by Katherine Restrepo
Director of Health Care Policy, John Locke Foundation
Employers with fewer than 50 full time workers do not suffer Obamacare’s employer mandate tax if they do not offer health insurance coverage. However, if a firm chooses to offer coverage, it must be compliant with the law’s standards.
Small employers who have typically offered their workers some type of health care benefit in the past could very well be frustrated by this policy change, since the law’s required coverage package could increase their firms’ bottom lines. If unable to afford federally qualified plans, employers could do one of two things — steer their workers towards subsidized plans on the individual market, or potentially claim a small employer tax credit that offsets the cost of their contributions towards employees’ health insurance premiums.
Come November 15, Obamacare’s Small Business Health Options Program, or SHOP exchange, will supposedly be opening its doors. SHOP was originally scheduled for implementation last year, but this, too, was delayed. Through a SHOP exchange, businesses with up to 50 full time employees can either offer employees one health insurance option or multiple plans within a specified level of coverage (bronze, silver, gold, or platinum health plans.) Commensurate with the law’s health insurance exchanges for individual policyholders, employers using SHOP may also qualify for government subsidies.
In a 2012 report filed by the GAO (Government Accountability Office), many small employers whose workers earn just above minimum wage generally do not offer health insurance. Nor do many low-wage workers prefer this fringe benefit because it often reduces total take home pay. Based on a study by the North Carolina Institute of Medicine, just 41% of businesses with under 50 workers provided health insurance, while coverage is available from 99% of businesses with more than 50 workers.
With Obamacare’s expanded access to government subsidies, one would expect SHOP to bring on some solid participation and enhance employee choice. That was the federal health law’s original game plan. But GAO’s report states otherwise, concluding that SHOP tax credits do not bring as much value to small employers and their workers as the Obama administration advertises. Moreover, the initiative is not in any way groundbreaking. Small employer tax credits have been in existence since before Obamacare’s inception in 2010. North Carolina implemented them for businesses with under 26 employees beginning in 2007.
Under Obamacare, such employers may be granted premium assistance towards their group coverage under three conditions: employers must already provide health insurance and contribute at least 50% of their employees’ premium, they must employ an equivalent of up to 25 full time employees, and their employees must have an average annual wage of less than $50,000. Meanwhile, the maximum credit amount (50% of the employer paid health insurance coverage premium, 35% for tax-exempt employers) received by the employer runs on a sliding scale — higher average wages mean lower government subsidies.
Nationwide, the number of small employers eligible for SHOP subsidies ranges from 1 to 4 million. According to GAO’s report, of the 170,000 small employers who claimed a credit in 2010, less than 20% of firms received the maximum credit amount.
Should an employer decide to sign onto a SHOP plan this fall, premium subsidies will completely phase out by 2016. And eligible North Carolina business owners who already provide generous coverage to their workers will not gain much of a benefit, since the maximum credit calculation is based on the state’s average premiums for small group coverage.
A recent Wall Street Journal article reports that small businesses in North Carolina and 17 other states will nix the employee choice option and instead have employers provide just one plan:
The federal health law also called for employees at small businesses to be able to choose from a range of plans on the exchanges. Federal regulators said they were allowing states to restrict employees to the plan designated by their employer to avoid the risk of premium increases.
Some state insurance commissioners had worried that letting employees choose from a range of plans could lead to some products ending up with a small number of workers who then incur big medical bills. Commissioners feared insurers would raise prices to guard against that prospect.
Regulators said Tuesday they approved 18 states’ requests to limit the choice to one employer-designated plan. The regulators said state insurance commissioners had shown that allowing employees to choose from a range of plans could cause health insurers to charge more. That was based largely on the assumption that a small number of unhealthier employees might be drawn to particular plans.
The disincentives are strong. Overall, it looks as if the SHOP tax credits will not lure as many small employers as targeted. And without employee choice in the mix, not much will be changing in the way in which group coverage is provided by small employers.
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