The overhaul of the nation's health care system requires that by 2014, all businesses with 50 or more employees must provide health care benefits that are deemed affordable under the law. Now that the Supreme Court has upheld the Patient Protection and Affordable Care Act, small companies can get a better idea of what it means for their business.
Here are some questions and answers about how this affects small business owners:
Q. Which small business owners does this affect?
A. Employers are subject to the law if they have 50 or more full-time workers or the equivalent of full-time workers (two people working half-time are the equivalent of one full-timer). Small businesses that don't comply with the law — either by not offering insurance or by offering insurance that's not considered affordable — will have to pay penalties.
Q. How do owners determine if the insurance is affordable?
A. To be considered affordable, the insurance must pay for at least 60 percent of covered health care expenses, and employees may not be forced to pay more than 9.5 percent of their family income (before deductions and adjustments) for coverage offered by employers.
Q. How much are the penalties?
A. It will vary. Penalties are set according to a complicated formula in the law; they start at $2,000 per worker when there is no coverage, with the first 30 workers excluded from the calculation. Companies also face penalties if they provide coverage that isn't deemed affordable.
Q. What does the health insurance have to cover?
A. The law requires small businesses to provide what's called an essential health benefits package. The states are permitted to determine what benefits should be contained in policies that are issued in their states. That means that businesses that have employees in more than one state will have to comply with each state's requirements. States must ensure the essential health benefits package covers items and services in at least ten categories of care, including preventive care, emergency services, maternity care, hospital and physician services, and prescription drugs. If a state choses a plan that doesn't cover all 10 categories it will have the option of examining other so-called benchmark plans — including the Federal Employee Health Benefits Plan— to determine what will be included in the essential benefits package.
Q. Where can small business owners buy coverage?
A. Employers can buy insurance from health insurers. Others may opt to join companies known as professional employer organizations like Insperity or ADP's TotalSource division that provide health insurance and other human resources services. The law creates what are being call health insurance exchanges — markets where employers and individuals can search for the best rates.
Q. How many small business owners does this affect?
A. Relatively few. The Census Bureau doesn't report the number of businesses with more than 50 employees. But it counted 616,693 companies with 20 to 99 employees in 2008. Those figures include companies too small to be covered by the Affordable Care Act, the number of small businesses subject to the law is likely to be much lower. The National Federation of Independent Business, the largest U.S. small business advocacy group says on its website that its typical member employs five people, but notes that it has "thousands" of members with more than 100 workers.
Q. Does it make sense to pay the penalty rather than provide insurance?
A. A company might initially save money at first, but the law provides for the penalties to rise as insurance premiums do. Companies also need to consider the fact that not providing insurance can hurt them in terms of employee morale and in their ability to attract good workers. What they save in money may cost them in terms of productivity and reputation as an employer.
Q. Are there advantages for small businesses to the Affordable Care Act?
A. The act limits how much premiums can go up each year. Some companies' premiums may drop under the law compared with what they're paying now. The law eliminates the surcharges that insurers impose on companies who have patients with serious medical conditions. The exchanges are expected to offer small businesses lower rates than insurance companies charge. Businesses will also get tax credits for six years for providing coverage. There are also benefits under the law beyond dollars and cents. Because the law provides for individuals to have health insurance, the smallest businesses, those with fewer than 50 employees, will be able to lure good workers away from larger companies. Many people stay in jobs with larger companies for the benefits because they can't get adequate insurance on their own.
Q. When does this all take effect?
A. The penalties begin in 2014. That's also when the states are supposed to have set up the exchanges. However, states do have the right to opt out of creating and exchange or band together with other states to form joint exchanges.