After the Affordable Care Act’s 2010 passage, Lorenzo Harris said he realized the landmark law’s employer mandates would not apply to his commercial janitorial services firm, Janico Building Services.
Those mandates require firms that employ more than 50 to provide health insurance coverage.
“We were already providing health insurance because we’re in a competitive market and that helps us to retain and recruit good employees,” the Sacramento-based small business owner said. “For us it was just good business. But pretty quickly we saw that our firm could benefit from the law. What appealed to us about the ACA were the tax credits and other financial incentives.”
In addition to the tax credits his 40-employee company can claim for providing insurance, Harris said by using the California Small Business Healthcare Option Program (SHOP) insurance exchange, Harris was able to save around 35% on health insurance costs over the previous year, while offering his employees more plan choices.
“The ACA gives our employees more affordable options than we previously had,” Harris explained. “My advice to any small business considering offering health insurance is do not listen to the pundits. Research how the ACA will apply to your specific company and circumstances, because it affects companies differently.”
Dealing with complexity
It’s complicated. It’s uncertain. And it applies differently to companies based on their staff size, average payroll and even the states in which they live. But some small businesses are saving money on health insurance premiums, receiving tax credits and offering employees choices in health coverage never available before the Affordable Care Act.
David Chase, the California director of the advocacy organization, the Small Business Majority, said all small businesses are affected by the law.
“The healthcare exchanges are just one piece of this large and comprehensive legislation,” Chase pointed out.
He said before the ACA, one third of self-employed Americans went uninsured. Chase said the ACA also changes the way employers’ insurance rates are determined.
“Under the new law, the health status of their workers can no longer be considered, so whether a company has the healthiest or sickest employees, it won’t affect their rates. There are now limits on how much insurers can increase rates based on age, and gender is no longer an issue, so rates won’t skyrocket. And with guaranteed issue (a health insurance term meaning that coverage is offered to everyone regardless of health status), many people who felt they couldn’t leave companies because they feared losing insurance coverage, can go, freeing them to take better jobs start their own companies.”
Chase said early information from Covered California, the Golden State’s health insurance exchange, indicates as many as 20% of those enrolling online with the state’s Small Business Health Options Program (SHOP) are small businesses that may be finding coverage for the first time.
He’s disappointed that the federal Centers for Medicare and Medicaid Services (CMS), the agency that administers Medicare, granted a waiver earlier in June to 18 states seeking to delay implementation of the employee choice feature of the SHOP program for one year.
“We urged the administration not to allow this delay,” he said. “We see the employee choice feature as the key component in the SHOP exchanges, which requires employers to offer multiple insurance plans.”
He said before the ACA, few small businesses could offer multiple plan choices.
“So this feature is a game changer and we think the SHOPs in those states will struggle to find enrollment. Outside of the tax credit, there is not a big draw to bring employers in. So in those states granted the waiver, employers will pick one plan, which is pretty much like the status quo.”
Chase said the remaining 32 states offer SHOP exchanges run either by the states themselves or by the federal government and those states offer the employee choice features.
“The most successful SHOPs are in states offering choice,” said Chase, whose SBM represents 25,000 small business members and a partnership that serves 400,000.
A watershed event for small business
Healthcare Attorney Jim Pyles, a partner in the Washington, D.C.-based law firm Powers, Pyles, Sutter & Verville, called the ACA “a watershed event.”
“It is as significant an event as the 1964 Voting Rights Act and Medicare, because it affects even more people,” Pyles said.
He predicted the law will expand job mobility for millions of Americans, increase the nation’s global competitiveness and enable small businesses to attract better quality employees.
“In the short term it’s causing a lot of angst because of the uncertainty over future costs and the variations between states. But I think ultimately over time it will level out healthcare costs and be beneficial to small businesses. “
Pyles foresees short term premium increases that should stabilize in a few years as insurance companies grapple with the unpredictable costs of providing care to millions of new members.
Amanda Austin, vice president of policy for the Washington, D.C.-based advocacy organization, the National Federation of Independent Business (NFIB), advises her 350,000 small business owners to educate themselves to learn how to save money on health insurance.
“Not only is the law complicated, but there have been delays in significant areas that will significantly affect small businesses and those self-employed. Things still vary a lot from state by state,” Austin explained. “Some states have decided to do their own health exchanges and some have chosen to let the federal government operate exchanges in their states. It’s a very cumbersome law.”
Austin suggested that businesses who contract with insurance brokers (she said traditionally 60% to 70% of small businesses use brokers to negotiate coverage with health plans) learn more about what’s going on in their states, whether they qualify for subsidies or tax credits and how to get the best deals.
She said that her members have not yet seen the advantages of the Affordable Care Act or gleaned great savings. “They’re seeing increases in costs and great confusion as this is being implemented.”
Austin said employers need to do some homework and learn how to navigate the exchanges in their states. “It’s not fun or easy,” she said. “But it’s possible.”
Matt Glaros, vice president of Dyer, Ind.-based Employer Benefits Systems, an insurance broker that offers both group and individual plans to small and large businesses, said many of the provisions of the health reform law take effect in 2014 and 2015.
“The law portends big changes for small businesses,” said Glaros.
“We’ve seen more activity this year than in any years past. While some employers have gotten out of the health insurance game now, they still face the issue of helping to get staff enrolled and most still want to work with health insurers. So while we’re losing some employers who were providing group health insurance plans for their employees, we’re picking up a lot of businesses who are subsidizing individuals to allow them to obtain coverage.”
Glaros pointed out that in May the Internal Revenue Service ruled that employers could no longer reimburse employees for health insurance and then deduct those contributions to individual premiums as tax credits. “The IRS says the only way to claim those tax credits is for them to provide true group health insurance plan contributions.”
U.S. Small Business Administration (SBA) spokeswoman Caroline Ciccone said health care remains a top focus for small business owners, who overwhelmingly want to provide coverage, but often could not afford the costs. Ciccone said small businesses have historically paid as much as 18 percent more than their larger competitors for the same coverage.
“The Affordable Care Act helps level the playing field for small businesses,” she said.
“For the first time, small business owners now have the opportunity to leverage their buying power with other small employers in the SHOP Marketplace. SHOP allows small business owners to get comprehensive information about benefits and quality, side-by-side with facts about price – leveling the playing field with their larger competitors. And those with fewer than 25 (employees) that offer their employees coverage through the SHOP and meet other eligibility requirements may be able to claim a Small Business Health Care Tax Credit worth up to 50% percent to help offset the costs of their premium contributions.”
Tools for Small Businesses and the ACA
The SBA offers two new tools to help small business owners determine if they are eligible to enroll in SHOP and whether they can take advantage of the tax credits: the Small Business Tax Credit Calculator and the FTE Employee Calculator. For more information, go to: www.sba.gov/healthcare and http://business.usa.gov/healthcare#.