Small businesses impacted by health care act despite lack of mandate
CONNELLSVILLE — Businesses with fewer than 50 full-time equivalent employees are not mandated to provide health insurance under the Affordable Care Act, but if they want to take advantage of tax credits, there are requirements that must be met.
Some of those changes were highlighted in a seminar Wednesday sponsored by the Connellsville Redevelopment Authority, Seton Hill University, Downtown Connellsville and the Greater Connellsville Chamber of Commerce.
One of the first changes to take into consideration is the definition of a full-time equivalent employee. The most recent federal definition is someone who works 30 hours or more a week or 1,560 hours a year, according to Bryan Kisiel of Kisiel and Rudnik, Certified Public Accountants and Consultants in Connellsville. To determine whether a company has more or less than 50 full-time equivalent employees, Kisiel said, the total number of payroll hours is divided by 1,560. Those above the 50-employee threshold must provide medical benefits to the employees who actually work 30 or more hours a week.
Kisiel said it is possible to fall under the mandate but still not have to provide benefits by reducing employee hours to less than 30 a week.
“Darden, the parent company of the Olive Garden and Red Lobster, is taking that approach, Kisiel said. “They are scheduling their employees 24, 26 or 28 hours and skirting the requirement.”
According to published reports, Darden officials are now saying they will not reduce any full-time employees to part time to avoid providing benefits.
Carl Knoblock of the U.S. Small Business Administration’s Western Pennsylvania District office said the new law is something all small businesses need to take into consideration as they chart their development plan for the future because it can significantly impact a company’s budget. Knoblock said companies need to examine whether it is better to increase their staff, hire temporary employees or automate.
Kisiel said small businesses can continue to offer whatever they are currently offering their employees, with no penalties and possibly no tax credits, though some insurance offerings that do not meet minimum standards for federally qualified health plans may no longer be offered and that may mean higher premiums. They may also establish a pre-tax account for their employees to use to cover all or part of the expenses incurred by the employees purchasing insurance through the Affordable Care Act marketplace, or they can choose to offer no medical benefits without federal penalty.
To receive tax credits for providing health insurance, small businesses must go through the Small Business Health Options Program, known as SHOP; have fewer than 25 full-time equivalent employees; offer the insurance to all full-time employees; and have at least 70 percent participation in the program. They must also cover at least 50 percent of the cost of the program. The tax credit, Kisiel said, is a dollar-for-dollar reduction in taxes for those who qualify.
Those who are self-employed or have businesses with no employees are not eligible for the SHOP program or the tax credits and must get their insurance as individuals.
Kisiel said that while there are no penalties for small businesses, there are additional taxes, including a $63 fee that will be tacked on to the cost of each insurance policy to help cover the cost of policies that will now be written for individuals with pre-existing medical conditions who are now insurable through the Affordable Care Act marketplace.
“The cost of compliance for small businesses is about seven percent of their insurance premiums,” Kisiel said.
“Putting this into law was the easy part. Rolling it out is the tough part,” said Chuck Whitford, a consultant with JRG Advisors in Wexford. “Enforcement is very confusing because of inconsistency in the law.”
Whitford said the biggest impact on small businesses will be the change in insurance rates. Under the new law, insurance companies can’t charge more than three times the rate for older employees than is charged for young employees. Because the insurance industry standard had been higher than than in the past and it is unlikely that rates for older employees will come down, some younger employees, those in their 20s, are seeing significant increases, Whitford said.
“The younger, usually healthier groups, will see their premiums double,” Whitford said.
Whitford said southwestern Pennsylvania has not been typical when it comes to medical insurance.
“We’re still the land of zero deductibles,” Whitford said.
That will become a thing of the past as new requirements call for policies not to deviate more than 2 percent from the Affordable Care Act marketplace plans where the Gold standard is 90 percent coverage.
“These plans are going to have more out-of-pocket costs and your rates are going to go up. Other than that, it’s great,” Whitford said.
Another change businesses will see is the elimination of the 90-day waiting period before new employees are covered by insurance. Large companies must provide insurance on the first day of employment. Small businesses seeking tax credits must provide coverage no longer than 60 days after a new employee is hired, Whitford said.
“It’s not a matter of whether it’s right or wrong, it’s a matter of it being the law and we have to live with it,” Knoblock said of the Affordable Care Act. “The websites for the major health insurance companies have been very good at explaining how this works.”