Will Health Care Reform help Small Businesses and Nonprofits Afford Health Care Benefits?

The Affordable Care Act (ACA), ObamaCare, Heath Care Reform—whatever you call it, it’s the same thing and it is the biggest reform in U.S. health care since Medicaid and Medicare were signed in to law in 1965.  We’ve already seen many changes since the ACA began in 2010–now children cannot be denied coverage due to pre-existing conditions, kids can stay on their parents insurance until age 26 and insurance companies can’t drop your coverage if you get sick. 

The ACA’s most significant reforms will be coming online in 2014—reforms intended to make health care benefits more accessible to individuals, families and small businesses.  In the coming year, individuals and small businesses will be able to buy insurance through health insurance marketplaces (also called exchanges), and health insurance will be a mandate for most people.

Businesses with fewer than 50 employees are not required to buy health insurance for their employees under the Affordable Care Act (ACA).  However, the ACA could make the costs of health care affordable to more businesses through tax credits and expected reductions in health care premiums—all starting on January 1, 2014.

Although the ACA should help more businesses afford health benefits, some businesses have such modest incomes that tax credits and reduced premiums will still not lower insurance rates enough for them to cover their employees.  With a few exceptions, workers who do not have health benefits through their employers will have to buy their own insurance or pay a tax penalty starting in 2014.

If you want to provide Health Benefits for your Employees…

The ACA intends to make health coverage more affordable by creating state marketplaces where individuals and small businesses can buy insurance.  The insurance premiums are expected to be less expensive since the companies compete openly and their plans and prices will be regulated by the federal government.

Applications to buy insurance through these marketplaces will be available starting Oct. 1, 2013 with insurance policies starting on Jan. 1, 2014.

Some small businesses and nonprofits will be eligible for tax credits. Starting In 2014, tax credits will cover up to 50 percent of premiums (35 percent for nonprofits).  You can use a small business tax credit calculator to determine if your business qualifies for a tax credit.

Cost of Health Insurance in the Marketplaces

Until the state marketplaces come online on October 1, 2013, most of us will not know the exact prices for insurance policies and the prices will vary by geographic location.

All states will offer a choice of plans that will vary in price but offer the same quality of care and the same access to doctors and medical services.  There will be a bronze, silver, gold, and platinum plan.  The bronze plan will have the lowest premiums and the highest co-pays (40% copay).  The platinum plan will have the highest annual premiums and the lowest co-pays (10% copay).  The silver and gold plans will have premiums and copays between these two.

The ACA will limit the deductibles and the out-of-pocket costs for individuals and families.  The Act limits out-of-pocket medical costs to $5,950 for individuals and $11,900 for families—not including insurance premiums.  Families and individuals receiving subsidies would have even lower maximum out-of-pocket costs.  

If you don’t provide Health Insurance for your Employees…

Even though businesses with fewer than 50 employees would not pay a penalty, your employees who do not have health insurance through another means will likely have to buy insurance on their own or pay a tax penalty starting on January 1, 2014.

If Employees Want to Buy Health Insurance on their Own…

They may be able to get more affordable individual insurance through their state marketplaces (also called exchanges).

Depending on their incomes, some people will qualify for a tax credit to help them buy insurance in their state marketplaces.  People making less than 400 percent of the federal poverty level ($45,960 for an individual and $94,200 for a family of four in 2013) are eligible for a tax credit on a sliding scale.  Price regulations and more transparent competition is supposed to lower prices for health insurance, so even workers who do not qualify for subsidies should find health care more affordable.

Undocumented immigrants cannot buy health insurance in the marketplace,  and would therefore only have access to health insurance sold outside of the marketplaces.

Employees earning lower incomes may qualify for Medicaid which will be expanding to cover more people starting in January 2014. Individuals and families making less than 133% of the FPL could be eligible for Medicaid (in 2013, that’s less than $15,282 for an individual and $31,322 for a family of 4).  However, Medicaid coverage will continue to vary among states as some have rejected the federal Medicaid expansion and will not be participating, while other states are going beyond the federal minimum and are expanding to cover even more people.  With a few exceptions, immigrants have to have legal status in the US for more than 5 years to qualify for Medicaid.

 If Employees do not have their Own Insurance…

They may have to pay a tax penalty. The tax penalty for individuals who do not have health insurance will start at $95 per person in 2014 and increase each year.  The penalty amount increases to $325 in 2015 and to $695 (or up to 2.5% of income) in 2016.  After 2016, the penalty will increase with inflation.  Families will pay half the penalty for children, up to a cap of $2,250 per family.

There are a few circumstances in which individuals would be exempt from the health insurance mandate and exempt from penalties:

  • When the lowest-cost plan available in the region in which they live exceeds 8 percent of their incomes;
  • Those with incomes below the tax filing threshold;
  • Native Americans;
  • Those who haven’t had coverage for up to 90 days;
  • Undocumented immigrants; or
  • Imprisoned people.

Commentary

I am generally a proponent of the Affordable Care Act, because it brings some welcome improvements.  It is certainly better than what we’ve had in this country before the reform act was passed.  The ACA has already helped millions of Americans afford health care, and it will help millions more once the insurance marketplaces come online in 2014.

And yet, an arguably more practical and less painful alternative to the ACA would have been a universal, single-payer system.  In a single-payer system, businesses are relieved from the burden of providing health care to their employees, and everyone gets health care paid for through income taxes–much like the way we currently offer free schooling to all children living in the United States.  In a single-payer system, no one is left without health care because they cannot afford it—an achievement the ACA cannot claim.  In fact, the ACA is extremely unfair to the group of modest income people who will have to squeeze health insurance premiums into their tight budgets or pay tax penalties and continue to live without health care coverage.

Yes, income taxes would be higher in a single-payer health care system, but people wouldn’t have to pay those enormous health insurance premiums or copays either.  Since income taxes are progressive, the burden of health care would be more fairly distributed according to what people could afford.  And imagine all the money businesses would save if they didn’t have to pay enormously expensive health care benefits for their employees.

Resources

HealthCare.gov
National Council of Nonprofits
Tax credit calculator
National Immigration Law Center
Summary of the Patient Protection and Affordable Care Act
New York State Health Exchanges
(note: every state will have its own exchange/marketplace, and many already have websites set up)

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