For this post, I was lucky enough to be able to interview my colleague Shira McKinlay about the ACA. I wanted to know about the ACA’s impact on small businesses. Shira knows her stuff and I thank her for this timely and informative post.
Barb: Can you describe the biggest positive and perhaps negative changes affecting small businesses?
Shira: Probably the biggest positive change of Health Care Reform for small businesses is the small business tax credit. Small businesses may qualify for this tax credit if the business has less than 25 employees, pays average annual wages below $50,000 and provides health insurance to its employees. Through 2013, the tax credit will be up to 35% of premium contributions. Beginning in 2014, the amount increases to 50% for small businesses that purchase coverage through Health Insurance Marketplace (or the “Exchanges”).
Even small businesses that do not qualify for the small business tax credit should benefit from being able to purchase coverage through the health care Exchanges. Colorado’s Exchange, Connect for Health Colorado , may offer small employers better, more transparent choices and potentially more affordable coverage for their employees for coverage beginning January 1, 2014. The Colorado Exchange is expected to open for enrollment October 2013. Of course, until the Colorado Exchange is up and running, we will not know the exact impact it will have.
As for the negative impact, fully insured small employer plans are subject to some additional requirements (such as requiring plans to cover all Essential Health Benefits, setting maximum deductibles) to which large-employer plans and self-insured plans will not be subject. However, employers with less than 50 full-time employees are exempt from Employer Shared Responsibility provisions of Health Care Reform, and still are not required to provide any coverage if they so choose.
Barb: What are the biggest changes for self-employed types?
Shira: I would say that two of the biggest changes for this group would be the required coverage for individuals as well as access to the health care Exchanges.
Self-employed individuals will be required to comply with the Individual Shared Responsibility provisions of Health Care Reform, beginning in January 2014. Individuals will be required to have minimum essential coverage, qualify for certain exceptions, or pay a tax penalty that is the greater of a flat dollar amount or a percentage of taxable income. Although the initial tax penalty is quite small ($95 for 2014), the penalty increases to $325 in 2015, $695 in 2016, and annually thereafter based on a pre-determined formula.
Access to the Exchanges will offset some of the burden of the Individual Shared Responsibility requirements. The Exchanges will offer core packages of benefits to individuals and, as mentioned before, small businesses. In addition, if a self-employed individual decides to get coverage through an Exchange, premium tax credits may make such coverage more affordable. The availability and amount of such tax credits will be dependent on household income.
Barb: Any big picture observations about the legislation and the opportunities it creates for small business?
Shira: A lot is going to depend on the success of the health care Exchanges. If the Exchanges work as planned, small businesses and self-employed individuals will have access to quality health care at affordable prices. However, until we hear the costs of the plans offered on the Exchanges, and until we see that the Exchanges are up and functioning, it is difficult to say how small businesses and individuals will be impacted.
At a recent presentation, one of the members of the Board of Directors of Connect for Colorado stated that the Colorado Exchange will be up and running smoothly on October 1. After hearing him speak, I have high expectations, at least for the Colorado Exchange.
On the other hand, the federal Exchange (available for the states that chose not to run their own health care Exchange) does not seem to be faring as well. It was originally expected that small businesses would be able to offer their employees a choice of health plans through the federal Exchange starting in 2014. Instead, this plan-choice option has been delayed for the federal Exchange, and small businesses opting for coverage under the federally-run Exchange will be limited to offering a single plan to their employees until 2015.
If the Exchanges function as planned, this could offer exciting opportunities to small businesses and individuals. Individual entrepreneurs who are debating going out on their own for fear of losing their employer-provided health care may now be able to make that jump. Small businesses may be able to provide affordable health care to their employees with the help of the small-business tax credit.
Barb: Thanks for your insights Shira – any concluding comments?
Shira: You are very welcome. 2014 is going to be a big year for health care! Until we see exactly how the Exchanges are going to work, predictions are only guesses.
Shira McKinlay is an attorney with extensive employee benefits experience. She has advised businesses on employee benefit and ERISA compliance and opportunities, as well as performing audits and reviews of health and welfare plans. In her practice, Shira has provided advice on design and documentation of health and welfare arrangements and has drafted and developed plan communication materials, including summary plan descriptions, summaries of material modifications and required participant notices. Shira has been active in helping companies comply with, and strategize for, changes brought on by the Affordable Care Act (health care reform). She has assisted with the implementation of HIPAA regulations for group health plans. Shira also counsels companies on issues related to FMLA, as well as benefit plan matters that arise in mergers and acquisitions. She is director of Denver Compensation & Benefits, LLC, a compensation, benefits and retirement plan consulting firm. The firm’s professionals, which consist of both attorneys and CPAs, practice exclusively in the compensation, retirement plan and benefits area and have experience dealing with complex issues for employers of all sizes.