Health care reform and small business: Addressing the personal vs. financial implications of PPACAHeather Stauffer
This week I'm excited to welcome my first-ever guest columnist, Michelle Thompson.
Beginning in 2014, the United States health care system will be significantly changed. The main vehicle for this change is through the implementation of the Patient Protection and Affordable Care Act. In order to understand the effects of this law's enactment, we must look directly at health care from both a personal and economic standpoint.
The first thing you will need to determine is the source of your current health insurance. Do you receive your health care coverage from your local union, group plan or individually? Each of these options has very different answers regarding what your choices will be.
Option 1: Individuals who obtain health coverage through unions
It has been anticipated that most union plans will remain unchanged until 2018. There is a good chance that the overall health insurance premium cost will increase. It is likely that all or some of this increase may need to be passed on to the individual union member. However, the biggest challenge union members will face will come into play beginning in the year 2018. Unless legislation is changed, starting in 2018 there will be a "Cadillac Tax" of 40 percent for union members who have what are deemed "generous" health plans. (Reporter's note: The Cadillac Tax will apply to everyone whose insurance qualifies, not just union members.) Currently, your lobbyists are petitioning an exemption for you, but that exemption will be subject to the political process. You will want to keep a close eye on this potential tax.
Option 2: Individuals who obtain health coverage through large employers (50+ full-time-equivalent employees)
Section 1513 of the PPACA law addresses employer responsibility. This section ultimately requires employers to provide essential benefits to each employee without the premium cost burden to the employee exceeding 9.5 percent of their household income. If they do not offer health insurance, the employer will be assessed a penalty of $2,000 per employee for each FTE employee over 30 hours. If they do offer insurance, but the plan does not meet or exceed the essential benefits definition or puts too much burden on the employee to pay the premium, the employer's penalty will be $3,000 per employee for each FTE employee — with the first 30 exempted.
Significant premium increases are almost certain to occur. Current estimates for premium increases range anywhere from 30 percent to 176 percent. For employers in the 50-100 range, Small Business Health Options Program (SHOP) could provide an affordable way for them to remain compliant; however, SHOP will not be offered to them until 2016. Also, employers will have to take great care to be sure that they do not discriminate toward any employee as they structure their premium-cost sharing programs.
Option 3: Individuals who obtain health coverage through small employers (49 or fewer FTE employees)
For smaller groups, employers will be left with difficult decisions. Most feel that health care premiums will increase dramatically. Small employers will need to determine whether they can afford to pay this increased expense. If not, the added cost will likely be passed on to their employees. Some employers may decide to discontinue their group coverage and give employees a specific dollar amount per month. The employees may use that money to obtain their own individual health insurance coverage. For employers in the under-50 range, SHOP could provide an affordable way for them to continue to offer insurance to their employees.
There are also several tax advantage arrangements that can be implemented to save the employee and employer taxes and remain compliant. Small employers, up to 25 employees, may also be eligible for a tax credit of up to 50 percent of the health insurance premiums that they pay for their employees.
Option 4: Individuals who are self-employed or obtain insurance on their own
As of Jan. 1, 2014, every individual will be legally required to have health insurance in the United States and will have several options available to them. In Pennsylvania, individuals will be able to purchase health insurance through an insurance agent, utilize the online exchange portal, or walk-in to a Navigator's office, which will be similar to current Social Security offices. Pending national approval, there may also be subsidies available to offset health insurance premiums based on income levels. If a family is at or below 400 percent of the federal poverty level (currently $94,200 income for a family of four), they may qualify for federal assistance to reduce their new health insurance premiums. It will be important to remember that individuals will also be required to have a plan that meets the essential benefits definition or face penalties. Selecting a plan that is not exchange compliant or waiving coverage all together will require penalty payments of $95 per adult per year or 1 percent of income (up to a maximum of $285 per year for a family) in 2014. These penalties will jump to $325 per adult per year or 2 percent of your income (up to $975 per year for a family) in 2015. By 2016, the penalty will be $695 per adult per year or 2.5 percent of your income (up to $2,085 per year for a family).
In summary, in 2014, the most significant impact for union members and employees of large businesses will most likely be premium increases. Union members should watch closely legislation proceedings pertaining to year 2018 and the potential Cadillac Tax.
We anticipate employees of small businesses, the self-employed and individuals who obtain their own health coverage will see the most change in terms of plan designs and cost-sharing structures. People falling into these categories should anticipate increases in premiums.
Small and large business owners alike will have difficult and sometimes complex decisions to be compliant with the new laws and balance the costs that they can absorb and how much they pass on to their employees.
We anticipate most employers will pass along the majority of this rising costs to their employees in one form or another. This could be shown in an increased premium sharing, decreases in other benefits (such as life, disability, dental insurances or retirement plan contributions), decreasing or eliminating pay increases or eliminating other employee benefits or perks.
As of May 2013, the information contained in this article contains best interpretation and summarization of the law to help you to be prepared for these changes. This information is intended for educational purposes only and should not be taken as specific advice. As PPACA continues to be interpreted and implemented, we expect changes to continue. We will continue to closely monitor the rollout and the implications of this new law. While we don't at this point anticipate the overall structure of PPACA changing, parts of the law have yet to be determined, including Medicaid expansion in Pennsylvania. Per the writing of this article, Gov. Corbett is still formulating a position on this aspect of the law.
I should also note that Keystone Financial is planning a June 27 informational luncheon at Carlisle Country Club for small businesses (those with fewer than 250 employees). The topic will be what small business owners need to know about health care reform, and Thompson will be one of the speakers. There is a cost, and registration is required — for more details, contact Thompson.
Finally, if you're interested in being a guest health care blogger or want to suggest topics to be addressed in this space, I'd be happy to hear from you.