Affordable Care Act and Small Businesses

Jon Bailey, DirectorRural Research and Analysis ProgramCenter for Rural Affairs

Health Care Reform Law

• Actually two bills passed by Congress• “Patient Protection and Affordable Care Act” –

Public Law 111-148, signed by President Obama on March 23, 2010

• “Health Care and Education Reconciliation Act of 2010” – Public Law 111-152, signed by President Obama on March 30, 2010

Health Care Reform and Small Business

Employer Mandate

• There is a general employer mandate as a part of the “shared responsibility” for health insurance

• But the law specifically exempts any business with 50 or fewer employees (Section 1513).

• Result = Nearly all businesses in the nation are exempt from any requirements or mandates to provide health insurance to employees and are free from any penalties for not doing so

• 95 percent of all business establishments in the nation have fewer than 50 employees. (2007 County Business Patterns)

• The House Small Business Committee estimates that when considering this exemption and the number of businesses that already provide health insurance to employees the employer mandate will apply to less than 2 percent of businesses.

Small Business Tax Credits

Tax CreditsEligibility:• Fewer than 25 full-time equivalent employees• Average annual wages less than $50,000• Purchase health insurance for employees• Must contribute at least 50% of the cost of premium

2010-2013 Credit Amount:• Equal up to 35% of premium contributions • Full credit to businesses with 10 or fewer full-time equivalent employees and

average annual wage of less than $25,000• Credit lower as number of employees and average wages increase• Tax exempt small businesses meeting requirements eligible for credit up to 25%

of premium contribution

Small Business Tax Credits

2014 and Beyond • Same eligibility (previous slide)• Purchase insurance through state exchange• Credit equal up to 50% of premium

contribution• Tax exempt small businesses eligible for credit

up to 35% of premium contribution• Credit lasts for any two years

Small Business Tax Credits

Main Street Mechanic with 10 employees gets $24,500 credit for 2010

• Employees: 10• Wages: $250,000 total, $25,000 per employee• Employee Health Care Costs: $70,000• 2010 Tax Credit: $24,500 (35% credit)• 2014 Tax Credit: $35,000 (50% credit)http://www.irs.gov/pub/irs-utl/small_business_health_care_tax_credit_scenarios.pdf

Small Business Tax Credits

Who doesn’t qualify for the credit?• A sole proprietor, a partner in a partnership, a shareholder owning

more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit.

• A family member of any of the business owners or partners listed above, or a member of such a business owner’s or partner’s household, is not considered an employee for purposes of the credit.

• Members of a controlled group (e.g., businesses with the same owners) or an affiliated service group (e.g., related businesses of which one performs services for the other) are treated as a single employer for purposes of the credit.

2014 and Beyond

• Individuals and small businesses will purchase insurance through Health Insurance Exchanges – enrollment in October 2013, fully functional January 2014

• More on Nebraska Exchange later• Special small business Exchange (SHOP)• Individual Mandate• Many questions and administrative action to

come

2014 and Beyond

• Purchasers through the Exchange will receive premium assistance subsidies

• Those up to 400% of federal poverty level eligible for subsidies (approximately $88,000 for family of 4 in 2010 guidelines)

• Subsidy is a percentage of individual/family modified adjusted gross income

2014 and Beyond

Choice of plans in Exchange• Platinum – 90% cost of care coverage• Gold – 80% cost of care coverage• Silver – 70% cost of care coverage• Bronze – 60% cost of care coverage• Catastrophic – limited to those under 30,

exempt from individual mandate due to affordability

2014 and BeyondPremium tax credit subsidy amounts are linked to the secondlowest cost of a “Silver Plan” in the area. The subsidy amountsare set on a sliding scale such that the family premiumcontribution for a Silver Plan does not exceed the followingpercentage of income for the specified poverty levels in 2014:• Below 133 percent of poverty: 2.0 percent of income• 133 up to 150 percent of poverty: 3.0-4.0 percent of income• 150 up to 200 percent of poverty: 4.0-6.3 percent of income• 200 up to 250 percent of poverty: 6.3-8.05 percent of income• 250 up to 300 percent of poverty: 8.05-9.5 percent of income• 300 up to 400 percent of poverty: 9.5 percent of income

400% of poverty level = $92,200 for family of 4

2014 and Beyond

Example of how the Exchange may work

The Johnsons, a family of four (two adults, two childrenunder age 18), annual income of $33,075 (150 percent of

poverty): If the annual premium for the Silver plan for family coverage in the Exchange in the Johnson’s zip code is $4,500, the most the Johnson family would have to spend out of their own

pockets on annual premiums to cover their family would be about $1,323 (or about $110 a month). The remainder of their premium for the silver reference plan would be covered in the form of a tax

credit for $3,177 (or that amount could be credited toward the premiums for a more or less expensive plan of their choice).

ACA and Taxes• A new 10% excise tax on indoor tanning services (for services provided after June 30, 2010). • Increase Medicare Part A tax on the wages of single taxpayers earning more than $200,000

per year and couples earning more than $250,000 per year from 1.45% to 2.35% (2013).• These taxpayers would also incur a special Medicare tax of 3.8% on unearned income

(interest, dividends, capital gains, annuities, royalties and rents; tax-exempt interest and income from retirement accounts would not be considered “unearned income”).

• Excise tax beginning in 2018 on insurance companies providing “high-cost” employer-sponsored health plans, defined as those with values exceeding $10,200 for individual coverage and $27,500 for family coverage. The tax is equal to 40 percent of the value of the plan exceeding the threshold amount.

• Fees assessed on businesses that do not provide health insurance to employees will only be charged to businesses with 50 or more employees.

• Excise tax of 2.3% on sales of taxable medical devices. Sales after December 31, 2012.• Tax on individuals without health insurance -- $695 per year up to 3x that amount or 2.5% of

household income. Phased in beginning in 2014.

ACA and Taxes

W-2 Reporting Requirements• Employers required to report total value of

employer-provided health insurance on W-2• Theory = Will educate employees of true cost of

health benefits• IRS – Optional for tax year 2011; mandatory for

2012 tax year• IRS draft of new W-2 form

http://www.irs.gov/pub/irs-utl/draft_w-2.pdf

Maintaining Current Coverage

• Any health insurance plan in place before March 23, 2010, is “grandfathered” by the ACA.

• “Grandfathered” plans = keep insurance plan • “Grandfathered” plans = fewer ACA requirements• Maintain “Grandfathered” status even if new employees

enroll• May even change insurance carriers and maintain

“Grandfathered” status if benefits and costs to employees stay largely the same.

• Significant changes in plan = loss of “Grandfathered” status

ACA and Insurance Coverage

• Essential health benefits = All new (non-grandfathered) plans must provide beginning in 2014. A list of basic health benefits that must be covered.

• State benchmark plan = Each state must select a benchmark plan that covers the essential health benefits.

• Nebraska benchmark plan = Gov. Heineman has sent to federal HHS a high deductible insurance plan.

• Rejected by HHS• Pre-existing conditions = All plans (new or grandfathered) will

be prohibited starting in 2014 from excluding adults for pre-existing conditions (already in existence for children under 19).

SHOP Exchange• Small Business Health Options Program (SHOP)• An option for states to meet insurance exchange requirement• Can be a separate exchange or combined with individual exchange• Will offer group health plans to small businesses• Open to businesses with no more than 100 employees• First two years (2014-2015) – states may restrict to businesses with up

to 50 employees• States may allow larger businesses to participate in 2017• Insurance market outside exchange will continue – no requirement to

buy insurance in the exchange• Unique SHOP function in ACA – streamlined billing and collection

system for small businesses – 1 bill for each employer for all employees for all plans

Nebraska Exchange

• Governor Heineman decided not to have a state run Exchange – too expensive for state

• Federal government will operate Nebraska Exchange• 20-25 states will have federal run Exchanges• What that means? • Federal government still developing rules,

technology• Must be ready for promotion Fall 2013, enrollment

Jan. 1, 2014

Medicaid Expansion• U.S. Supreme Court = ACA constitutional, expanding Medicaid a

state option• ACA Medicaid expansion – anyone up to 138% of poverty level

eligible for Medicaid• Adds childless adults as Medicaid eligible population• 138% poverty level = $31,809 for household of 4; full-time

minimum wage for single person• Governor Heineman = Nebraska won’t expand Medicaid• LB 577 = expands Medicaid for Nebraska per ACA• Could be a big thing for small businesses • Small business employees could receive health insurance under

Medicaid with owner not having to provide benefits

The Future

• ACA rules and regulations coming from federal government almost daily

• A lot may change or become clearer by 2014• So stay tuned

For more information

Jon BaileyCenter for Rural Affairs402-687-2100jonb@cfra.orghttp://www.cfra.org/policy/health-care/researchhttp://www.cfra.org/policy/health-care

Questions

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