Obamacare presents business challenges
Much information and misinformation has been communicated about the Affordable Care Act, often referred to as Obamacare. One group keeping a close watch is small business owners.
Most of the provisions of the new law go into effect Jan. 1, 2014, and businesses are trying to determine what it means for them. Some firms with fewer than 50 employees may be eligible for federal subsidies to help them provide health care to employees. Companies of 50 or more workers are faced with the choice of offering affordable coverage or facing a range of penalties.
The good news is most small employers will not have to make many, if any, changes.
According to the Kaiser Family Foundation, 94 percent of companies with 50-199 employees already provide health insurance benefits. Also, a 2012 study showed most (76 percent) employers in this group paid more than 60 percent of their employees’ premiums, the minimum required by the new law.
One of the unanswered questions is how much the new law will increase employers’ health insurance premiums. Most experts agree premiums are going to continue to increase because of required coverage in the new law.
For example, starting in 2014, Obamacare requires company plans to cover 100 percent of preventive care cost for employees and dependents, including procedures such as mammograms and colonoscopies. The cost of health benefits for small businesses rose by 97 percent during the years 2002-12.
Employers who buy insurance through the law’s newly created Small Business Health Program exchanges will be lumped together with higher risk populations that are unable to buy insurance on the open market. These SHOPs will be managed by state governments and are expected to vary from state to state in terms of coverage and cost.
One of the more controversial provisions in the new law is employers with 50 or more full-time equivalents are considered large employers and subject to the pay-or-play mandate that requires them to provide coverage or be subject to penalties. A full-time equivalent is defined as any employee working 30 or more hours per week.
However, part-time employees also are counted in the full-time equivalent equation. Two half-time employees equal one full-time employee. A company with 30 full-time employees and 40 half-time employees has a total of 50 full-time equivalents and must offer its full-time employees insurance or be subject to a fine.
Another confusing aspect of the act is the affordable coverage provision. To be affordable, an employer’s cost for the lowest-cost, single employee at the company must not exceed 9.5 percent of the employee’s W2 wages. Employers are required to pay at least 60 percent of the premium. If the premium exceeds this amount, the employee is eligible for a tax credit and the employer is subject to a $3,000 fine for each employee receiving the credit.
Obamacare also requires employers to offer health care to dependents of employees. Dependents now are defined as children younger than 26. This provision does not require offering coverage to employees’ spouses.
Another controversial piece is the common control clause. This clause states more than one business owned by the same person or group is considered one entity. A large company cannot be broken into two smaller companies to avoid having to provide insurance to employees.
One group allegedly trying to exempt itself is Congress. Sources including The Wall Street Journal state behind-the-scenes negotiations are being conducted to keep members of Congress and their staffs from having to participate. The Washington Post and Forbes disputed these claims.
Private and public organizations alike have until the end of this year to comply with Obamacare. The clock is running.
Perry Haan is professor of marketing and former dean of the business school at Tiffin University.