What Small Businesses Need to Know About Obamacare
Gather together small business owners from diverse industries and it won’t take long for them to determine they share a common malady: the rising cost of health insurance. Businesses face a myriad of challenges when it comes to health care costs, including rising insurance costs, ever-changing regulations and a wealth of insurance programs and policies to choose from. Add to that the increased health care costs attributed to the aging baby boomer population, and it is no wonder that business executives and owners are shaking their heads in dismay. With the upcoming changes in the nation’s health care laws, namely through the Affordable Care Act, business owners and operators are trying to understand what the future holds for their health insurance initiatives.
Here’s one thing we know: the quality of life in Minnesota is first rate, a blend of America’s small town atmosphere and big-city amenities, with lifestyles and activities for everyone. As a modern, thriving region, Minnesota offers a complete and thorough network of medical and health services. It is a constant focus of the state to enhance these services, as befits a modern community still growing and diversifying. The region is teeming with the critical ingredients to make it to the top tier of health care communities.
And further still, Minnesota employers play an important role in engaging employees in healthy lifestyles. Research shows that employers who invest in the health of their workforce see a return on that investment. In fact, the modern workforce is leading a much different lifestyle today. Two out of every three Americans are overweight or obese, and 60 percent do not get the recommended amount of activity.
As healthy employees can dramatically affect a company’s bottom-line, more and more business owners are paying close attention to the recent changes in health care laws facing our nation. So what will the upcoming changes within the Affordable Care Act (a.k.a. Obamacare) really mean for Minnesota’s business owners and their employees?
According to David Cornell, president of Cornell Insurance Services, Inc., a small business in St. Paul that brokers and specializes in employee benefits and health care, the changes in the health care laws already have and will continue to increase awareness for the employee as to how much benefits cost and the immense value an employer provided health care benefit is and will continue to be.
“It does very little to change the overall cost of health care but it’s a start,” Cornell says. “It will provide an excellent opportunity to retain and attract quality employees, if and only if the small business can afford to offer health insurance. If they cannot, then they certainly have an excuse to not offer it, which is understandable, and the employee now will have access to health insurance on their own.”
At its core, the Affordable Care Act states that beginning in January 2014, small businesses with 50 or more full-time equivalent employees (the ACA has a calculation for employers to figure how many full-time equivalent employees they have) must provide adequate health coverage to employees at an affordable cost. Insurance plans that have not been “grandfathered” must meet new provisions to provide certain preventive services without a co-pay or deductible, must cover dependent children until the age of 26 and must remove annual and lifetime limits from coverage.
“Plans must meet ‘minimum essential coverage’ standards, which have not been fully defined as of today’s date,” says David Levi, managing director at CBIZ MHM in Minneapolis. “They must also provide coverage to their employees that is no more than 9.5 percent of their income for single coverage, as determined by their W-2 wages. This is called the Shared Responsibility provision. Companies that don’t meet these standards will be subject to penalties.”
According to Jennifer Gillespie, vice president and actuary in underwriting at Blue Cross Blue Shield of Minnesota, small businesses will need to consider new benefit designs which include the required essential benefits and do not require too much cost sharing by the consumer (deductibles, co-pays and out of pocket maximums). “Small employers with low income workers may find that those employees (if eligible) can purchase richer benefits or the same benefits at a lower price if they access the price and/or benefit subsidies available in the exchange,” Gillespie says.
Nancy Sullivan, partner in the Minneapolis office of Barnes & Thornburg LLP, where she is a member of the firm’s Compensation and Benefits and Employee Stock Ownership Plans (ESOP) practice groups, says for now small employers (those with fewer than 25 full-time equivalent employees) should investigate the availability of the small employer tax credit for providing health insurance coverage to their employees. Between and now and 2014, once employees become eligible to buy coverage through the exchanges, small employers need to begin the process of evaluating whether or not to continue providing health insurance coverage to their employees, once those employees become eligible to purchase coverage in the exchanges in 2014.
“While there are a number of new provisions that apply to health plans, such as requiring coverage of dependents up to age 26, and elimination of life time and annual limits, most small employers provide health coverage to their employees through the purchase of insurance,” Sullivan says. “Insurance carriers have already been required—or in some cases, will be required—to add these provisions to their group insurance policies. Therefore, these are not things that should directly concern small employers. Because many of these new requirements increase the cost of coverage, small employers may see and should expect to see increases in insurance premiums. Small employers who have ‘grandfathered’ health insurance policies also need to continue to be cognizant of the effect that changes in benefit structures or cost-sharing requirements with employees could have on their insurance policy’s grandfathered status.”
As mentioned above, a number of the changes to group insurance policies required by the Affordable Care Act will have increased and/or will continue to increase the cost of coverage. For example, in 2014, pre-existing condition exclusions will be prohibited, which can be expected to further increase the cost of coverage.
The Bottom Line
Currently, insurance companies who issue group health insurance policies to small groups are required to spend at least 80 percent of premium dollars on claims and related health care quality improvement activities.
“If those insurance companies do not spend 80 percent of premiums on claims and health care quality improvement activities, they are required to rebate to the policyholder the portion of premiums that does not meet this minimum loss ratio requirement,” Sullivan says. “Small employers will need to be prepared to handle a medical loss ratio rebate, which may require refunds or premium reductions for employees. The Department of Labor has issued guidance on how employers are required to handle medical loss ratio rebates.”
Sullivan points out it has been suggested that one of the unintended consequences of the medical loss ratio rebate rules is that it likely will drive smaller insurance companies out of the group health insurance market. “As a result, while the receipt of medical loss ratio rebates may be a short term positive aspect of the Affordable Care Act, it may have long term negative implications in the health insurance market,” Sullivan says.
In addition, Gillespie expects that as the small group market moves to a community rate adjusted for area and plan, employers who used to pay at levels below the average rate will see increases in their premiums.
“Also there may not be as wide a range of benefit plans available, as some of the highest deductible plans in the market today do not meet the future requirements,” she says. “Other provisions include moving to gender neutral rates and limiting the impact of age on rates to a 3:1 ratio. These provisions have been in place in Minnesota since 1992, so they will not impact the state’s small employers. In some parts of the country, young male groups will see rates go up and older than average groups will see rates come down.”
One positive aspect of the Affordable Care Act is that it will allow small employers to get out of the business of providing health insurance coverage to their employees. Employers with fewer than 50 full time equivalent employees will not be subject to penalties for failing to provide coverage after 2013. In addition, the medical loss ratio rebate rules are slightly different for larger employers (the minimum medical loss ratio for larger groups is 85 percent as opposed to 80 percent for small groups).
Beginning in 2014, employees will be able to purchase health insurance coverage, on a guaranteed issuance basis and without pre-existing condition exclusions, through insurance exchanges. While larger employers—generally those with more than 50 employees—may be subject to financial penalties for not offering coverage to their employees, smaller employers will not be subject to these penalties.
As Levi explains, small businesses (those with less than 25 employees) that currently provide health benefits for their employees may qualify for a small business tax credit of up to 35% for the current year, and increasing to 50 percent in 2014.
“The ACA also calls for the access to grants for small businesses that initiated a wellness program for employees beginning in 2011, however, no additional guidance has been forthcoming on the availability of this grant money or the specific terms for qualification for the grant,” Levi says.
The Next Steps
So how should business owners prepare for the upcoming health care law changes?
First and foremost, small businesses should make sure that their health plan documents now include a Summary Plan Description for the coming plan year, as well as a Summary of Benefits and Coverage.
“Insurance providers should be working with employers to update plan documents to meet these new requirements,” Levi says. “Employers should also determine how many full-time equivalent employees they have, based on Affordable Care Act standards provided for 2014 Shared Responsibility, and if the rules affecting employers with 50 or more employees apply to them. Small companies that have 80 percent similar owners may also be considered as one company when the Shared Responsibility rule is applied.”
Also, business owners need to understand how employees will be counted. “The definitions are different and some employers will no longer be ‘small’ under the new definitions,” Gillespie says. “Once essential benefits are determined, employers will wish to determine if they will have to make changes to their plan designs.”
Sullivan recommends small business owners should begin the process of considering whether they intend to continue group health insurance coverage for their employees beyond 2013. “While small employers will be allowed to discontinue providing health insurance coverage for their employees without penalty, employers need to consider the recruiting, retention and employee morale issues associated with no longer providing group health insurance coverage,” Sullivan says.
Insurance agents and legal counsel are generally good resources for questions employers may have about the Affordable Care Act. In addition, the federal government maintains a website that provides a number of consumer-oriented and employer-oriented resources regarding the Affordable Care Act.
Employees should already have been notified about previous changes required under the Affordable Care Act. Further notices to employees will be legally required (e.g., with respect to medical loss ratio rebates, the effect of insurance exchanges, etc.). “These notices, combined with notices employees receive regarding 401(k) and other benefit plans, likely cause some employees to be overwhelmed by the amount of information they are receiving,” Sullivan says. “Employers need to make themselves available to their employees to answer questions regarding this multitude of changes.”
Gillespie adds that if employers are planning to make group benefits available that look very similar to today’s offering, their employees may not need much educating. “If they are planning to access the exchange, it will mean each employee needs to be prepared to shop for benefits instead of relying on the choice the employer has made for them,” Gillespie says. “Employers can help their employees by making sure they understand the benefits and the network of providers they have available to them today and the full cost of that plan. This will give them a benchmark for assessing their other choices.”