With the passing of the Affordable Care Act (commonly referred to as Obamacare) in 2010, many of the business impacts of that law are starting to hit the market in 2013 and 2014. So, I wanted to do a few things in this post: (i) provide a high level summary of how Obamacare has impacted small businesses; (ii) provide a summary of what healthcare benefits small businesses are offering to their employees today; and (iii) provide a few resources which may be useful to you in making your own healthcare benefits decisions.
To assist me in this effort, I solicited the help of Michael Flanagan and Gene Smith at Alliant, a full-service benefits brokerage firm in Chicago with experience on the business impact of Obamacare and the general healthcare decisions startups are making today.
IMPACT OF OBAMACARE ON SMALL BUSINESS
Well, the good news is, companies with 50 or fewer employees (including 50% count for part-time employees), are NOT required to offer healthcare to their full-time employees. But, many companies of this size, typically do offer healthcare as an employee benefit to attract new employees. All companies with 51 or more employees, are required to offer healthcare benefits to their staff, effective as of January 1, 2015. Such companies will be subject to a $2,000 per employee "play or pay" penalty of this employer mandate coming out of Obamacare. And, to make matters worse, this penalty fee is NOT tax-deductible, like benefits expenses are, so it is really like a $3,000 per employee fee when you add in the lost tax deduction.
To satisfy the healthcare benefit requirement, small businesses have a few options available to them: (i) they can offer their own corporate-sponsored plan; (ii) the can offer their employees a payroll increase to allow them to purchase their own personal healthcare insurance directly through a carrier or through one of the public insurance marketplaces; or (iii) they pay the penalty fee for not offering healthcare benefits. Their decision will come down to an analysis of what works best for them financially and what impact do they want to have on their employee benefits for recruiting and employee satisfaction needs.
In addition, Obamacare impacted small business as follows: (i) no longer can carriers base insurance approvals based on up to 10 age bands (they are now compressed into three age bands benefitting older individuals at the cost of younger individuals--and many startups have younger individuals); (ii) no longer can carriers base insurance approvals based on healthcare risk (benefiting the sick with pre-existing conditions, at the cost of the healthy--and most startups are healthy); and (iii) businesses now have to pay additional fees or taxes related to their healthcare programs (which adds around 4% to their healthcare costs from where they are today).
The three new fees include: (i) $2 per employee "comparative research effectiveness" fee; (ii) a $5.25 per member (employee and family) "reinsurance cap" fee; and (iii) up to a 2.5% "healthcare industry fee". The first two fees are temporary during the transition period, and the last fee is permanent in perpetuity each year. So, if healthcare costs were expensive before to small businesses, it just got a lot more expensive. In addition, changes coming out of Obamacare have made healthcare decisions more complex and time-intensive in nature, making it harder and more costly to administer.
TYPICAL HEALTHCARE DECISIONS BEING MADE BY STARTUPS
Healthcare programs can be designed for companies starting with two employees or more. For companies with 2-15 employees, approximately 35% offer healthcare benefits (so most startups have decided not to offer it). And, for companies with 16-50 employees, a materially higher 65% of such companies are offering healthcare benefits. All companies with 51 or more employees will now be required to offer per the Obamacare changes. One way that companies are trying to get around this requirement is to use more 1099 contractors or multiple part-time employees to fill full-time work needs, trying to defer the added healthcare costs as long as they practicably can.
For companies offering healthcare, the 2-15 employee companies are typically only covering around 50% of the plan costs of employees and 30% of the costs of any additional family members. And, for 16-50 employee companies, they are typically covering around 70% of plan costs of employees and 50% of the cost for any additional family members. Most plans offered to date are from one carrier (although some private exchanges are trying to evolve to multiple carrier programs over time), and they typically offer three options for employees: a PPO, an HMO and a high-deductible FSA for employees to choose between.
It is too early to tell how many companies are going to opt for their own healthcare program, vs. providing payroll credits for employees to source their own insurance or pay the penalty. If they simply think of it economically, it could prove a lot cheaper/easier for them to go down the latter of these options. Especially, since the company can decide the exact payroll bump they want to give employees, to satisfy their healthcare requirement (which may end up well-below the real market value employees may need to pay--as individual plans tend to be a lot more expensive than corporate group plans). But, companies need to be careful of not being too short-sighted here, as what can financially benefit the company in the near term, could end up hurting employees or recruiting in the long term. So, it will be an interesting dance as companies sort through this.
That said, we are no longer in the era of employees working for the same company for 20 years. People hop jobs all the time, and may prefer a plan that is more "portable" as they move from company to company. Therefore, employees may actually prefer the payroll boost to fund their own plan, even if it comes with more hassle and cost to set up their own plan, as they only have to set it up once. And, the benefit of buying your own personal plan is you are guaranteed to pick a plan that works best for you (with your in-network doctors, family situation, health conditions and budget), and not what works best for the company.
A FEW USEFUL RESOURCES FOR MAKING HEALTHCARE DECISIONS
Buying group healthcare has never been an easy process. So, my recommended solution would be to talk to your insurance broker and research various carrier-specific plans or private exchanges to see what group solutions are available to you. And, where you can, try to find a solution that not only addresses your healthcare needs, but your other business needs (e.g., general business insurance, life insurance, disability insurance, dental insurance, COBRA administration, legal compliance), in crafting the best benefits program for your employees. This includes making sure you are supported by a help desk to answer any questions your administrators or staff may have over time.
For you Illinois-based tech startups, the Illinois Technology Association (ITA) has partnered with Alliant to help bring cost-effective healthcare solutions to small businesses. You can learn more at www.IllinoisTechInsurance.com. Furthermore, Alliant has further partnered with Flexible Benefits on a full-service solution for private exchange buyers, which are typically self-service solutions. To take advantage of these services, you will need to become a member of the ITA.
For additional information on healthcare reform and its impact on Illinois based employers, Alliant and the ITA are hosting a live webinar on the topic at 11am on Tuesday, September 17, 2013. You can learn more and sign up on their website here.
For all other questions, or for help in navigating your healthcare decisions and sourcing, feel free to directly reach out to Gene Smith at Alliant at gsmith@alliant.com or 312-589-6601.
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