Could ObamaCare Help Small Businesses Stay Competitive?


Many small businesses struggle to keep loyal employees and often don’t provide health insurance due to the high costs. The new Affordable Care Act or ‘ObamaCare’ is feared by many small businesses and despised by some. The recent rollout debacle was certainly evidence of flaws in the program that will have to be addressed.

Whether it’s the Affordable Care Act or something different in the future, the changes in healthcare are inevitable, and it seems an inescapable cost for most small businesses. But whatever your position or take on ObamaCare is, this new law appears here to stay and… in what could be a surprise twist, it could level the playing field a bit for some small employers… if you read the fine print and fit the specifics.

Keeping good employees. One of the hardest things for a small business to do is keep committed, hard-working employees and lower turnover – we experience this firsthand, and it takes us years to train staff.

In our experience, the vast majority of workers want a stable job that offers benefits. Because group policies were limited and often based on the characteristics of your small group, they were either cost prohibitive from the beginning or would become cost prohibitive if one member of the group fell ill and consumed more services than others. The new healthcare law might help address this, because employers should now have more options to offer their employees ranging from assistance with enrollment via the new Health Insurance Marketplace to providing access through the Small Business Health Options Program (also called SHOP). With the SHOP program, if you have fewer than 50 full-time employees and want to offer coverage for your workers, you can control the coverage you offer and how much you pay toward employee premiums.

If SHOP delivers on its promise to provide better options for coverage, the new Act might help employers lower turnover and thereby help a small business stay competitive.

Staying Competitive. As a small business, staying competitive is tough to manage when larger companies have more resources and options to offer.

For a variety of reasons, the new law seems designed to encourage employers to provide group coverage plans even as the U.S and many states are leaning toward some type of universal health care and the government seeks to maximize enrollment. Of course, providing healthcare for workers has never been cheap and will get more expensive in the future. Small business owners should be reminded, then that staying competitive also means properly budgeting in those costs, planning accordingly, and exploring options that could be beneficial.

Case in point: the ‘reimbursement’ option. With basic recordkeeping, employers previously had the option of reimbursing an employee’s health insurance premiums tax free (as a sort of alternative to directly providing health insurance). Of course, most of the plans employees could purchase on the marketplace in the past – that is, without the benefit of an employer group – were fairly limited, and anything other than ‘emergency’ plans were generally as expensive or more expensive than the employer’s cost for group coverage.

I was initially excited that small employers might be able to reimburse employees who purchase ObamaCare plans at a rate below what it would cost us for group coverage (per employee). After all, the promise is that these plans will be cheaper. It turns out that it will likely be possible to reimburse employee premiums, and these plans will be far more comprehensive in coverage and possibly lower in price than what was made available before.

Enter the “Healthcare Reimbursement Plan.” Employers can choose a defined benefit plan that serves as an alternative to providing direct coverage. Because the employer can define the benefit level, it could be cheaper than paying for group coverage. In turn, the small business is able to provide an advertised benefit for employees without buying group coverage. Employees can use the HRP to access tax-free reimbursement of insurance premiums. This is worth exploring depending on your circumstances and the cost of plan administration (since you’re not likely able to set up your own, in order to stay compliant with an HRP).

There’s a catch, though. New guidance from the government says that you can’t reimburse subsidized premiums on a tax-free basis (you can still reimburse premiums on an after-tax basis, but then both you and your employee are paying a ‘premium on the premium’). Since preliminary data suggests that a pretty large section of the population will qualify for subsidized premiums, whether an HRP is beneficial will depend on each business’s individual setup. An interesting question for future analysis will be how this is reconciled with ERISA law since higher-compensated employees are more likely able to take full advantage of the reimbursement under an HRP.

For now, it appears that the average employee will be able to purchase more comprehensive coverage at a rate that an employer’s reimbursement might be advantageous… under the right circumstances. If you do decide to go down this route, make sure you do your research to stay compliant with the laws.

If you need legal advice, schedule a meeting with Tiwari + Bell PLLC through our website or by calling (210) 417-4167