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Covering the Job Creators

Navigating the Affordable Care Act from the perspective of a small business

by Ali Hibbs on March 20, 2014


There is much confusion and misinformation surrounding Obamacare and how it’s affecting small businesses. What is going to change? Will it cost more money? How does the new exchange even work?

I recently attempted to demystify the process in New York State. I’m still pretty confused, to be honest, but I think there are a few points on which I am clearer. And these I will share with you. Perhaps you are a small business owner who will be dealing with these issues in coming months or perhaps you just don’t like being confused. Read on.

First, yes. Costs have already gone up for many businesses, small and large alike. This is a good and bad thing. Bad, clearly, because it’s costing business owners more. Good, because it apparently means that business owners are opting to choose slightly better plans rather than let their employees take a cut in coverage.

The reasons that this is happening are more or less clear. I spoke with Dan Colacino, a member of the New York State Association of Health Underwriters and a lawyer with Rose and Kiernan who works with business owners attempting to navigate the new health care system in New York.

“The Affordable Care Act required that the small group plans all meet certain actuarial levels,” said Colacino. “Which simply says that the plan pays, on average, a certain percentage of medical costs. There are four different levels—platinum, gold, silver and bronze—and they go from 90 percent to 80 percent to 70 percent to 60 percent. Plans that did not fit into those levels had to be altered so that they would. So if you had a plan in 2013, for example, that was 85 percent of average medical costs, you had to change it and bring it up to 90 or down to 80.”

So lots of small group plans did have to change for 2014, but most have not really changed significantly. Most employers have simply kept using the same brokers and/or going through the same health-care organizations; they are purchasing plans that are identical or similar to the plans that they’ve had for years and were only required to ensure that the coverage met new federal standards. Colacino says that, where choices have had to be made, most employers have opted for the next level up rather than allow their employees to lose coverage. This could be because they genuinely care for the well being of their workforces or perhaps because they know that it takes a good health care plan to attract the best employees. Whatever the reason, this is good news for their employees.

For businesses that have not already been offering health care, the next part gets a little more complicated, especially for those with approximately 100 full-time employees or less. Complicated enough, in fact, that the federal government has deemed it worthwhile to give small business owners a little bit longer to figure out how to navigate the new process.

The very first part of that process is to figure out how many full-time employees a business actually has in order to ascertain which new regulations must be followed. This sounds easier than it actually is and there are multiple methods of computation that the IRS has seen fit to allow. Per diem, part-time and contracted workers can cause confusion, employment designations differ from state to federal government and the new 3-hour threshold has forced many employers to reconsider their ideas about full-time altogether. It is up to the employer to decide which computational method best benefits his or her company and it helps that many organizations offer classes on the subject. This number is extremely important for small businesses to be sure about because bad math now can incur some serious financial penalties down the road.

Businesses with 50 full-time employees or less are currently eligible for the Marketplace but they are not subject to the Employer Shared Responsibility Payment (commonly called the employer mandate) portion of the Affordable Care Act legislation. They are the lucky winners: more options, easily comparable prices and the ability to opt out altogether without incurring punitive fines. The concern that this will cause some employers who may hover just above that threshold to reduce their workforce is probably legitimate, but the effects still remain to be seen.

Businesses with 51-100 full-time employees are subject to the ESRP but, due to a reprieve from the Obama administration, have been granted an additional two years to bring their health care plans into compliance with the new federal law. Those businesses will need to comply by 2016 to avoid potentially exorbitant financial penalties—the same year, according to Colacino, they will also become eligible for the Marketplace.

“I’m still trying to get some clarification from the IRS on this,” he said. “The thinking was that, in 2016, all those employers of 51-100 would not be subject to the employer mandate as well, but the guidelines that came out from the IRS indicate that, really, yes they are. So you’re bringing them into the small group market and making them comply with the central health benefits but you’re also saying that they’re subject to the same employer mandates as a large employer.”

Non-compliance with the mandate could be potentially disastrous for a business that has done the wrong math. After paying into one small group plan, a business that has counted wrong could still face the same hefty financial penalties as a business that has eschewed paying for a plan altogether, essentially doubling or tripling their health care costs. For a small business, this could easily be crippling.

Businesses with 100-plus employees have been allowed just one extra year. They must be in compliance by 2015. A lawyer I spoke with in New York City is concerned that the extensions have lulled businesses into a false sense of security. “They think maybe this will go away or that they can keep putting it off. . . . They really can’t afford to put it off.”

Colacino thinks that most businesses currently eligible to use NYSOH have kept the same providers and brokers simply as a matter of familiarity and inertia, but he expects that most will opt to use the Marketplace in coming years. “I think that for a new business owner who has not provided benefits before,” he said. “It is a really nice system and is a better way to go. You go on and everything is right there in front of you. The best part about it is that if I have fifteen employees and they enroll in, say, seven different plans, all of that is handled by the Marketplace.”

Colacino said that it’s nice to see a side-by-side comparison of costs and plans and that the metal tier system has made it a lot easier to compare plans by making the benefits identical. “The Marketplace has different rules. If an employer wants to offer their employees a choice of plans, that’s the only place they can do that.”

“In the Marketplace,” continued Colacino. “I can pick any of the plans I want. There are three carriers in the Capital Region offering plans through the Marketplace and the rules are that all carriers who participate have to offer all four levels. If I’m an employer, I can let my employees choose from one of 12 different plans.” He says that an employer can choose to pay the cost of one plan—the gold CDPHP plan, for example—and that their employees can then choose any plan that is essentially of equal or lesser value. If an employee should chose the silver MVP or Blue Shield plan, the employer would still be paying the same amount of money; it would simply stretch further for the employee.

“That’s the beauty of it. That’s what the employer can do in the Marketplace. He defines what he wants to pay and then turns his employees loose in the Marketplace.” The employer defines those limits online, after which his or her employees receive an e-mail informing them that they’ve been offered coverage and navigates them to a website where they can choose a plan within the set parameters. “They coordinate with the carriers and they send the employer one bill.”

Small business owners choosing not to use the Marketplace are urged to be cautious. Any business that offers sub-standard coverage, defined as coverage that is less comprehensive or affordable than that which any one of their full-time employees would be able to find in the Marketplace, will also be subject to fines for non-compliance.

“I worry because this is new and still confusing,” said the NYC lawyer, who specializes in ACA compliance. “Businesses that are not within regulation may not be found out or penalized for several years. By that time, the fines would be staggering.”