Clearing Up Confusion about Obamacare

Many business opportunity, distributorship, licensee opportunity and small franchise owners, in fact the vast majority of them, have only one or a just a few employees. In fact, it is estimated that 96% of all firms in the U.S. have fewer than 50 employees, while more than 78% are non-employers—businesses with no employees other than the business owner or owners themselves.

While those numbers are interesting and certainly impressive, you may be wondering what they have to do with the Affordable Care Act (ACA), more informally referred to by many as “Obamacare.” A lot, according to Martin Baily.

Baily is a senior fellow in economic studies at the Brookings Institution and former chair of the Council of Economic Advisers during the Clinton Administration. He talked recently about the ACA and its potential effects on small business owners in particular as part of a discussion about who is and is not better off since 2008 on The Diane Rehm Show, which aired on National Public Radio just last week. Here is what he had to say:

“Many small business owners are very opposed to the Affordable Care Act and believe that it will cost them a lot of money. I think there’s a question of whether it really will. There are a number of revisions in the act which actually could help small businesses.”

Asked “How?” by Rehm, Baily had this to say:

“By giving them subsidies for their employees’ healthcare. And, if you’re very small then you’re not subject to the ACA either, so quite a few people who complain about it actually are not subject to it.”

Now that’s a bold statement, especially given today’s particularly charged political climate and the debate over what many refer to as “Obamacare.” But, is it true?

One thing is for sure. It is all very complicated. And, much of what will or will not happen when the legislation fully takes hold in 2014 remains to be seen. Undoubtedly, some small business owners will fare better than others, but what about the smallest of the small more specifically? What does the ACA mean for them exactly?

In an effort to clear up some of the confusion, here is a quick overview of the legislation as it applies to this group in particular:

• Although some aspects of the ACA have already taken hold, including the ability of parents to keep their children insured on their policy until age 26 and ensuring insurers do not discriminate against them based on pre-existing conditions, the law’s key provisions do not take effect for everyone else until January 1, 2014.

• Small business owners with fewer than 50 full-time equivalent employees (and yes, this requires some fancy calculating if you’re borderline) are EXEMPT from any ACA requirement to provide their employees with health insurance.

• However, these business owners, much like everyone else, are required to purchase health insurance for themselves as part of the legislation’s overall individual mandate, or they risk having to pay a penalty of $695 or 2.5% of their adjusted gross income, whichever is greater.

• For employers who do elect to provide qualified health insurance to their employees, they may very well be eligible for a tax credit.

• Starting in 2014, individuals and business owners will have the opportunity to obtain health insurance through state-operated exchanges, which will offer a range of qualified plan options and operate on the principle of diffused risk (much like any large corporation) as the more than 32 million people who are currently uninsured enter the system.

• The ACA permits small businesses that currently offer insurance to their employees to keep it up, so long as they meet some basic requirements.

• Exemptions to the ACA will be made for those of certain religious backgrounds and based on hardship, where the cost of the qualified health insurance premium exceeds 8% of household income.

• Firms with fewer than 25 full-time equivalent employees have been eligible for tax credits to assist them in covering the cost of health insurance for their employees since 2010, and that will continue in 2014 and beyond, with some basic modifications.

• Small businesses of a certain size that did not have workplace wellness programming in place as of March 2010 are or will be eligible for grants to start such programs.

For more information on the ACA and how it will affect your small business, we recommend the following resources:

Explaining Health Care Reform: How will the Affordable Care Act affect small businesses and their employees? (An easy-to-understand fact sheet by The Henry J. Kaiser Family Foundation)

“What the Health Care Decision Means for Your Small Business,” The Wall Street Journal

Health Reform for Small Businesses: The Affordable Care Act Increases Choice and Saves Money for Small Businesses

The Effects of Health Reform on Small Businesses and Their Workers: Timely Analysis of Immediate Health Policy Issues (Report by the Urban Institute and the Robert Wood Johnson Foundation)