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Over the past decade or more, state and federal laws generally required that health coverage providers accept small employers applying for coverage. With groups such as small businesses, the insurer has determined a premium price based on risk factors balanced over the entire group, using general information on members of the group, such as age or gender. Small businesses often pay more for employee health benefits because they don't have the buying power of big employers. On average, small businesses paid about eight to 18 percent more than large firms for the same health insurance policy. Health coverage providers may charge different premiums to small employers based on the industry of the employer or on the employer’s prior health claims. As both workers and small employers feel the financial squeeze, fewer are able to afford to offer, or purchase, health insurance coverage. States most often review or approve policies that are offered directly to consumers or to small employers. Most states have had laws that require state-licensed health insuring organizations to provide coverage to small employers that want it, with some limitation on the rates that can be charged (e.g., restrictions on how premiums can vary based on age and health status).
States Implement Heallth Reform NCSL bannerThe Patient Protection and Affordable Care Act or ACA (P.L. 111-148) assists and affects small and large businesses in a number of ways.
Small Business Snapshot: Beginning in 2014, small businesses are able to participate in small business health options programs or SHOP exchanges. These programs include new state-based health insurance purchasing pools or CO-OPs (in about one-half of the states) where small businesses are able to pool together to buy insurance. Small businesses are defined as those that have no more than 100 employees. States have the option of limiting pools to companies with 50 or fewer employees through 2016. Companies that are currently defined as small businesses and grow beyond the size limit will be "grandfathered in" and treated like those still within the 100 or 50 maximum.
NCSL explains public employer coverage: "ACA Requirements for Medium and Large Employers to Offer Health Coverage" - a January 2015 report applicable to states, state legislatures and local governments as employers [download full report; 6 pages, PDF]
Small Business Health Care Tax Credit for Small Employers The law also assists small businesses and small tax-exempt organizations afford the cost of covering their employees’ health insurance. If a small business has fewer than 25 employees and provides health insurance it may qualify for a small business tax credit of up to 35 percent (up to 25 percent for non-profits) to offset the cost of insurance, starting with the 2010 federal tax year. This will make the cost of providing insurance significantly lower. Starting in 2014, the small business tax credit goes up to 50 percent (up to 35 percent for non-profits) for qualifying businesses.
Small Business Health Care Tax Credit for Small Employers- IRS explanation of tax credit. Updated 1/15/2015
Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
Average annual wage. A qualifying employer must pay average annual wages below $50,000.
Both taxable (for profit) and tax-exempt firms qualify.
Small Business Health Care Tax Credit: Frequently Asked Questions - IRS guidance about Small Business Health Care Tax Credit.
*NEW* Small Business Redefined: On October 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act. The PACE Act amends the definition of “small employer” in the Affordable Care Act (ACA) so that it would continue to apply to employers with one to 50 employees, rather than changing to one to 100 employees as of 2016 as provided in the original ACA; however, the new legislation also allows states to opt for the one-to-100 employee definition of small employer if they choose.
On October 19, 2015, the Centers for Medicare and Medicaid Services (CMS) released a series of frequently asked questions explaining how it will implement the PACE Act. States may elect to extend the definition of small employer to cover employers with up to 100 employees by any means that is legally binding under state law, as long as the definition applies to all insurers, including those in the Small Business Health Options Program (SHOP) program.
Small Business Health Options Program (SHOP) Exchanges.1
Small Business Exchanges have a framework set by federal rules, including options for how employers can provide contributions toward employee coverage that meet standards for small business tax credits. SHOP Exchanges are designed to serve as a marketplace for small employers’ with one to 100 workers, or up to 50 workers if a state chooses that approach. Small employers with less than 50 full-time equivalent employees are not required to offer health coverage.
The ACA reformed small group market underwriting and coverage, imposing the same guaranteed issue, modified community rating, and comprehensive coverage requirements on the small group market that it imposed on the individual market. The ACA further created the SHOP exchanges to pool the enrollment of small employers, potentially reducing administrative costs, and to offer individual employees a choice among health insurance plans. Finally, it created a new program to make tax credits available to small employers through the SHOP exchanges that would reimburse up to half of employer contributions towards premiums to pay for employee coverage.
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