NEW YORK — Small business owners will be watching when the Supreme Court issues its ruling on the constitutionality of the Patient Protection and Affordable Care Act. The overhaul of the nation’s health care system requires that by 2014, all businesses with more than 50 employees must provide health care benefits that are deemed affordable under the law.
Opponents of the act have targeted a key provision known as the individual mandate. It requires all people to buy health insurance or pay a penalty. The rationale for the mandate is that the more people in the health insurance pool — in particular, younger and healthier people who need little health care — the cheaper care will be for everyone. Opponents of the individual mandate contend that it’s unconstitutional to require people to buy health insurance. The court has the power to uphold the law or rule all or part of it unconstitutional.
With a decision expected in the coming days, here are some questions and answers about how this affects small business owners:
Question: What will owners have to do if the law is upheld in its entirety?
Answer: Employers will be subject to the law if they have 50 or more full-time workers or the equivalent of full-time workers (two people working half-time are the equivalent of one full-timer). Small businesses that don’t comply with the law — either by not offering insurance or by offering insurance that’s not considered affordable — will have to pay penalties. To be considered affordable, the insurance must pay for at least 60 percent of covered health care expenses, and employees may not be forced to pay more than 9.5 percent of their family income (before deductions and adjustments) for coverage offered by employers. Penalties are set according to a complicated formula in the law; they start at $2,000 per worker when there is no coverage, with the first 30 workers excluded from the calculation. Companies also face penalties if they provide coverage that isn’t deemed affordable.
Employers get a tax deduction for providing insurance, but some business owners may decide it’s cheaper to skip the insurance and pay the penalty, says Paul Keckley, executive director of the Deloitte Center for Health Solutions. Deloitte is a consulting and financial advisory firm.
“You can lose the tax deduction, pay the penalty and be better off,” Keckley says. But he also points out that the penalties are scheduled to rise over time, and so eventually employers are likely to comply with the law.
The law also requires small businesses to provide what’s called an essential health benefits package. The states are permitted to determine what benefits should be contained in policies that are issued in their states. That means that businesses that have employees in more than one state will have to comply with each state’s requirements.
Employers can buy insurance from health insurers. Others may opt to join companies known as professional employer organizations like Administaff or ADP’s TotalSource division that provide health insurance and other human resources services. The law creates what are being call health insurance exchanges — markets where employers and individuals can search for the best rates. John Arensmeyer, CEO of the Small Business Majority, an organization that lobbies on behalf of small businesses, says the exchanges essentially give small businesses negotiating power on insurance rates that they haven’t had in the past.
Question: How many small business owners does this affect?
Answer: Relatively few. The Census Bureau doesn’t report the number of businesses with more than 50 employees. But it counted 616,693 companies with 20 to 99 employees in 2008, the most recent figures available. That was about 10 percent of the 5.91 million small businesses (those with fewer than 500 employees) the agency counted. Since those figures include companies too small to be covered by the Affordable Care Act, the number of small businesses subject to the law is likely to be much lower. The National Federation of Independent Business, the largest U.S. small business advocacy group says on its website that its typical member employs five people, but notes that it has “thousands” of members with more than 100 workers. The NFIB argued against the law before the Supreme Court in March. The group’s membership includes about 350,000 small business owners.
Question: Are there advantages for small businesses to the Affordable Care Act?
Answer: The act limits how much premiums can go up each year, Keckley says. But it’s widely predicted that if the individual mandate is struck down, premiums will rise because fewer people would be buying insurance than they would if the mandate stands.
Some companies’ premiums may drop under the law compared with what they’re paying now. The law eliminates the surcharges that insurers impose on companies who have patients with serious medical conditions. “It gives small businesses peace of mind. They won’t see their premiums rise significantly if one person gets sick,” says Larry Levitt, a senior vice president at the Kaiser Family Foundation, which studies health care policy.
The exchanges are expected to offer small businesses lower rates than insurance companies charge. Businesses will also get tax credits for six years for providing coverage.
Question: What happens to small businesses’ costs if the entire law is thrown out?
Answer: “It’s essentially back to the way things used to be,” before the law was passed in 2010, Levitt says.
Small business owners who would have benefited from lower premiums because they don’t have employees with serious medical conditions pay more without the law, he says.
“The ability of the insurance companies to keep costs down will be tougher,” says Arensmeyer.
But several major insurers don’t plan to turn the clock back entirely. Last week, Aetna, Humana and UnitedHealth Group said they’ll continue to cover what’s called preventive care, which includes immunizations and screenings for some medical conditions, and won’t charge co-pays. They also said they’ll continue to cover adult children up to age 26 through their parents’ insurance plans.
Levitt says many small business owners will still try to offer health insurance. It’s a benefit that helps companies attract and retain good workers. And it contributes to a positive work atmosphere.
Keckley expects that lawmakers will “come back with a lot of a la carte legislation that would address the insurance industry.” And Arensmeyer says some states are likely to enact individual mandates of their own.
Question: What if the individual mandate is thrown out?
Answer: “It’s likely the premiums would be higher, and small businesses buying insurance on their own would face that,” Levitt says.
The higher premiums would come from the fact that younger, healthier people won’t be required to buy insurance, and therefore won’t in effect be subsidizing the premiums for older people who tend to have more medical conditions.
But the exchanges created by the law would still exist, Arensmeyer noted. And that might help small businesses find insurance that they can afford.
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