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Small Employers Face Complex Choices with ACA | CA Benefits Broker
Doug Hessel, Principal, Johnson & Dugan
While complex enough to require careful study, the Patient Protection and Affordable Care Act (ACA) offers important opportunities for small business owners. The Small Business Health Options Program (SHOP) is administered within the state by Covered California www.coveredca.com) and offers plans specifically designed for businesses with 50 or fewer eligible employees.
Whether any given business will take advantage of these plans will probably be governed by what it has done in the past—making decisions based on concern for employees’ welfare, the need for recruiting and retaining talent, and as a way to increase productivity. Because a business with fewer than 50 employees will not be penalized if it doesn’t provide health insurance, these businesses are not under great pressure to change their current practices.
Nevertheless, those who have insured their employees in the past and/or want to in the future can benefit by careful planning to maximize their employees’ benefits and the value of their contributions. Health insurance represents a big expense for a small employer, and those who want to do the right thing by their employees have to ask themselves: Is this the best way for me to spend money, or would they and I be better off if I just pay them more and let them buy their own insurance on the Covered California exchange?
Unfortunately, the answer is not straightforward. One of the trickiest aspects of the new law has to do with the subsidies, which are structured according to income, and so affect lower-wage employees differently from those at the higher end of the scale. If employers choose to pay higher wages instead of offering health insurance, all of the incremental pay is taxable. So, employees are in essence getting less and employers making poorer use of their money, especially for those who earn more and are in a higher tax bracket.
On the other hand, if employers pay their employees’ insurance premiums, the cost may be higher than it would have been to buy individual policies in the exchanges. One strategy now being explored by firms is to pay for their employee’s insurance but let employees buy insurance for dependents on the exchange. This may place a heavier burden on employees with larger families, but it will allow low-wage employees to take greater advantage of subsidies.
As always with insurance, one size doesn’t fit all, and while the incentive piece of the ACA is well-crafted, it’s complicated. Those who are looking for a win-win solution between employer and employees will be able to take advantage of the law but not without some careful analysis and consideration.
The Johnson & Dugan Account Executives will be working with small group clients to determine the best option for their organizations.
