What is the State of the Affordable Care Act for Small Businesses?

Most of the news once surrounding the Patient Protection and Affordable Care Act (ACA), also known as Obamacare, was about Republican lawmakers looking to repeal the law and Democratic lawmakers holding firm to preserve it. The law’s constitutionality is expected to be challenged again at some time in the not-so-distant future. But for now, much of the kerfuffle has died down, and the law remains in effect and enforceable.

So where do small businesses fit into the ACA landscape as it stands today? Without the negotiating and buying power of large employers, small businesses often pay more for healthcare policies. Based on 2018 statistics from the National Conference of State Legislatures (NCSL), small employers, defined as those with under 100 workers, pay on average 8 percent to 18 percent more for the same health insurance coverage that big employers provide.

Insurers’ rates differ based on an employer’s industry or previous claims, which can put the squeeze on small businesses’ ability to offer coverage. However, states have stepped in to review and approve policies offered directly to small businesses and consumers, and most states’ healthcare laws require state-licensed insurers to provide coverage to small employers that want it and cap rates affected by medical status and age, according to the NCSL.

Small-business health plan costs

Despite the high cost of providing health coverage, many small employers offer some type of health coverage. The Kaiser Family Foundation’s (KFF’s) 2018 Employer Health Benefits Survey, a poll of 2,160 non-federal public and private companies, shows that 56 percent of small businesses with three to 199 workers provide health coverage.

Small businesses pay an average premium of $5,681 for single coverage, with employees contributing $1,133 to the total cost.

Small employers in the survey paid an average premium of $5,681 for single coverage, with employees contributing $1,133 to the total cost. The average small-business premium for family coverage was $11,957, with an employee contribution of $6,781. By contrast, large employers paid an average premium of $5,723 (with a $1,207 employee contribution) for single coverage and $14,926 (with a $5,046 employee contribution) for family coverage. Employees in small businesses paid 12 percent more in premiums for family coverage than employees in large firms. Group health insurance significantly reduces the cost of health coverage per employee.

Health coverage in a tight labor market

Although firms with fewer than 50 workers aren’t subject to the Affordable Care Act’s mandate requiring employers to provide health insurance, many feel compelled to do so, especially in a tight labor market, with record-low unemployment. Health insurance remains the most important benefit employers can provide workers and the benefit that gives them the most leverage when recruiting applicants.

To appeal to applicants and retain and engage employees, Peter Weber, president of United Benefit Advisors (UBA), recommends that small businesses benchmark their health plan against those of companies of comparable size and communicate to staff and jobseekers the plan’s competitiveness in average nationwide costs, co-pays, deductibles and expenses.  

The Affordable Care Act’s small-business program

Providing health coverage is no small expense, especially for small shops and enterprises with a few workers. However, one aspect of the Affordable Care Act that received far less attention than the fight over the law’s survival is the Small Business Health Options Program (SHOP). Since 2014, small employers with 1 to 50 full-time equivalent employees (FTEs) can offer health and dental coverage to their employees through the program. However, a business owner, spouse, family member or partner isn’t eligible as a single FTE.

Enrolling in SHOP is currently the only way small employers are eligible for the Small Business Health Care Tax Credit, which can lower their premium costs. To be eligible companies must:

• Have fewer than 25 FTEs
• Pay their average employee an annual salary of $50,000 or less a year
• Pay at least 50 percent of their full-time employees’ premiums
• Offer SHOP coverage to all their full-time employees. (Offering coverage to dependents and employees working less than a 30-hour week isn’t required for the credit.)

Also, about half the states have new insurance purchasing pools, called CO-OPs, where small businesses can join with each other to buy insurance. States can limit the pools to employers with 50 or fewer workers, if they choose. By pooling their resources, small businesses can buy health insurance when they couldn’t afford to before.

Small businesses can enroll in SHOP through an insurance company or SHOP-registered broker or agent. To find out if they qualify for SHOP, small employers can access an FTE calculator at HealthCare.gov.

This article is for informational purposes and is not meant to provide legal, regulatory, accounting, or tax advice. Zenefits is not a broker and does not advise businesses on insurance products.