The Affordable Care Act (ACA) is slated to introduce a number of provisions beginning in 2014. Making matters more complex are recent delays to components of these provisions. Here is a summary of the most important provisions for small businesses to help you sort through the coming changes and regulations.
Employer Mandate – or “Play or Pay” Rules
This is one of the major provisions where implementation is delayed. Originally, starting in 2014, small businesses with 50 or more full-time equivalents (FTEs) that meet certain requirements were supposed to be mandated to offer affordable health coverage to their employees or face a penalty. The penalty is $2,000 per full-time employee per year beyond the first 30 employees, not including part-time workers (those who work fewer than 30 hours per week) or seasonal workers (fewer than 120 days per year). These penalties are set to increase yearly by the rate of premium inflation.
This provision is delayed until 2015. The intention is to give employers more time to prepare for changes, consider their options for offering insurance and prepare for compliance. It is important to note that the employer mandate delay only puts off the penalty portion of the law. The mandate to offer insurance still exists, but with no penalty for noncompliance. Small businesses with less than 50 FTEs are still exempt as they always have been.
Under the ACA, each state will have a Small Business Health Options Program, also known as SHOP Exchanges.
SHOP Exchanges are meant to help small employers find affordable coverage that meets the various ACA requirements. These exchanges intend to accomplish this by pooling small firm risk across multiple businesses, creating greater purchasing leverage and consolidating administrative costs. Beginning in 2014, small businesses that purchase plans on the SHOP Exchanges can only choose one plan. Starting in 2015, they will be able to choose general coverage levels and employees can then make a choice from the exchange options within that level.
Eligibility for the SHOP Exchanges is limited to businesses with fewer than 100 employees. Both full- and part-time employees count toward this number; however, seasonal employees are pro-rated. States are allowed to limit participation to businesses with fewer than 50 employees until 2016. Small employers can always purchase coverage outside of the SHOP Exchanges; however, the plans they choose are still subject to all the ACA requirements.
The ACA requires that health care coverage offered by employers meet affordability standards. Two tests are used to make this determination.
First, the employee’s contributions to cover their premium must be 9.5 percent or less of their annual income. Second, the plan needs to cover a minimum of 60 percent of health care expenses. Both tests need to be passed for coverage to be considered affordable. If one or both requirements are not met, then employees are eligible for subsidies to help them purchase coverage on an exchange. Employers are also subject to a $3,000 penalty per employee receiving subsidies on an annual basis.
Essential Health Benefits Tests
The ACA also establishes minimum coverage and benefit levels. Plan benefits need to cover such things as emergency services, maternity and newborn care, preventative services, pediatric services, ambulatory services, prescription drugs, hospitalization, laboratory services, and rehabilitation and mental health services, among others. Additionally, beginning in 2014, the cost sharing provisions of high-deductible plans cannot exceed $5,950 for individuals or $11,900 for families.
Community Rating Rules
Community rating rules limit the factors insurers can use to adjust premiums on plans sold to individuals and small groups. Insurers will only be allowed to vary premiums for age, family size, location and tobacco use. Previous health care claims or health status can no longer factor into premium calculations.
Generally, community rating rules apply to firms with fewer than 100 employees; however, there is an exception. From 2014 until 2016, if a state limits SHOP Exchange participation to firms with fewer than 50 employees, then businesses in the 50 to 100 employee range are exempt from community rating rules. Additionally, firms that self-insure are exempt.
Small Business Tax Credit
Businesses that contribute 50 percent or more toward the costs of health insurance premiums and have fewer than 25 FTEs may be eligible for a tax credit. This tax credit has been available since 2010, but it will change beginning in 2014. Starting next year, only businesses that buy insurance through the SHOP Exchanges, have fewer than 25 FTEs and have an average salary under $50,000 are eligible. The maximum amount of the credit is 50 percent of the employer’s contributions toward employee premiums and the credit can be received for as many as two consecutive years after 2014.
The ACA will significantly impact small employers. Small business owners who understand the upcoming changes will be in the best position to take advantage of all the options available for them and their employees.