Unintended Consequences of the ACA for Small Businesses

For employers, the Affordable Care Act takes two distinct approaches: First, for small employers (those with 50 or fewer full-time employees), the ACA does not penalize, but rather incentivizes the purchase of insurance with subsidies available through the Small Business Health Options Program (SHOP).

For employers, the Affordable Care Act takes two distinct approaches: First, for small employers (those with 50 or fewer full-time employees), the ACA does not penalize, but rather incentivizes the purchase of insurance with subsidies available through the Small Business Health Options Program (SHOP). Second, for large employers (those with 51 or more full-time employees), the ACA does very little. Recognizing that the overwhelming majority of these large employers already offer good coverage, the government merely wants to keep it that way. In essence, the “pay or play” mandate is simply designed to prevent “crowd out”–the businesses dropping coverage to save money because their employees can get federally-subsidized coverage via the health insurance marketplace.

But what about a small business that already provides its employees with excellent coverage? Well, in that case, the incentives and penalties get weird, and the window of opportunity for unintended consequences to enter the picture opens wide.

I know of a small business with between 10 and 20 employees that offers excellent benefits. The health insurance coverage has no deductible and no coinsurance. There is a $30-$40 co-pay for physician visits, but that’s it. And, on top of that, the employer pays nearly 100% of the premiums for each individual employee (about $6,000). The catch is, the employees are fully responsible for the cost of dependent (i.e., family) coverage. Given the generous nature of the coverage, this is not inexpensive (about $11,000). In other words, the total cost of this family coverage is approximately $17,000, with the employer paying for $6,000 of it.

On the health insurance marketplace, family coverage in the part of the country where this business is located runs between $7,344 a year for a bronze plan and $10,560 for a gold plan. Even the most expensive gold plan was less expensive that the company’s current coverage. And the coverage could be even cheaper, but because the employees have access to affordable coverage through their employer, they are not eligible for federal subsidies.

However, given that this is a small business, as defined by the ACA, the employer could simply drop coverage without penalty and instruct its employees to shop for subsidized coverage on the exchange. Doing so would save the employer $6,000 per employee and could save the employee anywhere between $0 and $3,700 a year, albeit with somewhat less generous insurance coverage. So, if this was your company, what would you do? Or, if you were the employee who was told you were no longer getting coverage through your work, but that you could get it more cheaply on your own, how would you react? I’m curious to hear your thoughts.

(small business owner / shutterstock)