How the ACA will Affect Small Businesses and Their Employees
Several provisions of the Affordable Care Act (ACA) will likely have significant effects on small businesses, their employees, and families. Currently, smaller businesses are less likely to offer health insurance coverage to their employees than larger companies: 57% of small businesses with 50 or fewer workers offered health benefits to employees, compared to 92% of businesses with 51 to 100 workers, and 97% of businesses with 101 or more workers in 2011
Changes to Health Insurance Purchased by Small Businesses
The ACA includes broad changes to the insurance market for plans purchased by small businesses. Note that some of these changes only apply to new (non-grandfathered) plans and others apply to all plans, regardless of grandfathered status.
Access: Beginning in 2014, all health insurance plans must guarantee the availability and renewal of coverage regardless of health status. (Note that small employers with 50 or fewer employees already have guaranteed issue in all states, but this provision of the ACA expands the guaranteed availability of insurance). Furthermore, young adults may remain on their parents’ plan until age 26.
Costs: As of 2014, premium rating based on health status will be prohibited for new (non-grandfathered) plans. Premiums for new plans will only be allowed to vary by age, tobacco use, policy type (individual or family), and geographic location. Health plans may reward participation in a qualified wellness program by providing up to a 30% discount on the cost of coverage, so long as reasonable alternatives or waivers are made available for employees with medical conditions that would preclude them from participating.
Coverage: New (non-grandfathered) plans will cover a set of minimum benefits (called Essential Health Benefits) beginning in 2014. Based on initial guidance issued by the federal government, each state would determine its benefit package based on a range of benchmark plans in the state. All plans (regardless of whether they are grandfathered) will be prohibited from imposing exclusions for pre-existing conditions (effective since 2010 for children under 19; effective in 2014 for adults).
Value: All plans (regardless of grandfathered status) will have to report the proportion of their income from premiums that are used on medical care and quality improvement. If this amount (called the Medical Loss Ratio or MLR) is less than 80%, small businesses and individuals enrolled in the plan will receive a rebate.
Comparison: New plans will be labeled as bronze, silver, gold, and platinum “tiers” demonstrating the actuarial value of the plan (the percentage of costs covered for a typical population) to facilitate comparison across plans.
Provisions of the ACA Relating Specifically to Small Businesses The aspects of the ACA that relate most directly to small businesses are the creation of new insurance exchanges, tax credit subsidies, and penalties if some employers do not offer coverage
Creation of Insurance Exchanges Small businesses will have the option to purchase insurance through a new market, called the Small Business Health Options Program (or SHOP Exchange). The exchange will be designed to offer individuals and small employers an easier way to compare and purchase plans. Employers may continue to purchase insurance through the market outside of the exchange, and the insurance reforms above will apply throughout both markets. Each state is required to create an exchange by 2014; otherwise the federal government will run one in the state. The non-partisan Congressional Budget Office (CBO) estimates that approximately 2.6 million small business employees will get coverage through the exchanges in their first year (2014), increasing to approximately 3.7 million employees receiving coverage through the exchanges in 2017.