Much has been written regarding the impact of the Affordable Care Act on employers over 50 employees. There is no question that employee benefits will be drastically changed for large employers (employers over 50 FTE s) starting in 2014, but what about the small employer (under 50 FTE s)? The Affordable Care Act regulations do not currently apply to small employers.
One concern is that employers that are close to the 50 FTE s will reduce their staff below the magic 50 number to avoid having to comply with the new law. Some will, no doubt. But for those that are below the 50 FTE mark now, what are the options?
1. Cease to offer coverage. The new Health Care Exchanges will allow individuals access to health insurance coverage without underwriting. If the individuals income is below certain levels based on family size the individual may qualify for subsidies to help pay for the coverage. The exchanges will allow each employee to customize their health insurance plan to their families need and budget.
2. Pay each employee a fixed amount to purchase their own policy. Employers could elect to compensate each employee a flat amount to assist in the purchase of health insurance. Currently it appears the Exchanges may be able to take these payments direct from the employer. If the payment amount is at or below the employees actual cost then it would not be considered taxable income. If the company chooses to pay each employee a flat dollar amount per month with no accounting for the employees actual health insurance premium costs this would be considered taxable income to the employee.
3. Continue to offer a group employee health plan. The Exchanges are to establish a SHOP Exchange, which stands for Small Business Health Option. This will allow insurers to market plans direct to the employer groups under 50 FTE s. It is currently unclear how traditional brokers will operate in the small group market and interact with the SHOP Exchanges. It is possible that businesses can continue to work with their current broker, what is unclear is how those services will be reimbursed. Some carriers are reducing or eliminating the traditional commission structure built into small group rates.
So which will be the right answer? The correct answer will be different for every small employer. Probably the most important factor to consider is if we cease to offer coverage, will that put us at a competitive disadvantage in recruiting or retaining employees? For professional businesses and or businesses with 35 or more FTE s it may be more difficult to cease to offer coverage for recruiting and retention factors.
It may become common to see employers offer a monthly reimbursement for health insurance costs. This would allow the company a fixed budget amount and give the employees the flexibility to go to the exchange and customize their plan to their specific needs.
For employers under 25 FTE s and an average wage of less than $50K, there will continue to be a tax credit available if they offer qualified health insurance benefits. The maximum credit is available at 10 FTE s and average wages at $25K.
Many employee benefit plans renew January 1. The Exchanges are scheduled to be available by October 1, 2013 so that employers can evaluate the options. For employers whose plans renew on some date other than January 1, they will have until their individual renewal date to make changes.