How Does ACA Affect Small Businesses?

With all the focus on large employers (50+ employees), notably due to the "employer shared responsibility" provision extension, talk of ACA effects on small businesses is rare. Not anymore.

The fact of the matter is that with no financial requirements for small employers to contribute toward their workers' health insurance costs, small employers have the most to gain under the ACA employer provisions. Most provisions will be enforced beginning January 1, 2014.

Financial Incentives and Regulation Changes

In fact, the law does provide some financial assistance (i.e., tax credits) for some small employers to maintain or begin offering coverage to their workers. The tax credits are expected to offset a portion of the purchase of health insurance by low-wage employers with 25 or fewer workers. These tax credits could cover up to 50% of the employer's premium contribution for coverage purchased through the exchanges.

Employers will be required to provide employees with a standard "Summary of Benefits and Coverage" form that explains their insurance plan and what it costs. This will keep employees better informed on their coverage and provide more insight when they evaluate their options.

Already launched (Jan 1, 2013) is a 3.8% tax for net investment income such as taxable capital gains, dividends, rents, royalties, and interest for taxpayers with Modified Adjusted Gross Income (MAGI) over $200,000 for single filers and $250,000 for married joint filers. For that same tax bracket, ACA increases the employee portion of the Medicare Part A Hospital Insurance (HI) withholdings by .9% (from 1.45% to 2.35%). It is the employer's obligation to withhold this additional tax, which applies only to wages in excess of these thresholds.

For an employee, the maximum contribution to health care flexible spending arrangements for any year will be capped at $2500.

A small employer is not required to provide coverage to their workers, but those that do must limit waiting periods to no more than 90 days to eliminate lifetime and annual benefit limits. Employers who offer dependent coverage, as of 2014, have to extend that coverage to their workers' adult children up to age 26. As is today, there is no requirement that an employer must contribute to dependents in the first place. Also, pre-existing condition exclusion periods for children are prohibited.

These changes could increase premiums for various employers and workers enrolled in plans today that are not in compliance. However, the premium effects are expected to be miniscule and can be offset by applying slight alterations to deductibles or other cost sharing requirements.

SHOP (small business health options program)

Employers also have the option to utilize SHOP (small business health options program).

"SHOP will offer small businesses increased purchasing power to obtain a better choice of high-quality coverage at a lower cost. Costs are lowered because small businesses can pool their risk. To enroll, eligible employers must have an office within the service area of the SHOP and offer SHOP coverage to all full-time employees. In 2016, employers with up to 100 employees will be able to participate in SHOP." - U.S. Small Business Administration

This program was set to role out in full force come January 1, 2014. That has been delayed, sort of. Originally, 2014 marked the time when an array of coverage options could be offered to employees while the employer pays a single bill. That will have to wait until 2015, because in 2014 employers will only have the chance to provide a single plan to all employees.

Plans sold in the small group market will be required to meet essential benefit requirements, be rated consistent with rating limits in the law, and limit deductibles to $2000 for single coverage and $4000 for family coverage. Annual cost sharing for these plans will also be restricted to current law HSA limits.

Employers of any size that offer health insurance coverage to their workers outside the exchanges, and for whom the lowest cost policy option offered would require a contribution of 8 to 9.8 percent of a worker's income, must provide said worker with a "free choice voucher" - an amount equal to what the employer would have contributed to the firm's plan towards the worker that can be used towards the purchase of coverage via a non-group insurance exchange.

Small employers may continue to purchase coverage in the small group market, but starting Jan 1, 2014 they will have the option of utilizing the SHOP exchanges.

Increased options for accessible and affordable coverage is expected to improve small employers' ability to compete for labor with large employers. Only time will tell if this proves true.