Obamacare for Small Businesses

The cost of providing health care for small businesses is huge: 40% of small businesses spend more than 10% of their payroll on health care costs. Both premiums and administrative costs are much higher for small businesses than for large businesses. Out of 30 million uninsured Americans, one-third are employees of small businesses with fewer than 100 workers. That is why any changes provided by Obamacare for small businesses are significant.

The small business SHOP Marketplaces (which stands for Small Business Health Option Program) allow small businesses to be a part of a much larger risk pool. This eliminates one of the reasons why small business health insurance is more expensive than insurance for large companies. In addition, Tax Credits benefits are also available.

Insurance Reforms

  • For the small business with 50 or fewer employees, the insurance company is not allowed to spend more than 20% of premiums on anything other than on health care benefits and quality improvement (80/20 rule). If the insurance company exceeds that limit, it must provide a rebate for the portion of premium dollars that exceeds this limit.
  • The insurance company must disclose and justify the proposed rate hikes, generally about 10% or more.
  • Insurers can’t raise premiums for the group because of an employee’s preexisting condition, nor can the insurer impose a waiting period for the employee.
  • Insurers can no longer charge small groups higher rates for women; there are also new limits on charging small groups higher rates for older employees.
  • The risk of the employee incurring high medical costs is shared across the small group market.

No Financial Penalties for Small Business

Small businesses with less than 50 employees are exempt from penalties normally applied to companies with more than 50 employees; that is, when the company does not offer employee health insurance or offer inadequate health insurance. The small company may either provide health insurance for their workers (and enjoy the generous tax credit – see below), or drop the coverage. In the latter case, employees will get coverage from government-subsidized exchanges at an affordable cost.

Obamacare for Small Businesses: SHOP Health Insurance Exchanges

SHOP is a Marketplace for small businesses and their employees for businesses with fewer than 100 employees. SHOP will offer qualified small businesses access to QHPs; eligible employers can define how much they will contribute to their employees’ coverage.

In most US States SHOP Exchanges will target groups with 50 or fewer employees for the years 2014-2015. In 2016, the program will be open to businesses with 100 or fewer employees in ALL states. Small businesses may enroll throughout the year on a monthly basis.

To qualify for SHOP coverage, a business must:

  • Be located in a SHOP’s service area (generally a state)
  • To offer coverage to all full-time employees (those working an average of 30 or more hours per week)
  • Have at least one eligible employee on payroll
  • Have 50 or fewer full-time equivalent employees on the payroll (100 or fewer full-time equivalent employees starting in 2016)
  • For an employer to be able to offer coverage through a Federal SHOP Marketplace, a certain percentage of employees must participate and sign up for coverage, except between November 15 and December 15 of each year. This is called the minimum participation rate. For plan years that begin on or after January 1, 2016, in many states that are using a Federal SHOP Marketplace, the minimum participation rate is at 70%.

Sole proprietors are considered individuals and will buy insurance through the Health Exchange, not through the SHOP.

Under the Affordable Care Act, premiums are built differently than they have been in the past in many states. Under the Affordable Care Act:

  • Employee premiums reflect age, employer geographic location, and in some states, tobacco use.
  • The family premium is generally the sum of premiums attributable to each family member (taking into account no more than the three oldest covered children under age 21).

Many big businesses have an option to provide their employees with multiple health plans. Small businesses don’t have this option, and the Obamacare plan is in place to fix this issue. The “multiple health plans” option was scheduled to take place in 2014, but the process has been postponed until 2015. In 2014 only an employer choice model was available; which allows the employer to choose a single health plan for all employees. The employer chooses which qualified plan to offer, and decides the percentage of premium to contribute towards the employee premium cost. If the employer offers dependent coverage through an SHOP Marketplace, qualified employees will also be able to decide which dependents, if any, should be covered under an SHOP Marketplace.This is true for the 33 states where the Federal government, rather than states, will run the health exchange. In states like Minnesota and Oregon (states that run their exchanges) there will be no delay.

The so-called employee choice model offers greater plan choices for employers and their workers. It is available in all States starting 2015. Below are descriptions of employer and employee functions.

Employer functions:

  • Chooses a metal level (Silver, Gold, etc.)
  • Selects a QHP at the selected metal level as a “reference plan” on which to base the employer’s contribution toward employee and his/her dependents
  • Decides what percentage of the reference plan premium to contribute toward employee and his/her dependents
  • Gets a single bill and makes a single payment to SHOP

P.S. Alternatively, the employer can contribute a fixed percentage of premiums for each plan chosen by qualified employees rather than a fixed percentage of premiums for a reference plan.

Employee:

  • Gets a defined contribution from the employer
  • Chooses any plan in the designated metal level
  • Pays the difference between the employer contribution and plan’s premium

New Employee Choice Option (after Jan. 1, 2017)

Employers in the SHOP Marketplace in some states will have the ability to offer their employees a choice of ALL plans across ALL available health levels of coverage from a single issuer. This means that the employer can choose one health and/or dental insurance company, and the employees can choose ANY plan offered by that issuer in the SHOP Marketplace.

Obamacare for Small Businesses: Tax Credits

In order to get Small Business Health Care Tax Credit, the employers should meet all of the following criteria:

  • Have no more than 25 full-time employees (FTEs) for the taxable year (based on a 40-hour work week and excluding workers such as seasonal workers, independent contractors, and certain owners of the business and their family members).
  • Have employees with average annual wages of no more than $50,000 per FTE (as adjusted for inflation beginning in 2014).
  • Pay a uniform percentage or amount (at least 50%) of the premium charged for each employee enrolled in a QHP offered through a SHOP Marketplace.

Starting the year 2014, the tax credit is 50% of the employer’s premium contribution.  Eligible employers can only receive a Tax Credit for two consecutive years.

Will Fewer Small Businesses offer Health Coverage?

The appeal of tax credits may not be enough to reverse the small business trend to drop health coverage. Ultimately, it will depend on how competitive small businesses become, i.e., whether they need to offer health insurance to keep their employees on the payroll.

Let Liberty Medicare help you to get coverage through the Health Insurance Marketplace

Liberty Medicare is here to help you learn about Marketplaces and assist with eligibility determination for enrollment in a Qualified Health Plan (QHP) and for insurance affordability programs, which include Medicaid, CHIP, premium tax credit, and cost-sharing reductions. We will help you to compare plans, and enroll in coverage. All of our services are offered to you at no cost.

Liberty Medicare represents many well-known Health Insurance Marketplace providers in Delaware, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, and Virginia.  Learn more about all of the benefits of working with Liberty Medicare.

If you are considering buying insurance in the Health Insurance Marketplace, let us guide you. To see real quotes from insurance providers visit Federal or State Marketplace, fill out our Individual Health Quote form, or give us a call at 877-657-7477.