In just nine months, the bulk of the federal Affordable Care Act will go into effect. Many of its provisions will have a real impact on the majority of small-business owners. Still, less than 1 percent of America’s small businesses are currently in a position to face penalties under the law. Here’s what you need to know:
The Over-50 Crowd
The most talked about provision in the health care law is the requirement that every American have health insurance. Many people also think the law mandates all businesses with more than 50 employees to provide insurance to their employees. That’s not actually the case.
If you have 50 or more full-time employees but none of your workers receive a tax credit or cost-sharing reduction to purchase coverage through a state exchange, there is no penalty — whether you offer health insurance or not.
What’s more, 96 percent of all businesses in America have fewer than 50 employees. That leaves only 4 percent of businesses in the over-50 crowd, and of that 4 percent, 96 percent already offer insurance. That means a mere 0.02 percent of businesses in this country have more than 50 employees and are not offering them insurance.
But if you are a business owner with 50 or more full-time employees who does not offer insurance and one or more of your employees receives a government subsidy to purchase insurance, under the law you must pay $2,000 per full-time employee, not counting the first 30 workers.
The 96 Percent
The “over-50 crowd” is the segment of small businesses that have been getting most of the attention lately. But lets take a look at the myriad ways the Affordable Care Act is going to affect the majority of small businesses in California.
For starters, there are a number of provisions aimed at making it easier for small businesses to offer their employees coverage. Most small businesses won’t have to do anything different under the law in 2014, other than telling their employees about the most critical part of the law for small businesses: the state’s health insurance exchange, Covered California.
The small business exchange (known to policy wonks as the SHOP exchange, or Small Business Health Options Program), will allow the 700,000 California small businesses with 50 employees or fewer to band together when buying coverage — giving them the kind of purchasing clout large businesses enjoy. It’s something Santa Cruz ice cream shop owner Zachary Davis is eagerly awaiting. Davis recently began offering health insurance to the Penny Ice Creamery’s approximately 45 employees.
“I wish we could have done this whole process through the exchange because it was incredibly difficult to understand,” Davis says. “If we hadn’t had our broker, we couldn’t have done it at all. Of course, I haven’t seen what the exchange is going to look like, but the idea that it will be navigable to a layperson — that’s really appealing. I’m hopeful that costs of providing coverage will come down as well because of the law.”
Davis will get the chance to use Covered California on Oct. 1, when open enrollment begins. Being able to pool his buying power with hundreds of thousands of small business owners across the state will ideally rein in his premiums, but so will the various provisions aimed at curbing costs — the top priority for small business owners.
Bending the Cost Curve
Small Business Majority’s polling has shown time and time again that while the majority of small businesses want to offer health insurance, many cannot afford to. Curbing skyrocketing costs is their top priority. The health care law has and will continue to put reforms in place to bend the cost curve so premiums are more affordable to employers and individuals.
Provisions in effect, such as rate review and Medical Loss Ratio (MLR), already have resulted in lower premium costs and cash back for small employers. Millions of small businesses in 42 states got rebates for part of their coverage costs last August because their insurers failed to spend enough premium dollars on patient care and quality improvement. In California alone, insurance giant UnitedHealth refunded $3.5 million to 4,400 companies because of the rule.
The law’s individual responsibility requirement will also help curb costs by getting rid of what’s known as the “hidden tax.” When an individual without insurance seeks medical care they can’t pay for, government or charity may pick up a portion of the cost, but some remains unpaid. To cover that gap, insurers charge higher rates when insured individuals receive care, and these increases get shifted to those with private insurance in the form of higher premiums ($1,000 per family a year, in fact). As more people obtain insurance, fewer costs will get passed on as a hidden tax.
Additional provisions, including Medicare and Medicaid reforms, investments in primary care programs, and a crackdown on fraud and waste will go into effect over the next year, also helping to reduce costs. These reforms, coupled with state exchanges and other small-business provisions like tax credits for providing employees insurance, will work together to curb rising premium prices.
There certainly is still more that can be done to contain costs, but the law moves our health care system toward greater financial stability and provides improved access to affordable, quality care for small business owners and their employees. For questions on any of the provisions mentioned in this article, or how to enroll in the small business exchange this year, contact us any time at smallbusinessmajority.org.
John Arensmeyer is the founder & CEO of Small Business Majority.
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