What Every Small Business Needs to Know About the Affordable Care Act

As a small business owner, it can seem like an uphill battle simply trying to keep everything straight—and with increasing caseloads, regulations, and legislation, you certainly have your hands full. That’s why we here at the WebPT blog have been busy compiling all sorts of useful, actionable information for you—think of us as a much-needed third hand. Today, your third hand is going to tackle the Affordable Care Act.

One year ago (June 2012) the Supreme Court upheld the Affordable Care Act (a.k.a. Obamacare), and opinions today are still mixed. According to a May 2013 Gallup survey, about half of small business owners believe the act will be “bad for business.” And according to an article on Inc. detailing the survey, some owners are going so far as holding off on hiring and scaling back employee hours in preparation.

However, the Obama administration and supporters believe the act will raise the standards for healthcare in the US as well as benefit small businesses. In fact, for the past several years President Obama has “come out swinging” in support of the Affordable Care Act, going so far as accusing political adversaries of propagating misinformation. In a White House event last month, the President expanded his stance on universal health coverage to include a moral argument:

“The United States of America does not sentence its people to suffering just because they don’t make enough to buy insurance on the private market, just because their work doesn’t provide health insurance, just because they fall sick or suffer an accident. That could happen to anybody. And regular access to a doctor, or medicine, or preventive care—that’s not some earned privilege; it is a right.”

But the question remains: Will the mandate to provide health insurance to employees put small businesses in jeopardy? According to many sources, the answer is resoundingly “no.” Forbesrecently published an article explaining that the act does not require businesses with fewer than 50 full-time employees (96% of all US businesses) to provide healthcare coverage. Instead, employees of these business are eligible to purchase coverage through health exchanges by 2015. It is businesses with more than 50 full-time employees (4% of all US businesses) that must provide “affordable” healthcare coverage to employees. However, as this article points out, only .2% of US businesses with more than 50 employees don’t provide health insurance already. So what is “affordable” healthcare coverage? Well, it’s not affordable if an employee has to pay more than 9.5% of their income for the coverage or if the coverage does not pay for at least 60% of expenses.

The Forbes article also goes on to discuss the benefits to many small business owners. According to a Cigna survey, one in four self-employed business owners are uninsured because “health insurance is too expensive.” In short, the author’s point is that the Affordable Care Act will make obtaining health insurance affordable for everyone—not just employees.

A New York Times article also mentions another potential benefit: As part of the act, the government will heavily subsidize an employee’s purchase of health insurance through the health exchange, which in turn ends up being a subsidy for the small business. How? Because the small business can compete in the market for employees more easily (read: cheaply) because employees cannot take the subsidy with them, say, to a large company that offers health insurance. Additionally, there are also tax credits available now for small businesses. Casey B. Mulligan, an economics professor and the article’s author, goes on to point out, however, that the credits may have “too many strings attached to be attractive to employers.” He also addresses the fact that the subsidies themselves are quite complicated, “as evidenced by the 21-page application” that each employee must complete.

There’s more to the Affordable Care Act than mandated insurance coverage, however. Another article on Inc. addresses three:

1. Health Incentives:

Per a Labor, Treasury, and Health and Human Services ruling, employers may incentivize wellness. According to the source—New York Times—employers now have “greater leeway to use employee wellness programs, with financial rewards and penalties for workers [sic] worth up to 50 percent of the premium as an incentive to exercise, quit smoking, lose weight, eat more healthful food, and lower cholesterol and blood pressure.”

2. Self-Insurance:

Some health insurance companies (the article names UnitedHealth and Humana) are allowing companies to cover employees’ medical costs directly. However, according to the Wall Street Journal, while there are benefits, there is also a lot of risk: “A car accident or cancer case can leave small businesses on the hook for big medical bills.”

3. Smaller Bills:

Beginning next year, insurers will no longer be able to set coverage rates for small businesses based on the the current health of their employees. That means companies with older, sick employees may be surprised to find that their insurance bills have come down.

Want to know how other small business are planning to handle the upcoming changes? Check out this Inc. article, which includes links to four case studies.

Ready for an interesting health insurance fun-fact? Well, I found it interesting anyway. According to Cornell economist Robert Frank, employers began offering health insurance coverage to employees as a way to get around the strict regulation of private-sector wages during World War II. Because employers desperately needed workers—but couldn’t pay them in wages—they added fringe benefits—like health insurance—which weren’t capped. Inc. author Lewis Schiff goes on to speculate that “Had we not tied employment with health care as a way of attracting workers when the government needed wages to stay low, we would probably have [sic] adopted universal or government-provided health care just as the rest of the industrialized world has.”

What are your thoughts on the Affordable Care Act? Does your practice have a plan? Let us know in the comments.