- Companies with fewer than 50 employees will not be required by law to offer health insurance, but they can choose to opt in
- The ACA sets community-based rates, meaning small businesses will have access to cheaper insurance than they do now
- Starting in 2014, companies with less than 26 employees can claim a tax credit of up to 50 percent of premium costs
This article originally appeared on the Texas CEO Magazine website.
According to a 2010 survey by the Kaiser Family Foundation, 99 percent of all employers with 200 or more employees offered health insurance to their employees. However, only 59 percent of all employers with fewer than ten employees offered health insurance. The provisions of the Affordable Care Act (ACA) taking effect in 2014 will not only provide individuals with more health insurance options, but will also make it possible for small businesses to provide health insurance for employees without bearing a large cost premium for their small size. Since companies with 50 or more full-time employees will be required to offer health insurance and will have access to different resources than smaller businesses, here are issues that will impact firms with fewer than 50 employees.
Benefits of Offering Health Insurance
While small businesses with fewer than 50 employees will not be required by the ACA to offer health insurance, there are several reasons why small business CEOs should consider it:
- Competition for talent. Since almost all larger companies offer health insurance benefits, small companies who do not are at a disadvantage when recruiting and retaining talented workers.
- Affordability. Before 2014, small businesses were at a distinct price disadvantage and paid higher premiums for health insurance than large companies. With the ACA setting “community-based rates,” small businesses will have access to more options and cheaper insurance than they could purchase on their own in the past.
- Opportunities for tax credits. As of the 2010 tax year, small businesses with less than 26 employees can claim a tax credit of up to 35 percent of premium costs. In 2014 this credit will go up to a maximum of 50 percent and can be used for two years. The Congressional Budget Office estimates that this tax credit will save small businesses a total of $40 billion by 2019.
- Long-term productivity improvement. Employees of companies that do not offer health insurance tend to be uninsured. Even with the ACA’s 2014 individual mandate, employees may not be able to afford anything but minimal coverage on their own. With the help of their employer, employees can access higher levels of health insurance with lower out-of-pocket expenses, which will encourage the use of preventive services, leading to happier, healthier, and more productive employees and families.
Impact of ACA on Small Businesses
The component of the ACA that impacts small businesses the most is access to health insurance exchanges. Within the next year, small businesses in Texas with fewer than 50 employees will have access to a health insurance exchange either through a federal Small Business Health Options Program (SHOP) or through a Texas-based insurance exchange program offered for individuals. As of this writing, Governor Perry has declared that Texas will not develop an exchange; however, Blue Cross Blue Shield (BCBS) of Texas has announced plans to join with BCBS of Michigan and Well Point, Inc to develop a multi-state exchange that will be available to Texas employers. These health insurance options will be an improvement over what small businesses currently have access to, both in breadth of coverage (all options must offer a standard set of benefits) and in cost.
In the current private insurance market, small businesses are at a disadvantage, paying more per employee for health insurance than larger companies. This disadvantage is particularly high for companies that have an employee or two with pre-existing health conditions or companies with a high percentage of female employees. As of 2010, the ACA prohibited insurance companies from putting lifetime limits on coverage or canceling coverage when employees had high claims. In the past, it was a frequent occurrence for a small company to find itself without coverage or with unaffordable premiums after one employee had an expensive diagnosis such as cancer. By 2014, the ACA will not allow insurance companies to reject individuals because of preexisting conditions, nor can they charge higher premiums based on health histories or gender. These changes will make health insurance accessible and affordable for many small businesses that could not purchase it before. In summary, under the ACA small businesses will get more and pay less. The Congressional Budget Office estimates premiums in the small group market will fall by an estimated four percent while the amount of coverage is expected to increase by three percent.
In addition, the ACA is expected to continue to drive down overall health insurance costs. The state of Massachusetts, which has operated a health insurance exchange very similar to those enacted by ACA for the past six years, has seen health insurance premiums fall by as much as five percent over the last two years. According to the Commonwealth Connector, the agency created by the Massachusetts legislature to interface between the insurance exchange and the public, “The Massachusetts Health Connector’s Commonwealth Care program … will save the state approximately $91 million with no benefit reductions or member co-pay increases.”
Resources for More Information
The best website for small business owners to bookmark for information on health care reform options is www.healthcare.gov. This website offers easily accessible information for both individuals seeking health care coverage and for small businesses. It includes a health care insurance finder as well as other small business resources.
Other helpful websites include: