I hear from small businesses every day who are confused about the Affordable Care Act. To help you decipher how the health reform law impacts your small business, I’ve outlined six Affordable Care Act pros and cons.
Affordable Care Act “Pros” for Small Businesses
Pro - Under the Affordable Care Act, Your Small Business Does Not Have to Offer Health Insurance
If you are an employer with fewer than 50 FTE’s (see this worksheet on calculating FTEs), there is no requirement for you to offer health insurance - the "employer mandate" does not apply to you.
This is a big pro for small businesses, who most often find that alternatives to group health insurance are a better solution.
Pro - Individual Health Insurance Got a Big Make-Over
Another big “pro” is that, under the Affordable Care Act, individual health insurance got a big make-over. All small business owners should understand these four advantages of individual health insurance when evaluating health insurance options:
Portability: Employees may keep their policy when they switch jobs
Choice: Employees choose the policy that best fits their needs, including the network of providers and level of coverage
Savings: Individual health insurance costs less, and employees may be eligible for a premium tax credit to assist them with the cost of their monthly health insurance premiums
Coverage: Individual health insurance covers all essential health benefits, and is available to everyone regardless of pre-existing medical conditions
Why is this such a benefit to small businesses? Simply put - individual health insurance is now better, and more affordable than traditional group health insurance. As such, small businesses are transitioning employees to individual health insurance and contributing to their premium expenses instead of offering group health insurance.
Pro - Small Businesses Can Reimburse Employees for Individual Health Insurance
As mentioned above, small businesses can reimburse employees for individual health insurance. This allows the business to contribute to employees’ healthcare, similar to how your business would contribute to a group health insurance plan.
While this "pro" isn’t a specific change made by the Affordable Care Act, it is a popular way for smaller employers to take advantage of individual health insurance, offer health benefits, and get out of the business of offering group health insurance.
This type of reimbursement arrangement does not satisfy the “employer mandate,” but remember - the employer mandate does not apply to small businesses.
Tip - If your business has more than 50 employees, you have to decide if you will “play, pay, or play differently" with the employer mandate. See: Play, Pay, or Play Differently? The Pros and Cons
Affordable Care Act “Cons” for Small Businesses
Con - The Affordable Care Act is Contributing to Higher Group Health Insurance Costs
As if group health insurance wasn’t expensive enough already, new ACA taxes and fees are increasing the cost of small group health insurance plans. These new taxes and fees include the Patient-Centered Outcomes Research Institute (PCORI) Fees, Insurer Fees, Transitional Reinsurance Fees, and Risk Adjustment Fees. This means additional annual renewal increases on top of other rate increases most small businesses are already seeing.
Con - The SHOP Marketplace Doesn’t Work for Small Businesses
Although the small business SHOP Marketplace may seem attractive on the surface, it is still a group health insurance plan and it doesn't address the core problems small businesses face with group health insurance including cost, participation requirements, and instability.
Additionally, as the SHOP Marketplace has rolled out, there have been multiple implementation delays, technical glitches, and inflexible rules. As such, most small businesses are skipping over the SHOP.
Con - There are New Compliance & Reporting Requirements to Manage
If you offer any kind health benefits (group health insurance or individual health insurance reimbursement), there are new compliance and reporting requirements to comply with. Sure, these new rules have a purpose, but for a small business it means more time each year to ensure compliance.
Tip - Work with a knowledgeable broker or use a reimbursement software provider to make compliance easy.
The Affordable Care Act can be confusing. I hope these pros and cons help you decipher how the ACA impacts your business, and better understand what health benefit options you have.
What Affordable Care Act pros and cons would you add to the list?