When Covered California opens for business on October 1, the state-run insurance exchange will include a separate marketplace where small business owners can compare and buy "competitively-priced" employee health insurance, according to state officials.
But critics of the federal health law say it's far from certain the venture will succeed in lowering prices for small group plans; there are also questions as to whether the offered plans will provide networks of doctors and hospitals robust enough to satisfy employees.
Under the Affordable Care Act (ACA), small business are not required to provide health insurance to their workers. Only those medium and large businesses, defined by the law as those with more than 50 employees, must do so, starting in 2015 , or pay a penalty.
Still, many small businesses owners consider the ability to provide health coverage essential to attracting and holding on to top-notch workers.
“It’s a huge tool in our arsenal in terms of getting good people to come work for us,” says Sunder Ramani, general manager for Westwind Media, a Burbank post-production house that has been grappling with double-digit premium increases for the past several years.
But that escalation in health insurance costs has kept employee coverage out of reach for many of California’s 500,000 small businesses. High broker fees, fixed marketing and administrative costs and small risk pools result in small businesses paying on average 18 percent more than large firms for the same health insurance policy, according to a 2009 report by the White House Council of Economic Advisers (CEA).
"Small businesses are horribly disadvantaged in terms of being able to purchase insurance," says Peter Harbage, president of Harbage Consulting, a health policy consulting firm in Sacramento. "And if they’re even able to purchase, they have to pay more and they get less…it’s simply unfair."
That’s where the state’s small business exchange comes in. It’s called The Small Business Health Options Program (SHOP), and it will let small business owners comparison shop and buy insurance plans that may earn them tax credits.
Offered through Covered California, the SHOP marketplace is designed to provide mom and pops with the same purchasing clout as big business, thanks to plans negotiated on their behalf by the state.
The SHOP portal will make it easier for businesses to compare and buy insurance plans by standardizing information that will streamline comparison shopping, says Peter V. Lee, executive director of Covered California.
"We're going to give small businesses a way to buy better," Lee says.
What’s more, small businesses that meet certain criteria will become eligible to receive federal tax credits of up to 50 percent of the premiums they pay for their full time employees, starting in 2014.
"In general, small business owners have high hopes that the SHOP exchange will provide some options that will be affordable and accessible to small business owners," says John Kabateck, California executive director of the National Federation of Independent Businesses (NFIB), which represents about 22,000 small firms across the state. "But there are a lot of questions that remain."
Among the uncertainties the NFIB cites:
- Whether insurance companies on the SHOP exchange will offer only narrow provider networks that provide fewer hospital and physician choices to the insured as a way to keep prices down. Fewer providers translate into longer wait times and less access to care for consumers.
- Whether the tax credits will provide much value to businesses. "There are a number of hoops the average small business must jump through" to qualify for them, Kabateck says. And for those who do make it through the regulation gauntlet, the credits will last only until 2016. "Small business owners need some long-term certainty," he says.
- Whether the "essential benefits" required of plans offered in the individual and small group markets –including free preventive services and bans on annual and lifetime payout limits – will drive up premium prices. Obamacare contains no mechanisms to contain premium costs.
- Whether the specter of the "employer mandate" will act as a deterrent to small business growth, as the NFIB and other opponents of the law predict. "It’s a disincentive to small businesses that want to exceed 50 or 100 or 150 employees," Kabateck says. The "Employer Shared Responsibility" provision, which was to take effect on Jan. 1, but has now been delayed a year, requires medium and large employers to provide health insurance to their workers that’s both "affordable" and that meets certain minimum standards. If they don’t, they face fines of between $2,000 and $3,000 per employee. (Insurance qualifies as "affordable" if the premium costs no more than 9.5 percent of an employee's income. It meets minimum standards if it provides at least 60 percent of the cost of covered services).
Kabateck says instead of investing and growing their business as the economy accelerates into recovery, many of his members are hunkering down "in maintenance mode" to see how Obamacare plays out.
Ramani is among them.
"I’m waiting…to see what happens," he says, "This is so new, it’s almost like the first electric car and I don’t know how to plug it in yet."
Confused about how the Affordable Care Act may affect your small business? Here are answers to common questions about the small business exchange:
1. What is SHOP? It's the acronym for “The Small Business Health Options Program,” which is a health insurance marketplace for small businesses with 50 or fewer full time or full time equivalent employees.
2. Which of my workers qualify as "full time" or "full time equivalent" employees? While you might consider only those who work a solid 40 hours a week as full time workers, the law casts a wider net and includes anyone who works more than 30 hours a week as a full time employee. Furthermore, it takes into account "full time equivalents." So if you have 20 employees who work 15 hours a week each, that counts as ten full time workers.
3. When can I buy a health insurance plan for my workers through SHOP? Enrollment starts on Oct. 1, 2013 for coverage that takes effect on Jan. 1, 2014. Unlike the health insurance marketplace for individuals, there is no enrollment deadline, as businesses with 50 or fewer workers are not required to purchase health insurance for them.
4. Can I buy insurance through SHOP if I have more than 50 workers? Not yet. But beginning in 2016, SHOP will be open to businesses with up to 100 employees.
5. Which insurance companies will provide coverage through SHOP? Covered California has approved six companies to sell insurance through SHOP. But only three of them -- Blue Shield of California, Health Net of California and Kaiser Permanente --will offer plans to small businesses in the five-county greater Los Angeles region. The other companies participating in the exchange are: Chinese Community Health Plan in the San Francisco Bay area; Sharp Heath Plan in San Diego; and Western Health Advantage in Sacramento and the northern San Francisco Bay area.
6. Will the SHOP plans provide the same coverage and networks as they do in plans they sell outside of SHOP? There is nothing in the federal health law that requires that they do, and in fact – on the individual exchange at least -- insurers are already narrowing their provider networks.
7. Can my insurance broker help me pick my plan? Yes. You can work with your broker or log on to CoveredCA.com to compare and pick a plan on your own. The SHOP website will provide side-by-side comparisons of the plans and the four medal tier levels of coverage, from the least expensive bronze plans to high-end platinum coverage. California’s plans include health maintenance organizations (HMOs) and preferred provider organizations (PPOs).
8. Will I qualify for tax credits? It depends. First: you’ve got to buy your insurance through the SHOP exchange. Second: the IRS says that you must cover at least half the cost of single (not family) health insurance for each of your employees. Third: you must have fewer than 25 "full time equivalent" employees (with average wages of less than $50,000. Once you meet those rules, you’ve got to file a Form 8941. The amount of credit you may qualify for will be affected by your size. The smaller the business, the bigger the credit. As with anything involving the IRS, it’s probably a good idea to consult your accountant. Meanwhile, you can find a little more detail here.
9. How do my seasonal workers affect my employee count? If your seasonal workforce bumps your full time employee count above 50 for 120 days or fewer during a calendar year, you’re exempted from the employer mandate and will not be required to provide insurance to your workers.
10. What if I have 35 full time employees in one business I own, and 45 in another? Because that would put your total number of employees over 50, it’s likely you won’t qualify as a small business and that you will be subject to the rules for medium and large employers, which have been delayed to Jan. 1, 2015.