Small Businesses and the Affordable Care Act: What do They Need to Know?

5 Min Read

Small business is an essential part of the American economy and a key focus of the Patient Protection and Affordable Care Act (PPACA). Only 57 percent of companies with under 50 workers provide health insurance, compared to 92 percent in the 51-100 range and 97 percent with more than 100 employees. Despite what you may have heard, PPACA (aka ObamaCare) is not a radical government takeover of the health care system. Instead, it seeks to preserve and extend the employer-sponsored health insurance model and extend it further into the smaller employer realm.

Small business is an essential part of the American economy and a key focus of the Patient Protection and Affordable Care Act (PPACA). Only 57 percent of companies with under 50 workers provide health insurance, compared to 92 percent in the 51-100 range and 97 percent with more than 100 employees. Despite what you may have heard, PPACA (aka ObamaCare) is not a radical government takeover of the health care system. Instead, it seeks to preserve and extend the employer-sponsored health insurance model and extend it further into the smaller employer realm.

PPACA was crafted to encourage smaller companies to provide insurance for employees by regulating the insurance market, establishing health insurance exchanges, providing tax credits for the smallest employers, providing grants for wellness programs and imposing penalties on some who don’t comply. We’ll see where all this leads as the Supreme Court considers PPACA’s constitutionality and Democrats and Republicans contest the 2012 elections, but small businesses would be wise to start planning for the full implementation of PPACA, which is less than two years away.

Kaiser Family Foundation has a good fact sheet on the topic. Key takeaways are:

  • PPACA allows businesses to “grandfather” health plans in place as of March 2010. That was to address concerns that people would have to give up health plans they’re happy with now. Companies may wish to use grandfathered plans because such plans are subject to fewer requirements than the “Essential Health Benefits” that will be specified under PPACA. Most small businesses have at least one grandfathered plan. Theoretically these plans could be cheaper, but in practice I expect that most such plans will be abandoned over the next five years as market conditions change
  • Health plans will have to guarantee that coverage is available and can be renewed. They’ll also have to offer coverage to dependents up to the age of 26. Importantly, plans won’t be able to base premiums on health status of a company’s employees. Instead they can rely only on age, smoking status, individual/family and location. They can provide substantial discounts for those engaged in wellness programs
  • Essential Health Benefits (referred to above) will be decided on a state level, with federal input
  • Health plans will be subject to minimum medical loss ratio (MLR) rules and will have to rebate overcharges if medical and quality improvement spending fails to reach 80 percent of premiums
  • Plans will be assigned simplified ratings (bronze, silver, gold, platinum) to reflect their level of coverage relative to expected total costs
  • Small businesses will be able to participate in state run or federally run health insurance exchanges
  • There will be penalties for businesses with more than 51 employees if they don’t provide affordable coverage. Note that businesses with fewer than 50 employees are exempt from the penalties
  • Substantial tax credits will  be available to low-wage businesses with fewer than 25 employees
  • Businesses with fewer than 100 employees will be eligible for grants to launch wellness programs if they did not already have them in place

In short, PPACA has a lot of implications for small and mid-sized businesses. But employers with fewer than 50 workers won’t actually be compelled to do much. Their employees are likely to obtain insurance coverage through the individual market and Medicaid. In contrast, under state health reform in Massachusetts the mandate kicks in when employers have 10 employees, which is a big difference.


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