Small Businesses: Prepare for Health Care Reforms

Ready or not, many key provisions in the massive health care law—the Patient Protection and Affordable Care Act of 2010 (PPACA)—take effect next year. In fact, employers must meet certain notification requirements by October 1, 2013. However, the government recently announced that enforcement of the “pay or play” penalty for employers will be postponed for one year, until 2015.

Preparation is critical. Here are several areas to consider:

Health care exchanges: New state-based health insurance exchanges should be available next year. The intent is to enable small businesses and individuals to shop for coverage and choose from competing plans that meet federal requirements. Employers must inform employees, in writing, about the individual health insurance exchanges.

A business with 100 or fewer employees will be able to purchase a health plan through the Small Business Health Options Program (SHOP) Marketplace. However, the PPACA permits states to limit the small-group market to employers with 50 or fewer employees until 2016. Small businesses also may opt to continue contracting with traditional health insurers. In any event, premiums will no longer be based on employees’ health status but may still vary depending on age, smoking history and geographic region.

Size of workforce: It is important to determine the size of your workforce under the PPACA definition. A business employing 50 or more full-time workers or “full-time equivalent” employees may be fined at least $2,000 per employee if it does not provide affordable insurance to employees averaging 30 or more hours per week. Your company faces a penalty (postponed to 2015) if it does not offer coverage, if an employee qualifies for a tax credit or subsidy to help pay for an individual plan on an exchange, or if it offers coverage that does not meet affordability rules. Note: Businesses with fewer than 50 workers are completely exempt from these rules.

Essential benefits: In general, new plans must provide “essential health benefits” to participants. While the rules may vary from state to state, essential benefits must include certain services, such as maternity and newborn care, emergency services, mental health and substance abuse services, preventive care and prescription drugs. Note: A business may be able to “grandfather” existing group health plans to avoid some requirements.

Tax credits: A business with fewer than 25 full-time employees and average annual wages of less than $50,000 is already eligible for tax credits if it provides health insurance. In 2014, the credits increase to a maximum of 50% of the employer’s contribution to premiums for SHOP exchange plans, up from 35% in 2013. Also, a small business with fewer than 50 employees could provide group coverage purchased through exchanges or elsewhere, or it can direct workers to seek their own health insurance through the individual exchanges. The employer may choose to contribute to coverage that the employees purchase.

Administrative responsibilities: The PPACA imposes numerous administrative requirements on employers, such as reporting the costs of company-sponsored health coverage on W-2 forms and supplying employees with a summary of benefits coverage. Because the PPACA requires small-group health plans to provide rebates if they fail to spend at least 80% of premiums on medical care and quality improvements, rather than on administrative costs and profits, employers may have to distribute rebates to employees.

How much will the new health care rules cost a small business? Naturally, it will vary for each company. With assistance from your business advisers, develop a plan for meeting your obligations without breaking the bank.