The Affordable Care Act (The “Act”), signed into law by President Obama on March 23, 2010, was in large part upheld by the U.S. Supreme Court by way of a decision on June 28, 2012. Accordingly, the conversation has shifted from whether the Act is constitutional to how the implementation of the Act is going to affect consumers and employers. Small businesses in particular must be aware of some of the key requirements of, and benefits offered by, the Act.
THE ACT IN GENERAL
Simply stated, the objective of the Act is to expand insurance coverage for Americans. Insurance coverage under this regime should be easier to obtain through wholesale reforms to the insurance market, including a ban on exclusions for pre-existing conditions, rate restrictions and mandatory coverage of preventative services. Under the Act, all Americans will be required to maintain a minimal level of health insurance or be faced with a tax, a concept that was ruled constitutional by the Supreme Court. Similarly, employers will have greater responsibilities in providing health insurance to employees.
TAX CREDITS AND PENALTIES
Small businesses with fewer than 50 employees are not required to provide health insurance to their employees. However, the Act aims to make providing insurance more palatable for small businesses through the use of tax credits. Small businesses employing 25 or fewer employees with average salaries of $50,000 or less are eligible for tax credits of up to 35% to offset the cost of health insurance for tax years 2010 to 2013. Non-profit organizations are entitled to a credit of up to 25%. Starting January 1, 2014, the credit increases to 50% for small businesses and 35% for non-profit organizations.
Conversely, businesses with 50 or more full-time employees are required to provide health insurance. Failure to provide insurance will result in a minimum penalty of $2,000 for each full-time employee. After 2014, penalties will be determined by a formula.
HEALTH STATUS OF EMPLOYEES
Under the Act, health insurance companies are prohibited from turning down coverage based on the health status of the employees of a small business, with 2 to 50 employees. In addition, an insurer must accept all employees in a particular group. If dependent care is offered, neither employees nor their family members (if dependent care is provided) may be excluded on the basis of health status.
INSURANCE EXCHANGE
The Act requires that each state develop an “insurance exchange” – essentially a virtual marketplace on which consumers can shop for, compare and purchase insurance. The insurance exchange will be open to uninsured individuals, those who are eligible for subsidies and small businesses with generally less than 100 employees. The insurance exchange will be designed to provide access insurance with reduced premiums. Connecticut is reportedly in the process of building its insurance exchange.
Many of the details and rules outlining the implementation of the Act have yet to be decided. It is also possible that additional issues under the Act will be litigated. Nevertheless, the Act is certain to affect small businesses, which must be aware of its provisions and attuned to the details of its implementation. For more information, please contact Daniel B. Fitzgerald (dfitzgerald@brodywilk.com).