects of the law. One of the most meaningful benefits that makes providing employee health insurance more attractive is the new small business health care tax credit which provides a 35% tax credit on health premiums paid to cover workers (increasing to 50% by 2014). The size of the credit depends on average wages and the number of employees at a company, with those having the fewest workers and the lowest average wages receiving the greatest benefit.

2. What are my options if I do provide coverage? Your options for providing coverage to your employees will get richer starting in January of 2014 when state-based health insurance exchanges are scheduled to come online. Many states are actively building these marketplaces and they will be open for business in October of next year. Insurance providers will be actively competing through these open markets and it is expected that health insurance costs will be reduced for many employers as the competition heats up. In addition, small businesses, which typically pay almost 20% more for coverage than larger companies, will have the benefit of “pooling” their buying power through the exchanges and may enjoy much of the value that larger businesses receive today.

3. When do I get started? Next October is the date that the new insurance exchanges are scheduled to go live and this is when the shopping begins, but you can already start exploring some of the options on the official healthcare.gov site. Your current plan may be available ion these marketplaces, but you will be able to easily compare benefits and costs across many plans from many providers. Take a look at your current plan to see when your benefit year expires and start planning ways that you will be able to take full advantage of the potential savings that will become available. Of course, this will vary state to state, with many providing robust choice and others planning for a minimally viable approach.

If you provided health insurance coverage to your employees in 2012, make sure to speak with your tax accountant about the tax credits already available under the law. If you are a business with under 25 full-time employees, who are earning less than $50,000 on average, your business is eligible for this credit.

Photo: Civil War wounded in hospital, circa 1865