EmployerHealth_Body.jpgby Jen Hickey.


Despite all the discussion surrounding the Affordable Care Act’s (ACA) (known by some as ObamaCare) as employer health mandate, there remains some confusion about who will be affected. A recent survey found that one-third of small business owners believed they would be required to provide health insurance for their employees in 2014, while another third wasn’t sure. It pays to know the details of this law, though.


According to the ACA, small business owners who have no employees will have to purchase health insurance for themselves to avoid paying a penalty. There is, as the Wall Street Journal notes, a “hardship exemption” for sole proprietors if the annual insurance premium costs will be more than eight percent of their household income. Though the rules and potential costs associated with this health care law can seem daunting, the federal government has begun to clarify these issues with new regulations. These new rules explain purchasing and coverage guidelines for the health care market as well as define essential health benefits and wellness requirements.


[Note: All data in this article is accurate at the time of publication, but because government regulations are often changed and frequently updated, any small business owner should confirm the latest rules regarding the ACA by visiting hhs.gov and irs.gov, and seek professional guidance before making any major changes regarding health insurance.]


Beginning in 2014, businesses with 50 or more full-time equivalent employees (FTEs) must offer health coverage that’s “affordable” and meets “minimum value.” (These two terms are defined as a) having a premium that does not exceed 9.5 percent of income and b) covering 60 percent of actuarial value, or the amount of expected health care expenses.) The annual penalty for not complying is $2,000 per employee not covered after the first 30 FTEs. According to the ACA, full-time workers are now defined as employees who work 30 hours or more a week (130 hours per month). While businesses are not required to offer coverage to part-time employees, part-time workers’ hours will still be used to determine whether they’re subject to the mandate. For example, three part-time employees that work 10 hours per week for a total of 30 hours will now equal one FTE.


Businesses with less than 50 FTE workers are not subject to the employer mandate, and those with fewer than 25 FTEs that also provide health coverage may even be eligible for certain tax credits. (The average annual wage of workers would have to be less than $50,000.) Through 2013, small businesses that pay at least half the cost of health premiums for each FTE can receive a credit for up to 35 percent of their contribution toward their employees’ coverage. And starting in 2015, when the new state and federally run “health exchanges” fully launch, small businesses that purchase coverage through these platforms can receive a tax credit for two years of up to 50 percent of their contribution.


Lenny Verkhoglaz, CEO and co-owner of Executive Care, a Hackensack, New Jersey-based home health care company, has considered offering insurance to his employees in the past. But he could never meet the 75-percent-participation rule many group healthcare plans demanded. Since many of Verkhoglaz’s employees are documented immigrants with family roots in other countries, he says, they prefer to send home the extra cash that they might instead use to pay health insurance premiums. What’s more, many of his workers are covered by their spouses or through New Jersey’s state-sponsored health insurance plan. And to complicate matters, determining whether his employees are full or part time can be a fluid calculation, since their status often depends on the nature of the assignment and length of time between clients.


“This is not a 9-to-5 job,” explains Verkhoglaz. “An aide may be servicing a client for 40 hours a week, and then that client passes away and they may be working few or no hours until another case comes along.” However, Verkhoglaz still believes he will be subject to the employer mandate, because of the use of part-time employees to calculate FTEs.


Even the insurance brokers Verkhoglaz has spoken with still seem to be grappling with how the mandate will affect businesses like his, with regulations still being issued on how certain industries will be classified. Despite the uncertainty, Verkhoglaz, who co-founded his company 10 years ago, recently franchised his business. “I haven’t changed my growth plans even though I’m not sure how my business will be affected,” he says. In the meantime, Verkhoglaz continues to reach out to home care associations and read industry publications for guidance. “It’s not clear if there will be differences in how these exchanges run from state to state,” he notes.


Because the annual cost of non-compliance is far less than the cost of typical health care premiums, Craig B. Garner, an adjunct professor at Pepperdine University School of Law who teaches a course on the ACA, says some business owners may opt to pay the penalty and shift their employees onto the new state health exchanges. “There’s more to benefits than just cost,” cautions Garner. “Often it’s the difference when it comes to recruiting and retention.” He points out that the exchanges are expected to function much like an online travel booking site. There, business will be able to shop various plans that offer different levels of coverage, ranging from bronze (which cover the minimum 60% of actuarial value) to platinum (which provides up to 90% of coverage).


EmployerHealth_PQ.jpgGarner does not believe the penalties will have much of a financial impact on those businesses already offering a health plan. Jim Edholm, owner and president of insurance brokerage firm Business Benefits Insurance in Andover, Massachusetts says dropping existing health coverage could prove more costly in the long run. “Your employees will be looking for a bump up in pay to make up for that lost benefit plus the amount that’s lost to payroll taxes,” he points out. “You’ll end up paying much more in the end.”


The ACA also calls for all non-grandfathered individual and small-group market insurance plans to cover 10 health benefits deemed “essential.” These include services most would expect to be covered, such as ambulatory care, emergency room visits, hospitalization, maternity, newborn, and pediatric care, prescriptions, and laboratory services. It also will include care for mental health and substance abuse and preventive and wellness services. “This prevents those mini-med plans with all kinds of limitations and maximums from calling themselves a health plan,” notes Edholm. Where it gets murky is coverage for mental health, which is not well defined and varies from state to state. “Some states, like Massachusetts deem biologically-based conditions, such as depression, as mental health disorders,” he explains, “while others like Alaska do not.”  And the federal benchmarks for essential benefits largely leave the definition of required mental health services to the discretion of the states.


Also in the ACA and set to take full effect in 2014 are several other changes to current health care regulations. First off, the new law puts an end to annual and lifetime caps on coverage. Second, it establishes penalties for businesses that have healthcare eligibility waiting periods of more than 90 days. Finally, it creates new reporting requirements (sections 1512-1514) for employers of 50 or more FTEs on whether they offer health insurance or not.


While Livingston, Montana-based PrintingforLess offers a high-deductible health plan (HDHP) for its 155 full-time employees, CEO Andrew S. Field says he has already seen higher administrative costs. “There’s a lot of disclosure and legalese that now has to be provided to our employees,” Field explains. “We had to bring on another person in human resources to help with the additional paperwork and time spent working with our provider and broker/consultant to make sure we remain compliant.”


Until recently, Field had primarily relied on full-time workers. However, he has altered his hiring practices to prepare for expected higher employee costs. “Partly because of ACA and partly because we don’t know what the future holds, we’re far more inclined to invest in technology that may save us on headcount,” Field says. And when they do hire, they’re more likely to bring on part timers, who now represent about 20 percent of the company’s work force.


There have also been changes to the individual and small-group insurance market (50 covered employees or less), which have historically been regulated by the states. Unlike large employers, which have a larger pool of employees to spread the risk of catastrophic illness, rates available to smaller employers have traditionally been much higher, since there is a smaller pool to spread that risk. However, the ACA is meant to curtail this practice by setting up health care exchanges that create more competition for that market and establish more uniform guidelines of how insurers can determine expected costs and, thus, price premiums.


Edholm believes many smaller businesses may opt for a self-insured health plan, which is exempt from costs and taxes related the ACA. One of these exemptions involves the 80/20 rule, which requires health insurers to spend at least 80 percent of collected premiums on medical costs. Under a self-insurance plan, an employer assumes the risks of all claims, whereas in a fully insured plan the employer pays a fixed rate regardless of whether the costs are incurred or not. As a recent National Association of Insurance Commissioners study points out, when self-funding, it’s often necessary for a small employer to purchase a secondary, stop-loss policy to protect against the risk of large expensive claims that can result from serious illnesses. However, stop-loss providers require detailed information about the health and demographics of your employees, which will be used to establish the deductible. And such cost savings largely depend on the relative health and age of your employees.


[Note: All data in this article is accurate at the time of publication, but because government regulations are often changed and frequently updated, any small business owner should confirm the latest rules regarding the ACA by visiting hhs.gov and irs.gov, and seek professional guidance before making any major changes regarding health insurance.]