ACA Small Group


The Affordable Care Act provisions that become effective in 2014 will have an impact on how people buy health insurance and what kind of health plans companies offer to their employees. We created a series of videos to help you understand how these provisions will affect individuals, small employers and large employers.

In this one, we’ll look at the top considerations for small employers. For the benefit changes and provisions, that’s companies that have 100 or fewer employees, although states can limit to 50 or fewer until 2016. At this point, most states have chosen to define small group as 50 or fewer employees. The small employer insurance market is expected to change a lot as a result of these new provisions.

In some ways, health care reform treats large and small employers differently. For example, the Employer Mandate says that large employers – that’s companies with an average of 50 or more full-time employees or full-time equivalents – have to offer their employees affordable, minimum essential coverage or pay a penalty. This mandate does not apply to small employers with less than 50 full-time employees. They will not be penalized if they don’t offer health insurance to their employees.

So the small employer insurance market may change as these companies consider their options for offering health insurance coverage to their employees. And, the way many people get health insurance may change — even for people who have traditionally received benefits from their employer.

Small employers have a lot to consider.

  • Should health insurance be offered to employees and if so, what are the options for buying?
  • What kind of coverage do the health plans have to offer?
  • Are there additional costs associated with offering health insurance to our employees?
  • How will the Individual Mandate affect our employees and our business?

Let’s take a look.

As small employers decide whether to offer health insurance to their employees, they have some options. Since potential penalties for not offering health insurance do not apply to small employers under the Employer Mandate, they could simply choose not to provide insurance at all, and direct their employees to the public exchange.

Another option is SHOP– that’s the Small Business Health Options Program. SHOP is an online public health exchange where small employers can buy insurance for their employees. While the SHOP exchanges are expected to be ready for open enrollment beginning October 1, 2013, that could vary by state. Who can use the SHOP exchange? SHOP is only available to small businesses with up to 100 employees, although that can vary by state until 2016. Until 2016, states will have the option to limit eligibility to businesses with 50 or fewer employees. Starting in 2017, states may offer SHOP to large employers as well.

Another option for a small employer is to work directly with a health insurance company or broker to buy group coverage on the private market. This is the way most small employers bought coverage in the past. Brokers who are certified can also help employers purchase plans though the SHOP exchange as well.

If a small group employer decides to offer health insurance, there are other provisions effective in 2014 that may affect the cost of these plans. Guaranteed Issue means that small employers cannot be denied coverage or be charged higher premiums because of their employees’ health status or because of pre-existing conditions. New Rating Changes allow the cost of insurance to be based only on age, where they live, family size, and whether or not they use tobacco.

Essential Health Benefits must be provided in non-grandfathered insured small group plans for plan years beginning on or after January 1, 2014. These “essential health benefits” include 10 categories of benefits that must be covered. These encompass: coverage for hospitalization, wellness services, prescription drugs and other health benefits.

Also, non-grandfathered health plans have to cover preventive care – like child immunizations or cancer screenings, and women’s health services – without cost sharing. That means no out-of-pocket expenses for accessing these benefits. This is generally true whether a plan is offered through an employer or through a public exchange.

So with more people being covered regardless of their health status, and with more covered services being added, health insurance may cost more in some areas.

Small employers will also see a change to when coverage has to begin for new employees. In 2014, the waiting period to be eligible for coverage to begin cannot be greater than 90 days.

Health insurers and employers will be assessed new taxes and fees to help pay for some of the health care reform provisions. This is another cost factor small employers will have to consider.

Some examples of the new taxes and fees are the Patient-Centered Outcomes Research Institute fee (PCORI), the Health Insurance Provider Fee, the Transitional Reinsurance Contributions fee, and the High Value Plan tax (also known as the “Cadillac Tax”, this one isn’t effective until 2018).

So what happens to the money collected from these taxes and fees? Some of it will be used to fund risk management mechanisms that support pricing stability for the new consumer marketplaces (public exchanges). These mechanisms offset the risks for insurers who enroll a higher number of people with high cost claims.  The money will also help fund tax credits and subsidies for people with lower incomes who buy insurance on a public exchange.

And remember, most U.S. citizens are required by the Individual Mandate to have adequate health insurance coverage or pay a penalty. The penalty for not having coverage starts out low. Beginning in 2014, the penalty for an individual is $95 or 1% of their household income, whichever is greater. But by 2016, the penalty for an individual is $695 or 2.5% of their household income, whichever is greater. If a small group employer decides not to offer health insurance, most of their employees will still need to buy coverage as required by the Individual Mandate.

So let’s review. Small companies, generally those with fewer than 100 employees (although than can vary by state until 2016), have important considerations as a result of some key provisions of the Affordable Care Act that become effective in 2014.  Because small companies are not penalized for not offering health insurance and because of the increasing costs of offering these benefits, the small group insurance market may change. Small employers need to evaluate their options for offering health insurance to their employees. They may use the SHOP exchange in their state, purchase in the private market, or not offer coverage at all.

The passage of the ACA in 2010 was an important step forward in helping to expand access to health insurance coverage. While there are many other important provisions of the ACA, the considerations presented here may have the greatest impact to small employers.

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