Small businesses: Tips for buying health insurance

Emmet Pierce

Before small businesses can take advantage of the tax breaks and reduced costs contained in the Patient Protection and Affordable Care Act - commonly referred to as the ACA, they need to understand how the health care reform law works.

The act is highly complex, says Robert Laszewski, president of Health Policy and Strategy Associates LLC, a consulting firm in Washington, D.C. He advises business owners not to go it alone and to seek help from an insurance agent or broker.

"Brokers and agents) do this for a living," Laszewski says. "Have a thorough review of the existing plan with the broker to see if the plan is in compliance." A broker also will be able to advise business owners on whether they have to provide coverage to employees, Laszewski adds.

While the ACA doesn't require employers to provide health insurance, it offers tax credits for eligible small businesses that choose to do so, says Gerald Kominski, director of the UCLA Center for Health Policy Research. This helps offset the employer's costs.

According to the U.S. Small Business Administration SBA), to qualify for a small business tax credit of up to 35 percent of the health insurance premiums paid for employees you must have:

  • Annual average annual wages of less than $50,000.
  • A contribution of at least 50 percent toward employee health insurance premiums.
  • Fewer than 25 full-time equivalent employees. The Kaiser Family Foundation, a health care policy group, says full-time equivalents are determined by adding the hours of all full and part-time employees. Under this method, two half-time employees are equivalent to one full-time employee.

Beginning in 2014, the 35 percent tax credit increases to 50 percent and is available to employers that participate in Small Business Health Options Program SHOP) insurance exchanges. SHOP seeks to offer businesses increased purchasing power by creating large pools of buyers.

Under the ACA, employers share the responsibility to reform and improve health insurance coverage. Starting in 2014, businesses with 50 or more full-time workers that don't offer affordable health insurance to full-time employees and their dependents may be subject to a shared responsibility payment.

This penalty may apply if at least one of a business's full-time employees receives a premium tax credit to purchase health insurance coverage. Under the law, a full-time employee generally is one who works at least 30 hours a week.

Reform set-backs

Some provisions of the ACA are being delayed to give the federal government more time to implement the program, federal officials recently announced.

The ACA will create the SHOP insurance marketplace for small businesses, starting next year. However, in most states small businesses will not have the option of providing workers with several health insurance choices, as planned. Instead, employees will be limited to a single plan, says Scott Hauge, president of Small Business California trade group.

The Obama administration is delaying the implementation of a full range of small business health plan choices until 2015 in 33 states. These are states where the federal government will be running insurance market exchanges.

Rhett Buttle, vice president of external affairs for the Small Business Majority, a Washington, D.C.-based business advocacy group, says the 17 states that run their own exchanges will have the option of allowing employees to choose from several health insurance plans, beginning in 2014.

Health insurance tips

Here are five tips for making sound decisions about health insurance:
  1. Find an expert. To find an insurance agent or broker who knows the subject, ask another business owner for a referral, says Derek Ross, president of Kulchin Ross Insurance Services located in Southern California. Some agents who haven't studied the law may pass along bad information, he adds. "The majority of brokers and agents don't truly understand the changes that are coming. There are still many ambiguities," Ross says.
  1. Think hard before dropping coverage for your employees. Laszewski says your decision about whether to provide workers with health insurance should be based on how it'll affect your finances. It may seem cheaper to drop coverage, but that could place you at a competitive disadvantage when it comes to attracting and keeping qualified workers.
  1. Follow the rules. Although the ACA provides tax breaks, it also carries fines for violations. According to the Kaiser Foundation, businesses with at least 50 full-time employees can be fined $2,000 per employee, if they don't offer affordable health insurance coverage for full-time workers, beginning in 2014. However, the first 30 employees are excluded from this fine.

    So if a business with 50 full-time employees is fined, no fines will be levied for 30 employees. The fines will be levied for the remaining 20 employees, costing a total of $40,000 for the business.

  1. Explore using a grandfathered plan. According to the Kaiser foundation, the ACA permits small businesses to keep the insurance plans they currently have, even if they don't fully comply with new ACA requirements. These plans are subject to fewer regulations. For example, businesses aren't required to allow employees to appeal denials of coverage. Also, businesses don't have to allow direct access, without a referral, to an OB-GYN. To be eligible to use a grandfathered plan, you must have had your plan in place when the ACA took effect in 2010.
  1. Take time to educate yourself. The federal government's website has a wealth of information on federal health care reform. Other useful resources include the SBA and the Kaiser Foundation's websites.

Hauge says not all of the ACA's regulations have been finalized, so more information will be forthcoming. Small business owners should try to keep up with the latest health care developments.

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