Navigating the Affordable Care Act for Small Employers

By Jean Roque, President, Trupp HR.

On June 28, 2012, the U.S. Supreme Court upheld the majority of the provisions in the Patient Protection and Affordable Care Act (PPACA). Ongoing resistance and delays to PPACA have caused many to become complacent about dedicating time and energy toward understanding the impact to our business. Depending on the size of a company, some aspects of the law may apply differently. For those employers with less than 50 employees, here are six steps for successfully navigating the changing landscape of health care coverage under PPACA.

1. Be prepared to distribute Summary of Benefits and Coverage (SBC)

  • What is it? A summary about your health plan’s benefits and coverage that must be provided at important points in the enrollment process, such as upon application and at renewal.
  • Why is it required? To make it easier for employees to understand their benefits and coverage and to compare insurance options.
  • When is it due? Plans and issuers must provide to participants, beneficiaries and new enrollees during first enrollment event on or after September 23, 2012.
  • Who does this apply to? All health plans must comply
  • What does an SBC look like? View a sample SBC

2. Understand the impact of the “Pay or Play” Penalty to your business

  • What is it? Employers will be required to offer employees health coverage or be subject to a tax penalty. The coverage must meet “minimum value” which is anticipated to be determined by a calculator made available by the government for determining the value of the health plan.
  • What is the penalty? Generally, for every full-time (typically works ≥ 30 hours/week) employee who is not offered coverage (including dependent coverage), a $2,000/year penalty may apply (potentially excluding the first 30 employees). If an employer’s coverage does not meet the “minimum value” and an employee purchases coverage through an exchange, the penalty tax may be $3,000.
  • Why is it required? It is one of the methods for putting “teeth” in the requirement for individuals to have sufficient health coverage.
  • When is it due? January 1, 2014
  • Who does this apply to? Employers with 50 or more full-time equivalent (FTE) employees

 3. Leverage Small Employer Tax Credits

  • What is it? Since small businesses pay about 18% more than large firms for the same health coverage, the tax credit is intended as offset for this differential.
  • How much is the credit? For tax years 2010 through 2013, the maximum credit is 35% for small business employers and 25% for small nonprofits. Beginning January 1, 2014, the maximum credit will increase to 50% and 35%, respectively.
  • Who does this apply to? Employers who provide health insurance and have up to 25 FTE employees with average annual wages below $50,000. Determine if your company qualifies for this tax credit

4. Establish a plan for handling Medical Loss Ratio (MLR) rebates

  • What is it? A MLR indicates how much of your premium dollars are going toward overhead versus medical expenses. The MLR is calculated by dividing medical expenses of the carriers’ segment by net earned premiums.
  • How are rebates calculated? Groups with ≤50 eligible employees should have an MLR of at least 80% and groups with ≥51 eligible employees should have an MLR of 85% or greater (some states are permitted lower MLRs). When an issuer does not meet the requirement, the rebate amount is calculated based on the difference between actual and target MLR. Refer to DOL for guidelines on handling rebates. 
  • When is it due? Rebates for 2011 are due to plan holders (for group health plans) by August 1, 2012.
  • Who does this apply to? All employers who offer group health plans

5. Track your State’s progress on its Affordable Insurance Exchange and implementation of the Small Business Health Options Program (SHOP)

  • What is it? State-based health insurance marketplaces where small businesses can offer employees a variety of Qualified Health Plans (QHPs), and their employees can choose the plans that fit their needs and their budget.
  • How does this help my business? SHOPs will make it easier to compare coverage choices, will enable your employees to choose from a variety of Qualified Health Plans, will enable employers to choose contribution levels and submit a single payment for multiple plans, and are expected to lower coverage costs for small businesses.
  • Who does this apply to? Businesses with up to 100 employees will be eligible, although States can limit participation to businesses with up to 50 employees until 2016.
  • When does this start? Beginning in 2014. Review the status of your state’s Health Insurance Exchange Establishment Grants

6. Take necessary steps to comply and leverage PPACA

(Technically, this makes the list longer than six, but we didn’t want to overwhelm you.)

  • Be prepared to provide SBC to new and current employees by September 23, 2012.
  • Make plans to educate employees and implement reduced annual FSA limit of $2,500 for 2013.
  • By March 2013, notify employees of their State’s availability of health insurance exchanges.
  • Determine if your company is eligible for Small Employer Tax Credits.
  • Conduct a thorough review of your company’s coverage and benefits to assess its compliance with PPACA guidelines.
  • Thoroughly evaluate your company’s options for providing health care coverage, including the impact those options may have on your company’s finances as well as employee recruitment, engagement and retention.
  • Assess your company’s wellness program in order to leverage incentive increase from 20% to 30% in 2014.
  • If needed, leverage external resources, such as benefits brokers, insurance providers, accounting and HR professionals, to prepare and respond to PPACA mandates.
  • Communicate, communicate, communicate. Your employees need to understand what is changing, how your company is responding to those changes and how this will personally affect them.