In July, the U.S. Supreme Court ruled on the major constitutional issue posed by the Patient Protection and Affordable Care Act ("ACA"), finding that the statute’s “individual mandate” requiring most U.S. citizens to purchase health insurance is constitutional. The Supreme Court upheld the new law by deeming its “penalty” to be, effectively, a "tax."
Whether you agree or disagree with the law, or the manner in which it was passed, business owners are now faced with determining whether and to what extent this new law impacts businesses and how best to prepare for it. As it turns out, the law’s effect on small businesses is fairly limited. Certainly, it will impact all of us to some degree, but as outlined below, compliance might not be as onerous as initially feared, and some of its provisions may even prove helpful.
Effects on businesses
For small businesses: Under the ACA, companies that have fewer than 50 full-time employees will not be required to provide health insurance coverage for those employees. Nonetheless, the law will have some meaningful effects for small businesses.
Among other things, the Affordable Care Act:
- Tax Credits: Permits qualified employers of up to 25 employees who pay average annual wages below $50,000, and provide health insurance, to apply for a small business tax credit of up to 35% (up to 25% for non-profits) of premiums paid.
- Coverage Denials/Preexisting Conditions: Prohibits insurers from canceling or refusing to provide coverage to employees and their family members based on health status or preexisting conditions (known illnesses). The law does not, however, prohibit insurers from charging higher premiums under these circumstances (though individual state laws may do so).
- Coverage Caps: Prohibits insurers from placing lifetime caps on coverage, and tightly limits their ability to place annual caps on coverage (after 12/31/13, the law will prohibit all annual caps).
- Eligibility Requirements: Prohibits new group health plans from establishing any eligibility rules that favor higher-wage employees.
- Aid to States: Provides financial aid (grants) to states in order to assist each state in setting up its own “Affordable Insurance Exchange” and provides aid for establishing offices of health insurance consumer assistance to help individuals with the filing of complaints and appeals.
- Limits Flexible Spending Accounts (FSAs): Limits employees to an annual contribution of no more than $2,500 to health care flexible spending accounts, and substantially limits permitted uses of FSA funds.
- Children of Covered Workers: Requires firms offering health coverage to extend benefits to children of covered workers until the child reaches age 26. The child does not have to be a legal dependent.
- Limits Benefits to Legally Documented Workers: Specifically excludes undocumented aliens from its coverage and benefits.
Beginning January 1, 2014:
- Tax Credits: For qualifying employers, the tax credits for employer-paid health insurance will increase to up to 50% of the employer’s contributions.
- Affordable Insurance Exchanges: Employers of fewer than 100 employees will be able to shop for insurance in the above referenced Affordable Insurance Exchanges, which are, in part, designed to create collective bargaining power similar to that currently maintained by larger employers.
For Medium-Sized Businesses (more than 50 employees): Under the new law, employers generally must provide affordable coverage for their employees or pay a penalty. Effectively:
- No Coverage Offered: If a company has more than 50 full-time employees and does not offer health insurance as a benefit, the company would have to pay a fee (tax) of $2,000 for every one of its full-time workers (after subtracting the first 30 employees from that assessment). Thus, an employer of 51 full-time employees would pay an annual penalty of $42,000 ($2,000 x 21) to the IRS for failing to provide affordable health insurance coverage for its employees.
- Coverage Offered: Even if the company does offer coverage, it may be required to help employees in other ways. For example: