Affordable Care Act – Where do small employers go from here?
Options to consider when choosing your company’s employee benefits
We are well into implementation of the Affordable Care Act (ACA) and the impact of this legislation is being felt by many small employers.
First employers must determine if they qualify as small (fewer than 50 employees). This is not as simple as it seems. An employer may have 48 employees working 30 hours or more and conclude they are a small employer. Yet if they have 10 employees working part time, less than 30 hours per week, these part-time employees must be translated to full-time equivalent employees.
Because each of these part-time employees equates to half a full-time employee, this particular employer has five additional full-time employees, or the equivalent of 53 full-time and full-time equivalent employees. This company actually qualifies as a large employer and must follow the regulations applying to large employers.
That being clarified, the next question a small employer will ask is whether they continue to offer coverage – can their business afford it? What happens if they do not offer coverage – will they still be able to attract and retain top talent? These are difficult questions with various outcomes depending on the employer’s decision.
If the employer opts to continue offering coverage, next they must consider their options. Do they offer benefits on the Small Business Health Options Program, or SHOP, the federal exchange? As of now employers are able to offer only one plan option on the SHOP, and employees can only be enrolled on paper. (In 2015 it is expected that enrollment will be available online.)
Medical plans offered on the SHOP also must be offered outside the program. So what are the benefits?
Small employers who opt to enroll employers via the SHOP may qualify for the small business tax credit, which is not available outside the SHOP marketplace. To be eligible, an employer must cover 50 percent of the employee-only cost and have fewer than 25 full-time employees, including equivalents, and employee wages must average less than $50,000 per year.
Another benefit of the SHOP is that full-time employees are defined as those working 30 or more hours per week. Outside the SHOP, under New Jersey law, full-time employees are defined as those working 25 or more hours per week.
Another area of questions for small employers are private exchanges and using defined contributions.
Private Exchanges are similar to the SHOP except the employer can offer up to six different plan options that the employee can chose from, depending on what best fits his or her needs. Defined contributions are a fixed dollar amount (a “defined contribution”) provided by the company that the employee chooses how to spend.
Choosing a private exchange in conjunction with a defined contribution approach seems to be the wave of the future. With traditional employer-sponsored health plans, employers are building their benefits around a certain plan chosen by the employer. With a defined contribution approach the employer builds their benefits around a set dollar amount. This allows employers to predict what their health benefits costs will be.
With a defined contribution employees are giving a virtual “gift card” with a set amount of money on it that they may use to shop for their own insurance from among the employer-provided multiple benefit options. It is a win/win for all. The employer can set their budget and the employee has multiple options from which to choose.
In 2014 most employers are choosing to stay with the private carriers since they offer more plan options. In addition, some employers are getting their premiums reduced by as much as 45 percent because the plans they had were very rich and the carriers are eliminating many plan options. Before ACA took effect carriers might have offered 30 plans to employers. Now they might only offer 10. On the other hand, [premium increases at] renewal have gone as high as 88 percent.