Affordable Care Act – Are You and Your Customers Ready?

Exactly three months from today, on October 1, 2013, the insurance exchanges called for by the Patient Protection and Affordable Care Act, otherwise known as Obamacare, are supposed to be open for business and another three months later, on January 1, 2014, the requirement that most individuals have health insurance coverage takes effect.  The good news for small business owners, including insurance agencies and their customers, is that if you employ 30 or fewer full-time employees (those who are normally expected to work an average of 30 or more hours a week), there is no penalty for failing to offer health insurance coverage for all your employees, even if when part-time employees are counted the business has the equivalent of 50 or more full-time employees (the threshold for the “pay or play” requirements of the law).  The reason for this is that the penalty for failing to provide such coverage if you are required to do so is waived for the first 30 full-time employees.  This quirk in the law also allows an employer who has 30 or fewer full-time employees to provide health insurance coverage for its employees without having to worry about whether that coverage provides “minimum value” and is “affordable”, as those terms are defined by the law.

The penalty waiver in the law creates a perverse incentive and an opportunity for small employers who can take advantage of it, as they can relieve themselves of the cost of health insurance coverage and rely on the health insurance exchanges to provide such coverage for their employees.  Even larger employers may decide to go this route if the cost of the penalty is less than the cost of providing the required type of health insurance coverage under the law.  Many commentators are predicting this is what will happen.

The opportunity for such employers arises from the fact that employees whose employers don’t provide the type of health insurance coverage required by the law and who meet certain income standards are eligible for federal tax subsidies to help them pay for their own health insurance coverage through the insurance exchanges and the employer can supplement those subsidies by providing funds to its employees to pay for health related expenses.  Employees who earn up to 400% of the federal poverty level annual income threshold are eligible for the tax subsidies.  That means a family of four with an annual income of up to $94,200 would qualify for some amount of assistance in purchasing health insurance coverage through an exchange.  It is easy to see that a lot of employees will be eligible for such assistance.  Under some circumstances, this will permit employers to enable their employees to obtain health insurance coverage through the exchanges that is equivalent to or may be even better than what the employer was previously providing at  the same or lower cost to the employee (after taking into account the tax subsidy and employer provided funds) and at much less cost to the employer.

The difficult part for employers will be trying to determine whether the above best case scenario or something close to it is achievable for them.  That is where insurance agents and brokers can play a significant role, not only for the employer, but also for their employees who will need assistance navigating through the insurance exchanges.  As noted in previous posts on this blog, the agency responsible for implementing the new law, the Center for Consumer Information & Insurance Oversight, has indicated that it sees insurance agents and brokers playing a vital role in assisting both employers and their employees in dealing with its requirements. (Click here for my latest post and here for the latest information from the CCIIO on this subject.)  The Small Business Administration has created a website that provides information about the requirements of Obamacare as they relate to employers from sole proprietors through those with 50 or more employees, and the Internal Revenue Service has issued a FAQ sheet that is devoted to questions about how the “pay or play” provisions of the law work.