The Affordable Care Act (ACA), or Obamacare, passed in 2010. Its intentions were to provide affordable health insurance options. It also provided assistance to the millions of Americans unable to gain insurance coverage due to low income, pre-existing conditions, or other causes. In order to do this, the law mandated that all U.S. citizens obtain mandatory minimum health coverage.
The health insurance marketplace began with the purpose of helping consumers find low-cost options and assistance they are eligible for. However, the law also mandated that every business with 50 or more full-time employees had to eventually provide insurance benefits, such as employer-sponsored group health plans, to employees. This portion of the law came into full effect January 1, 2016.
How has Obamacare affected small businesses with 50 or more employees? What about smaller businesses? Has the ACA hurt small businesses, and if so, how?
Opponents of Obamacare have claimed that the law places an unnecessary financial strain on small businesses of 50-100 employees. The law requires they offer health benefits packages for their workers. Larger companies must also comply with the law. However, most were already providing such benefits for the purposes of competitive hiring.
Pundits predicted that small businesses forced to provide employer-sponsored health plans would slash jobs or go under. However, Obamacare also provided some tax incentives for small businesses, especially with fewer than 50 employees. They offer health coverage, as well as a special marketplace called SHOP (Small Business Health Options Program), which is now available for businesses with 100 or fewer full-time employees.
Every state has their own SHOP through insurance exchange as a means of providing low-cost options for businesses with 100 or fewer employees. The group plans provided through SHOP offer the best rates to employers that must, by law, offer inclusion in a group policy to their employees.
Very small businesses, such as those with fewer than 25 full-time employees earning an average annual salary of less than $50,000 receive the best rates. This is thanks to tax incentives designed to encourage participation, even though it is not required by law. The tax credits provided are retroactive, going back to 2010. This was so employers, who provided health insurance regardless of having no mandate to do so, can seek tax credits they are eligible for after the fact.
Employers failing to deliver health coverage options are charged thousands of dollars. Therefore, it only makes sense to use SHOP to find the best policies for the business and employees.
In addition to utilizing SHOP, small businesses may choose to take advantage of certain exemptions. One is the option to use self-funded insurance. In other words, they can finance their own health care plans.
With this method, employees pay premiums to the company, which sets the money aside to pay for employee healthcare claims. On the one hand, this allows companies far more control over fixed costs. However, it risks the total ruination of the company should variable costs, such as employee healthcare, exceed expectations.
For this reason, companies that opt for self-funded insurance generally buy stop-loss coverage. However, this coverage is pricey. Additionally, there is nothing to stop insurers from raising rates or canceling stop-loss policies at the end of the term, which is generally one year. This leaves employers responsible for covering the costs of employee healthcare. Therefore, more traditional, fully-insured plans like those offered through SHOP are probably a safer bet.