On Thursday, June 28, 2012 the Supreme Court upheld the Affordable Care Act (ACA) in a five-to-four decision. Long before the decision was made public, speculation was rampant as to how it would affect both consumers and employers. The ACA provision that was of greatest concern was the requirement to purchase insurance, known as the “individual mandate.” Now that the law has been upheld in its entirety, it is expected that employers will proceed with plans to implement the rules.
Large employers may face penalty
In a June 28, 2012 post for FindLaw.com titled, “How Obamacare’s Employer mandate Affects Small Biz,” Andrew Chow explained how the ACA will affect large firms. According to Chow, ACA requires that they “offer a minimum level of health insurance to their employees after a 90-day waiting period, starting in 2014. This only applies to businesses with at least 50 employees who work ‘full-time,’ meaning at least 30 hours a week. […] The health plans offered must comply with existing reforms, including coverage of dependents up to age 26.”
Those employers who do not comply will be subject to a tax penalty of $2,000 per employee (after the first 30 employees). In contrast, the average cost of health coverage paid by employers is about $4,500 per year per employee.
Will large employers drop coverage and opt to pay the relatively smaller penalties? Even though it would be cheaper, a savings of $28.6 billion in 2014 alone according to a House Ways and Means Committee report, the prospect seems doubtful. Health insurance coverage is a way for employers to attract and keep qualified employees and the coverage is counted as part of their total compensation package. If an employer stops providing coverage then it will have to start paying more in salaries or risk losing talent to a competitor.
Coverage for all
The primary aim of the ACA is to make it possible for more Americans to have access to affordable health insurance. Currently, most people who have insurance are covered through their employer’s health plan. However, starting in 2014 individuals and small businesses will be able to shop for coverage through Affordable Insurance Exchanges in each state. The exchanges will make it easier for consumers to compare health plans, find out if they qualify for tax credits, and use the power of the exchange to find affordable plans to meet their needs.
A May 4, 2012 article for the State News Service titled, “Would The Affordable Care Act Lead To Reductions In Employer-Sponsored Coverage?” the author discussed speculation that the existence of health care exchanges might prompt some employers to drop coverage. The article cited a study conducted by RAND Health on the effect of the ACA on both large and small firms.
“The model predicts that the ACA will lead to a slight increase in the overall share of employers offering health insurance from a predicted 59.4% in 2016 without the ACA to 61.6% offering with the ACA,” the article said.
A RAND spokesperson speculated that some employers may decide to drop coverage, however, because the expansion of Medicaid makes it a more favorable choice for many workers. The article explained, “[…]subsides for individuals with incomes below 400% of the federal poverty line are only available to people without an affordable offer from their employer. […] Some employers may drop coverage in order for workers to take advantage of these subsidies.”
Small business — big breaks
On average, small businesses pay 18 percent more than large firms for the same health insurance policy. Under the ACA, small businesses, those with 25 or fewer employees that pay average annual wages below $50,000 and provide health insurance, will have access to several programs of help from the government including:
- A small business tax credit of up to 35 percent to offset the cost of insurance
- The small business tax credit increases to 50 percent in 2014
- Starting in 2014, small businesses with fewer than 100 employees can shop for insurance in an Affordable Health Insurance Exchange where they will have more purchasing power and better choices
Where can small business owners go to shop for health insurance? In a November 18, 2011 post for HealthCare Blog titled, “Small businesses have new tools in choosing health insurance,” Richard Sorian described the online resource for employers.
“To help make it easier for people — including small business owners — to learn about the law and find coverage options, the health reform law created www.healthcare.gov to make it easier to find a health plan that is right for you and your small business,” Sorian said.
For more information on small business management, check out the Journal of Small Business Management on HighBeam Business.