Small Businesses and the Obama Care
Reza Ghafoorian, M.D., Esq.
January 15, 2015
Affordable Care Act of 2010, also known as the Obama Care, imposes certain requirements on businesses with respect to whether and how a business is required to provide healthcare insurance to its employees. The majority of the requirements imposed by Obama Act apply only to large businesses and those small businesses which offer healthcare to its employees.
This article, first, addresses the state of the current laws applicable to small businesses, and second, discusses strategies for reducing healthcare insurance costs for small businesses which provide healthcare insurance to their employees.
Here are a few definitions you will need to know before reading further:
Small Entity: A small entity is a business employing less than 50 full-time equivalent employees. The definition of small entity will change from less than 50 to less than 100 full-time equivalent employees as of November 15, 2015.
Large Entity: A large entity is a business employing 50 or more full-time equivalent employees. As of November 15, 2015, a large entity will include those businesses employing 100 or more full-time equivalent employees.
Full-time employee: A full-time employee is one who works at least 30 hours a week (NOTE: new proposed law awaiting Senate approval by the end of January 2015 may change the definition of full-time employees to those who work 40 hours per week).
Part-time employee: A part-time employee is one who works between 20-29 hours a week.
Healthcare exchange: Exchanges are health insurance market places set up pursuant to the Obama Care to sell healthcare insurance to individuals or businesses. Exchanges are accessible by internet.
A Brief Description Of The Law
Obama Care does not require that small businesses provide healthcare to their employees. However, if small businesses wish to be competitive in the marketplace, they may choose to offer healthcare coverage to their employees. Small businesses may offer healthcare coverage to full-time, part-time or both full-time and part-time employees. It is important to note, however, that when the employer offers healthcare coverage to one full-time employee, it must offer the same coverage to all full-time employees. Similarly, when the employer offers healthcare coverage to one part-time employee, the employer must offer the same coverage to all part-time employees.
Even though small employers are not required to offer healthcare insurance to their employees, Obama Care incentivizes employers to do so by two means: 1) Extending group coverage rates to small employers, and 2) allowing certain tax credits.
When a small business offers healthcare insurance benefits to its employees, it automatically qualifies for purchasing insurance policies under group rates. But, in order to benefit from the group rate, the employers have to purchase the insurance policies from the Small Business Health Options Program (SHOP) Marketplace. SHOP is the exchange which sells healthcare insurance to small businesses. At SHOP Marketplace, insurance premiums are priced under group rates and are less expensive as compared to those offered by private insurance companies outside of SHOP Marketplace. To determine premium rates and plan coverages, small employers may refer to SHOP Marketplace at https://www.healthcare.gov/small-businesses/employers/.
To qualify for the tax credits, small employers must pay at least half of employees’ healthcare premiums and have fewer than 25 full-time-equivalent employees who earn an average of $50,000 or less per year. To qualify for this tax credit, employers must also pay for at least half of the healthcare premiums of their employees; otherwise, they will not qualify for the tax credit. Additional information about this tax credit is available at: http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-for-Small-Employers.
Some Cost Saving Strategies
Given the aforementioned rules and requirements, small employees should pay attention to the following list of items to ensure that they continue to offer competitive employment packages and to control their ever increasing healthcare premium costs.
First, employers should ensure that they correctly account for their part-time and full-time employees in accordance with the definitions set forth in the Obama Care. The rules take into account certain parameters in determining “full-time” and “part-time” and upon a proper review a business may find that it has more or less employee in each category. This is true for businesses which have employees just at the cut-off line of 50 employees (for now) or 100 employees as of November 15, 2015.
Second, with the availability of a group rates on the SHOP Marketplace, small employers should compare their healthcare benefit packages and their premium prices to those offered on the SHOP Marketplace to ensure that they offer a better healthcare coverage at similar or more competitive rates. If the healthcare package currently offered by the small business is less comprehensive and more expensive than one offered on the SHOP Marketplace, the employer should plan on purchasing the benefits on SHOP Marketplace or negotiating better coverage or lower premiums with their current carrier.
Finally, small business employers should monitor healthcare insurance packages offered on the individual exchanges (i.e., healthcare marketplaces set up for individuals to purchase healthcare insurance) at their respective states and compare them with what they are currently offering their employees. If employees are able to purchase a better healthcare packages on their own for cheaper (e.g., subsidized healthcare), employers should discontinue healthcare benefit to that subset of employees and allow their employees to purchase insurance on their own. Employers should note that as long as the employer offers healthcare to their employees, employees are unable to apply for subsidized healthcare on the individual exchanges.
A variety of cost saving strategies may be implemented based on the markets created by Obama Care. Small businesses should pay attention to these evolving rules to avoid liability and ensure efficiency in their operations.