Health Care for Small Businesses

Frequently Asked Questions

What were the challenges facing small businesses that the health care reform law is designed to address?
Health care premium costs for small business rose more than 123 percent in just the last decade. (By comparison, the inflation rate over that period was 28 percent.) In addition, small business administrative costs of health care were three to four times higher than those costs for large businesses. According to the Center for American Progress, small businesses were paying 18 percent more for premiums than large businesses for the same coverage because their smaller number of employees meant a smaller risk pool and therefore higher premiums.

What are employer responsibilities under the health care reform law?
The new health care reform law requires businesses with 50 or more employees to provide affordable health insurance to employees who are legal citizens. Most already do. In fact, this provision in law only affects about 3.5 percent of the businesses that have 50 or more employees. The vast majority of all businesses, therefore, will be unaffected by the requirement to provide health insurance, either because they already do, or because they are too small to fall under the requirement.

The result is a sharing of costs and responsibility among employers, employees, and private insurers. This expands the pool of insured individuals, spreading risk more evenly, and it builds upon the decades-old practice of employers providing health insurance, since more than 60 percent of workers are already covered by employer-sponsored plans.

Which businesses are exempt from the responsibility of providing health insurance to employees?
Small businesses with fewer than 50 full-time equivalent workers do not have to provide health care insurance to their employees. ('Full-time equivalent,' or FTE, means an employee who works at least an average of 30 hours per week, calculated on a monthly basis.) Ninety-six percent of all businesses, or 5.8 million of the 6 million businesses in the nation, have fewer than 50 employees, so this provision exempts these businesses. These smaller firms employ nearly 34 million workers. The vast majority of larger businesses - those with 50 or more employees - already offer employees health coverage, so they already comply with the employer responsibility requirements and don't have to change anything.

Businesses that employ seasonal workers who work less than 120 calendar days per year are also exempt from providing health insurance to those employees. Many of these exempted businesses will be able to offer coverage in 2014 because of lower premiums and wider choices that will be available to all individuals and employers through state exchanges.

What happens to employers required to provide employee insurance that fail to do so?
The law imposes a penalty on employers of 50 or more employees, starting at a rate of $2,000 per year for every full time equivalent worker above 30 employees. There may be instances when an employer offers coverage through the exchange, but one or more employees cannot afford that coverage without a tax credit or other government assistance to pay for insurance. In that case, the employer must pay $3,000 toward health care coverage for each of those employees. This provision is designed to ensure that the responsibility for financing health insurance costs is shared by employer and employee.

This provision will become effective in 2014 and the Department of Health and Human Services Centers for Medicare and Medicaid will release regulations providing guidance related to the calculation of these penalties.

What assistance is provided to small businesses that want to offer employees health insurance?
The health care law is designed to encourage, rather than require, most small businesses to offer health insurance plans to their employees. The law sets up a number of tax credit plans to accomplish this goal, while also creating new insurance pools, or state exchanges, to make health insurance coverage much more affordable. Small businesses with fewer than 25 full time equivalent (FTE) workers earning average annual taxable wages below $50,000 get an immediate tax credit if they offer health insurance coverage. The tax credit would equal as much as 35 percent of the cost of premiums they pay for employee health coverage each year through 2013. Tax-exempt organizations are eligible for a credit up to 25 percent of the premium costs. The full 35 percent credit will be given to businesses with 10 or fewer FTE workers, if all of those employees are earning under a $25,000 average wage. The credit phases down from there, based on the number of employees above 10 and the amount of wages between $25,000 and $50,000, and businesses with 25 or more FTE workers or with wages of $50,000 or more, would not be eligible for a tax credit. More than three out of four businesses have 10 or fewer employees, so the full credit will apply in most cases.

Here are some examples:

A small bakery employs 10 full-time workers earning an average salary of $30,000. The owner pays $70,000 a year towards their health insurance premiums. Under the new health care law, the owner stands to receive $24,500 in tax credits, a savings of 35 percent. When the credit expands in 2014, owner will receive $35,000 in tax credits to help cover the cost of insurance for its employees, a savings of 50 percent.
A smalls store employs 12 full-time workers and pays them average wages of $35,000. If the employer pays $80,000 a year towards their health insurance premiums, she could receive a tax credit of 16 percent or $12,800 towards these premium costs. When the credit expands in 2014, the owner could receive a credit of 23 percent or $18,400 towards these premium costs.

When is the credit available?
Small businesses can claim up to the 35 percent credit for for-profit businesses and 25 percent credit for tax-exempt organizations retroactive to January 1, 2010. This credit is available for each of the years 2010 through 2013. Beginning in 2014, the maximum credit available goes up to 50 percent of the employer's contribution towards premiums and up to 35 percent for tax-exempt organizations, and is available for a maximum of two consecutive years.

How does a small business employer claim the tax credit?
The credit is claimed on the employer's annual income tax return as part of the general business tax credit for for-profit employers. For tax-exempt organizations, the credit will be in the form of a reduction in both the payroll income and Medicare tax the employer is required to withhold from employees' wages and the employer share of Medicare tax on employees' wages.

An employer generally cannot claim the credit if it has no taxable income for the year. Except in the case of a tax-exempt employer, the credit for a year offsets only an employer's actual income tax liability (or alternative minimum tax liability) for the year.

Nearly 92,500 Washington small businesses will be eligible for the credit.

What else ensures that costs are controlled for small businesses providing employee health insurance?
The health care reform law ends the insurance industry practice of excessive premiums increases. It does this by giving the Secretary the authority to review and approve premium increases and requires insurers to provide written justification for excessive premium increases.

For small businesses, what options are available for purchasing affordable coverage?
Small businesses with up to 100 employees have the option of purchasing insurance on Small Business Health Options Program (SHOP) Exchanges. These state-based exchanges enable businesses to purchase insurance on an Internet web site with easy-to-understand information comparing insurance option prices. These exchanges also reduce administrative burdens on these small businesses. Beginning in 2017, businesses with more than 100 employees will be able to access these SHOP Exchanges.

For employees of small businesses that choose not to offer coverage, what health insurance options are available in 2014?
Small business employees have the option of purchasing health insurance on state exchanges and states may adopt a Basic Health Plan (BHP) in lieu of or as part of their state exchange.

What is the Basic Health Plan (BHP)?
Section 1331 of the health reform law allows states to establish state Basic Health Plans like Washington state's Basic Health Plan (BHP) to provide affordable health care options for low-income residents. While Washington has funded its own BHP for the past couple of decades, under the new law, the federal government would fund Basic Health Plans - including Washington's.

These plans empower states to negotiate directly with private-sector insurance providers for the lowest possible rates - much the way large private-sector companies do now in obtaining lower rates for their large work forces. By giving states the ability to negotiate directly with private plans, states can provide individuals and families who do not have employer-provided insurance with access to more affordable, higher quality coverage choices.

Who will be able to enroll in state BHPs?
BHP programs would be available to individuals and families who do not qualify for Medicaid and with incomes between 133 to 200 percent of the poverty level. States have the option of expanding coverage beyond these ranges with their own funds.

Is Basic Health a new, experimental idea?
No. Basic Health is a successful program with a proven track record over more than two decades in Washington state and elsewhere. The new health care law takes this successful model and gives states the choice to offer it as an option to its residents instead of a state based exchange.

Why is the Basic Health Plan (BHP) cheaper than private insurance?
Because states negotiate directly with private insurers, administrative and other costs are lowered, resulting in lower costs to the consumers. The innovation of the BHP is that it takes the idea of health care exchanges one step further. Exchanges create large insurance pools that individuals can join, so that their own costs are much lower than in today's market, where individual policies are sold based strictly on the risk factors of that individual. Basic Health Plans provide that same cost benefit of the larger insurance pool, but with the added cost savings that comes when the state negotiates with providers for the best possible rates. Competition between insurance companies to service these large pools of potential customers will drive down costs for consumers.

How much can an individual save by enrolling in a BHP?
In 2010, enrollees in states that have adopted similar plans were paying, on average, about a thousand dollars a year for the cost of premiums instead of paying more costly private premiums.

How can an individual enroll in a state Basic Health Plan (BHP)?
States will be able to set up BHPs as an option in their state exchanges for individuals to purchase private plans or as a separate plan for qualified citizens.

When and how can states adopt Basic Health Plans (BHPs)?
States will be able to adopt BHPs beginning in 2014 by applying directly to the Secretary of Health and Human Services (HHS). How a state chooses to implement a Basic Health Plan will vary from state to state, but in most cases it will be through an act of the state legislature. The state must then receive certification from the HHS Secretary that its BHP meets benefit and cost-sharing requirements.

What kinds of benefits are available to individuals under a state Basic Health Plan (BHP)?
BHPs offer full benefit packages. BHPs will provide all essential benefits required of Exchange plans, and include preventive services such as diabetes education, as well as ambulatory services, emergency services, maternity and newborn care, pediatric services, hospital care, and drug coverage.

What kinds of out-of-pocket costs do Basic Health Plan (BHP) enrollees pay?
Washington State BHP enrollees pay $15 co-payments for office visits, but no co-pay is required for preventive services, to encourage routine physicals, immunizations, annual exams, mammograms, and other screening and testing provided as part of a preventive care visit. These services are also not subject to the deductible. Enrollees also pay $10 pharmacy co-payments. Enrollees pay 50 percent of the cost of brand name drugs. Other state BHP plan costs may vary, and could be higher or lower, depending on geography and other factors affecting medical costs.


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Maria's E-Newsletter To sign up for Maria's newsletter, enter your email address: Search The Site	Issues & Legislation Health Care for Small Businesses Frequently Asked Questions What were the challenges facing small businesses that the health care reform law is designed to address? Health care premium costs for small business rose more than 123 percent in just the last decade. (By comparison, the inflation rate over that period was 28 percent.) In addition, small business administrative costs of health care were three to four times higher than those costs for large businesses. According to the Center for American Progress, small businesses were paying 18 percent more for premiums than large businesses for the same coverage because their smaller number of employees meant a smaller risk pool and therefore higher premiums. What are employer responsibilities under the health care reform law? The new health care reform law requires businesses with 50 or more employees to provide affordable health insurance to employees who are legal citizens. Most already do. In fact, this provision in law only affects about 3.5 percent of the businesses that have 50 or more employees. The vast majority of all businesses, therefore, will be unaffected by the requirement to provide health insurance, either because they already do, or because they are too small to fall under the requirement. The result is a sharing of costs and responsibility among employers, employees, and private insurers. This expands the pool of insured individuals, spreading risk more evenly, and it builds upon the decades-old practice of employers providing health insurance, since more than 60 percent of workers are already covered by employer-sponsored plans. Which businesses are exempt from the responsibility of providing health insurance to employees? Small businesses with fewer than 50 full-time equivalent workers do not have to provide health care insurance to their employees. ('Full-time equivalent,' or FTE, means an employee who works at least an average of 30 hours per week, calculated on a monthly basis.) Ninety-six percent of all businesses, or 5.8 million of the 6 million businesses in the nation, have fewer than 50 employees, so this provision exempts these businesses. These smaller firms employ nearly 34 million workers. The vast majority of larger businesses - those with 50 or more employees - already offer employees health coverage, so they already comply with the employer responsibility requirements and don't have to change anything. Businesses that employ seasonal workers who work less than 120 calendar days per year are also exempt from providing health insurance to those employees. Many of these exempted businesses will be able to offer coverage in 2014 because of lower premiums and wider choices that will be available to all individuals and employers through state exchanges. What happens to employers required to provide employee insurance that fail to do so? The law imposes a penalty on employers of 50 or more employees, starting at a rate of $2,000 per year for every full time equivalent worker above 30 employees. There may be instances when an employer offers coverage through the exchange, but one or more employees cannot afford that coverage without a tax credit or other government assistance to pay for insurance. In that case, the employer must pay $3,000 toward health care coverage for each of those employees. This provision is designed to ensure that the responsibility for financing health insurance costs is shared by employer and employee. This provision will become effective in 2014 and the Department of Health and Human Services Centers for Medicare and Medicaid will release regulations providing guidance related to the calculation of these penalties. What assistance is provided to small businesses that want to offer employees health insurance? The health care law is designed to encourage, rather than require, most small businesses to offer health insurance plans to their employees. The law sets up a number of tax credit plans to accomplish this goal, while also creating new insurance pools, or state exchanges, to make health insurance coverage much more affordable. Small businesses with fewer than 25 full time equivalent (FTE) workers earning average annual taxable wages below $50,000 get an immediate tax credit if they offer health insurance coverage. The tax credit would equal as much as 35 percent of the cost of premiums they pay for employee health coverage each year through 2013. Tax-exempt organizations are eligible for a credit up to 25 percent of the premium costs. The full 35 percent credit will be given to businesses with 10 or fewer FTE workers, if all of those employees are earning under a $25,000 average wage. The credit phases down from there, based on the number of employees above 10 and the amount of wages between $25,000 and $50,000, and businesses with 25 or more FTE workers or with wages of $50,000 or more, would not be eligible for a tax credit. More than three out of four businesses have 10 or fewer employees, so the full credit will apply in most cases. Here are some examples: A small bakery employs 10 full-time workers earning an average salary of $30,000. The owner pays $70,000 a year towards their health insurance premiums. Under the new health care law, the owner stands to receive $24,500 in tax credits, a savings of 35 percent. When the credit expands in 2014, owner will receive $35,000 in tax credits to help cover the cost of insurance for its employees, a savings of 50 percent. A smalls store employs 12 full-time workers and pays them average wages of $35,000. If the employer pays $80,000 a year towards their health insurance premiums, she could receive a tax credit of 16 percent or $12,800 towards these premium costs. When the credit expands in 2014, the owner could receive a credit of 23 percent or $18,400 towards these premium costs. When is the credit available? Small businesses can claim up to the 35 percent credit for for-profit businesses and 25 percent credit for tax-exempt organizations retroactive to January 1, 2010. This credit is available for each of the years 2010 through 2013. Beginning in 2014, the maximum credit available goes up to 50 percent of the employer's contribution towards premiums and up to 35 percent for tax-exempt organizations, and is available for a maximum of two consecutive years. How does a small business employer claim the tax credit? The credit is claimed on the employer's annual income tax return as part of the general business tax credit for for-profit employers. For tax-exempt organizations, the credit will be in the form of a reduction in both the payroll income and Medicare tax the employer is required to withhold from employees' wages and the employer share of Medicare tax on employees' wages. An employer generally cannot claim the credit if it has no taxable income for the year. Except in the case of a tax-exempt employer, the credit for a year offsets only an employer's actual income tax liability (or alternative minimum tax liability) for the year. Nearly 92,500 Washington small businesses will be eligible for the credit. What else ensures that costs are controlled for small businesses providing employee health insurance? The health care reform law ends the insurance industry practice of excessive premiums increases. It does this by giving the Secretary the authority to review and approve premium increases and requires insurers to provide written justification for excessive premium increases. For small businesses, what options are available for purchasing affordable coverage? Small businesses with up to 100 employees have the option of purchasing insurance on Small Business Health Options Program (SHOP) Exchanges. These state-based exchanges enable businesses to purchase insurance on an Internet web site with easy-to-understand information comparing insurance option prices. These exchanges also reduce administrative burdens on these small businesses. Beginning in 2017, businesses with more than 100 employees will be able to access these SHOP Exchanges. For employees of small businesses that choose not to offer coverage, what health insurance options are available in 2014? Small business employees have the option of purchasing health insurance on state exchanges and states may adopt a Basic Health Plan (BHP) in lieu of or as part of their state exchange. What is the Basic Health Plan (BHP)? Section 1331 of the health reform law allows states to establish state Basic Health Plans like Washington state's Basic Health Plan (BHP) to provide affordable health care options for low-income residents. While Washington has funded its own BHP for the past couple of decades, under the new law, the federal government would fund Basic Health Plans - including Washington's. These plans empower states to negotiate directly with private-sector insurance providers for the lowest possible rates - much the way large private-sector companies do now in obtaining lower rates for their large work forces. By giving states the ability to negotiate directly with private plans, states can provide individuals and families who do not have employer-provided insurance with access to more affordable, higher quality coverage choices. Who will be able to enroll in state BHPs? BHP programs would be available to individuals and families who do not qualify for Medicaid and with incomes between 133 to 200 percent of the poverty level. States have the option of expanding coverage beyond these ranges with their own funds. Is Basic Health a new, experimental idea? No. Basic Health is a successful program with a proven track record over more than two decades in Washington state and elsewhere. The new health care law takes this successful model and gives states the choice to offer it as an option to its residents instead of a state based exchange. Why is the Basic Health Plan (BHP) cheaper than private insurance? Because states negotiate directly with private insurers, administrative and other costs are lowered, resulting in lower costs to the consumers. The innovation of the BHP is that it takes the idea of health care exchanges one step further. Exchanges create large insurance pools that individuals can join, so that their own costs are much lower than in today's market, where individual policies are sold based strictly on the risk factors of that individual. Basic Health Plans provide that same cost benefit of the larger insurance pool, but with the added cost savings that comes when the state negotiates with providers for the best possible rates. Competition between insurance companies to service these large pools of potential customers will drive down costs for consumers. How much can an individual save by enrolling in a BHP? In 2010, enrollees in states that have adopted similar plans were paying, on average, about a thousand dollars a year for the cost of premiums instead of paying more costly private premiums. How can an individual enroll in a state Basic Health Plan (BHP)? States will be able to set up BHPs as an option in their state exchanges for individuals to purchase private plans or as a separate plan for qualified citizens. When and how can states adopt Basic Health Plans (BHPs)? States will be able to adopt BHPs beginning in 2014 by applying directly to the Secretary of Health and Human Services (HHS). How a state chooses to implement a Basic Health Plan will vary from state to state, but in most cases it will be through an act of the state legislature. The state must then receive certification from the HHS Secretary that its BHP meets benefit and cost-sharing requirements. What kinds of benefits are available to individuals under a state Basic Health Plan (BHP)? BHPs offer full benefit packages. BHPs will provide all essential benefits required of Exchange plans, and include preventive services such as diabetes education, as well as ambulatory services, emergency services, maternity and newborn care, pediatric services, hospital care, and drug coverage. What kinds of out-of-pocket costs do Basic Health Plan (BHP) enrollees pay? Washington State BHP enrollees pay $15 co-payments for office visits, but no co-pay is required for preventive services, to encourage routine physicals, immunizations, annual exams, mammograms, and other screening and testing provided as part of a preventive care visit. These services are also not subject to the deductible. Enrollees also pay $10 pharmacy co-payments. Enrollees pay 50 percent of the cost of brand name drugs. Other state BHP plan costs may vary, and could be higher or lower, depending on geography and other factors affecting medical costs.
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