Health Care: The Affordable Care Act and Your Small Business
With upcoming changes to healthcare, small business owners will need to reevaluate existing policies and prepare for possible penalties.
What qualifies as a small business under the Affordable Care Act?
Until 2016, states have the choice of classifying small businesses as having a maximum of either 50 or 100 Full-Time Equivalent (FTEs) employees. Business owners who fall into this category will need to research which category they fall under.
In 2016, the national definition of a small business will be a maximum of 100 FTEs.
What is affordable care?
- Insurance must cover 60% of the actuarial value of the cost of benefits.
- Premiums must not exceed 9.5% of employee’s income of policyholder.
Will I be able to keep my current group health plans?
Right now, the answer to this question is probably. If your company has a group health plan that was adopted before March 23, 2010, your group plan most likely will be “grandfathered” in under the new laws. Grandfathered status can be maintained by keeping plans relatively unaltered. Grandfathered plans are not required to participate in some of the ACA requirements such as:
- Preventative services without cost sharing
- Coverage of essential health benefits
- Providing for an internal and external appeals process for contesting coverage decisions
- Direct access to an OB/GYN without referral
What types of changes can I expect?
Although grandfathered policies are exempt from some requirements, all policies will be subject to some changes.
By 2014, all health insurance plans must guarantee the availability and renewal of coverage regardless of an individual’s health status.
- Young adults may remain on a parent’s plan until the age of 26.
- No plans will be allowed to exclude coverage based on pre-existing conditions.
- Small businesses will be required to report the proportion of their income from premiums used on medical care and quality improvement. This figure is called the Medical Loss Ratio or MLR. Small business and individuals with an MLR of less than 80% will receive a rebate.
- Plans will cover a set of minimum benefits, also known as Essential Health Benefits.
- Premiums will no longer be influenced by health status. However, age, tobacco use, policy type and geographic location are variables that can be used in pricing.
What is an insurance exchange?
An insurance exchange is a market that offers standardized health insurance policies. The market is created and regulated by the government. Depending on your location, your Small Business Health Options Program (SHOP) will be regulated either by the federal or state government.
Do I have to use the SHOP?
No. Employers may continue to purchase insurance from the private market; although, insurance reforms will apply to both sectors.
What happens if I decide not to offer affordable care to my workers?
If small business employers fail to provide affordable care to their workers, employees will receive tax credits to purchase health insurance independently. For each employee who receives tax credits, small employers face the lesser amount based on one of two formulas:
- $3,000 per employee
- $2,000 per employee (excluding first 30 workers)
NOTE: Businesses with less than 50 FTE (full time equivalent) are exempt from these penalties.