Three Important Questions about the Impact of Healthcare Reform on Small Businesses

Question:  I have heard that because my business employs fewer than 50 full time employees that the new healthcare law does not apply to us.  Is that true or false?

Answer: The new healthcare law, The Affordable Care Act (ACA), actually applies to all of us.  The “Employer Mandate”, which requires larger businesses to offer a group health insurance plan to employees, only applies to the larger groups, more than 50 employees.  That being said, this law changes the nature of health insurance for everyone, and applies to all American citizens.  The law will change the way health insurance is bought and sold.  Importantly, the law requires that every American citizen acquire health insurance or face a tax penalty.  In order to achieve this daunting requirement, health insurance will be offered on a guaranteed issue basis, without medical underwriting and at pre-published pricing (community-rated) to anyone who applies for it.  Smaller companies, with fewer than 50 employees will have new options regarding how they treat the health insurance needs of their employees, if they choose to address them at all.

Question:  I have heard that the Government will offer subsidies to lower income families in order to help them buy health insurance.  How will that affect the employees of the typical small business?

Answer:  While detailed information regarding the proposed subsidies is still pending, the ACA law does suggest that any family living at or below four times the federal poverty level will be eligible for financial premium assistance.  There is language that suggests these families will be able to buy their insurance and not be asked to pay more than 9.5% of their household income - the remainder of cost will be subsidized.  This assistance is only available to folks who 1) are not offered health insurance from their employer (at a cost less than 9.5% of household income), and 2) purchase their health insurance through a “public exchange.”

We believe that because most small businesses employ fewer than 50 people, and because the pay scale at the typical small business is moderate, that this provision of the law will affect a great number of industries' employees.  As regulations for the “Public Exchange” become finalized, we expect that there will be further clarification of the rules surrounding the subsidy program. Stay tuned for further developments.

Question: At my study group, one of the members suggested that this new law was taxing health insurance in ways it has not been taxed before.  I have not been able to find explanations of this tax - how does it work?

Answer:  There are three ways in which health insurance will be taxed starting 2014.  While we expect these taxes to ultimately affect the cost to the consumer, they are written as taxes on insurance companies.  Because of the way these taxes are written, they are hard to find in the mainstream discussion. They break down as follows:

  1.  The “favorable” outcomes research - $1.00 for each insured member will be paid to the Government this year and $2.00 next year.  This money will be used for a research project.  The nature of the project is to determine how better outcomes can be achieved when Americans get sick.
  2. Premium Tax - The insurance industry is being asked to help fund the creation and ongoing operation of the public “Exchange” system.  Therefore, a tax of between 2-3.5% of premium will be paid by all fully insured plans.
  3. Reinsurance Fund - Because of the move to Community Rating and the elimination of medical underwriting it is possible that an insurance company could find itself in a “Bad Risk” situation.  To help protect the consumer from a failing insurance company, approximately $65 for each insured member will be collected to create a fund that protects us all.

While these taxes are to be assessed on the insurer, we expect to see them passed through to the consumer.  The impact could be an increase in cost as much as 5-6% for these provisions alone.  Already, we are seeing a much higher average annual cost increase for small business health insurance plans.

For more information, please call Marcus Newman RHU, CBC at GCG Financial, Inc.  847-457-3058.

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