Healthcare Reform

Obamacare: Pain or Promise for Small Biz?

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As implementation deadlines approach, employers try to understand new law.

When Rhett Buttle travels to local business groups and Chambers of Commerce across the country to explain the recent healthcare reform law, he has a message that surprises many of the small business owners in attendance: Obamacare probably won’t affect them.

Buttle, the national outreach and government affairs director of the Washington, D.C.-based advocacy group Small Business Majority, often spends much of his visit debunking misconceptions about the Affordable Care Act.

Widespread confusion about Obamacare – due to the challenges of communicating effectively about the complex law and its implementation – has left many small business owners uncertain about how the law will affect their hiring decisions and bottom lines. Even entrepreneurs hopeful about the possibility of falling healthcare costs are bracing for the unknown.

Whether in California, Ohio or New York, Buttle gets asked when small businesses will be required to provide health insurance to their employees. His answer: they won’t, for most of them. The provision that small companies offer insurance by the Jan. 1, 2014 deadline or pay a penalty does not apply to 96 percent of U.S. firms.

That’s because the law applies to businesses with more than 50 full-time employees – a threshold that only 4 percent of the country’s companies meet. And the majority of those employers already offer insurance.

“There’s been a lack of information out there,” Buttle said. “When folks learn a little bit more about the law, they’re surprised.”

Health Exchanges: the New `Wild West’

For the limited number of small business owners who do meet the law’s insurance requirement, however, the next 12 months are likely to be complicated and uncertain as exchanges are launched and benefit plans are finalized. Even entrepreneurs who already offer health benefits to employees or may want to provide coverage with the aid of tax credits are uncertain about some of the provisions.

Jason T. Andrew, chief executive of Redwood City, Calif.,-based health insurance brokerage Stone Meadow Benefits & Insurance Associates, says 2013 will be his company’s busiest year yet.

Most of Stone Meadow’s 150 clients already offer insurance, but will need help learning how to navigate the new exchange come October. Only a handful of Andrews’ clients don’t provide a plan yet and are required to do so or pay a fee of $2,000 per employee after the first exempted 30 workers.

For those businesses, the countdown to the law’s full implementation involves a lot of math to compare the price of fees versus the cost of coverage. The law tries to keep the cost of healthcare coverage down for workers by limiting premium payments to no more than 9.5 percent of their annual household income.

In theory, Andrew says, a tax credit for small businesses could defray the cost of providing insurance. But only one of his clients met the qualifications of having 25 or fewer workers whose average salaries are less than $50,000 – and the credit amounted to just $1,000.

Some provisions are confusing and complicated, while there are also many unknowns about how the law will be implemented. In particular, Andrew is waiting to see how the new plans affect pricing.

In California, there are seven dominant health plan carriers, but 29 new groups have applied to qualify for the state’s individual exchange. It’s possible the addition of new carriers and the addition of two new marketplaces – the Small Business Health Options Program (SHOP) and the subsidized individual exchange – will make pricing more competitive, but it won’t be clear until this fall.

“It’s like the Wild West,” Andrew says.

In the meantime, Andrew sends quarterly updates about the law’s implementation to clients and suggests how they should prioritize. He says clients are happy not to parse the details on their own: “The predominant thing we get is that employers don’t want to be in employee benefit business. They want to grow their business.”

Hope for Cost Savings

While some small business owners fear Obamacare’s arrival, others see potential benefits.

“On the cost side, my hope is that [the exchanges] will do what the expectation is: provide plain-English comparisons between plans that will create more of a true free market,” said Zachary Davis, who owns the Picnic Basket café and the Penny Ice Creamery ice cream shops and kiosk in Santa Cruz, Calif.

Davis already provides insurance to his 40 full-time employees, but he’s waiting to see how plans and rates change when the SHOP exchange launches. Those state programs will allow companies with less than 100 employees to shop for coverage, with the aim of making it easy to compare prices and benefits.

Davis also hopes that a more robust marketplace will force companies to compete on benefits that are easily understandable rather than “hiding behind the red tape and confusion.”

Even though he looks forward to increased transparency, Davis is unsure of how benefits will work when hiring after the beginning of 2014. It’s possible, he says, that a new hire will already have insurance obtained through the individual exchange.

If it makes sense for employees to obtain insurance through the individual exchange rather than through the company plan, then Davis said he might consider higher wages or other perks.

“One of our reasons for offering health care as a means of compensation is to retain good employees,” he said. “If that’s no longer something that causes people to stay with the business, that means we have to find ways to incentivize people.”