Tough Pill To Swallow: Obamacare's Hurdles for Small Businesses

State officials have plenty to tout about the rollout of the Affordable Care Act in New York: Over half a million New Yorkers are already enrolled in health plans through the state’s new exchange, formerly uninsured individuals are benefiting from new—and often subsidized— coverage, and the state is on track to sign up 1.1 million residents by 2017. 

But the transition for small businesses that have to comply with the new regulations under Obamacare has proven slower, trickier and, in many cases, more costly. 

“Most small employers have already had to change to some sort of different plan,” said Dan Colacino, a member of both the New York State Association of Health Underwriters and a regional advisory committee established by Gov. Andrew Cuomo that makes recommendations regarding implementation of the federal healthcare reform. 

Under the Affordable Care Act, small-group plans offered by healthcare providers are now required to meet certain “actuarial costs,” or percentages of average medical costs. The four levels of coverage are platinum, which covers 90 percent of average medical costs; gold, which covers 80 percent; silver, 70 percent; and bronze, 60 percent. 

“Plans that did not fit into those levels had to be altered so that they would,” Colacino said. “If you had a plan in 2013, for example, that was 85 percent of average medical costs, they had to change it to bring it up to 90 or down to 80 percent.” 

When a plan is dropped to a lower level, various benefits are often lost, prompting some employers to opt for the next level up rather than go without them. “Most employers have been seeing cost increases,” said Colacino, who is also an insurance broker with the firm Rose & Kiernan in Albany. 

In addition to contending with a new menu of mandated offerings from healthcare providers, small-business owners must also weigh whether to comply with the new law or face penalties. A key factor is the number of full-time employees, a designation under the ACA defined as those working 30-plus hours per week. 

Under the new requirements, companies with 50 full-time employees or fewer are not subject to the employer mandate in the law. For companies with more than 100 employees, the mandate and resulting penalties will take effect in 2015. For businesses with between 51 and 99 full-time employees, the Obama administration decided last month to give those employers yet another year to learn to navigate the new system and pushed the enrollment deadline to 2016. 

“It’s not an easy determination for some companies,” said Joshua Steele, an attorney at Harris Beach in New York City. “It can get confusing. Not to mention for companies that hire per diem, part-time or contracted employees.” 

These distinctions can even differ between federal and state law, Steele added. Under federal law, some workers employed on a contractual basis may actually be considered employees in New York State. 

“If you think you have a contracted employee, you better be very, very certain that they are,” he said. 

In response to concerns by business owners, the IRS allows a few different methods of computation for employees who may be new hires or who work variable hours. It is up to the employer to ascertain which method best serves their workforce and business. 

“It’s a whole new world,” said Steele. “Especially with the 30-hour threshold. It really adds up quickly.” 

Miscalculating the number of full-time employees or failing to comply with new legislative requirements can result in significant financial penalties. Failing to satisfy mandated percentages in coverage or in full-time employees covered will also result in fines. In some cases, however, those penalties would cost the employer less than providing coverage. 

Companies with fewer than 50 employees are not required to provide insurance, but many still choose to do so to attract and retain staff and to keep their workers healthy and productive. Such employers have the option of utilizing the New York State of Health website, the interface for the state’s health exchange, and buying their small-group plans directly from the same website individuals and families do. 

According to Colacino, most small-business owners have chosen to stay with their original provider, opting to pay the higher premiums or drop benefits. The state’s exchange, while sometimes confusing to navigate and requiring more work from the employer, offers a much wider array of choices. An employer can choose one plan from one provider, a specific tier from a variety of providers, an array of both providers and tiers, or simply pay a set amount and let their employees decide which level they want to assume the additional personal cost to select. 

Across providers, tier levels offer essentially the same benefits, experts say. The difference to consumers lies in the choice of care providers and access to pharmaceuticals, which appear in different tiers from provider to provider, making them more or less expensive depending on the selected plan. 

In 2012 the Urban Institute predicted that 450,000 small business employees in New York would get insurance through the state’s health exchange. As of this month, according to a state estimate, more than 200,000 had enrolled. 

As for businesses with more than 50 full-time employees, some experts fear that the continued delays in enforcement will have the effect of lulling some business owners into a false sense of security that the deadline may never arrive and does not require the preparation that he insists is necessary. 

“It’s really not as intuitive as you’d think it might be,” Colacino said.