Employers with fewer than 50 full-time workers do not suffer Obamacare’s employer mandate tax if they do not offer health insurance coverage. However, if a firm chooses to offer coverage, it must comply with the law’s standards.
Small employers that typically have offered their workers some type of health care benefit in the past could be frustrated by this policy change, since the coverage package mandated by the law could reduce their firms’ bottom lines. Employers unable to afford federally qualified plans would have two options: Steer their workers toward subsidized plans on the individual market; or claim a small employer tax credit that offsets the cost of their contributions towards employees’ health insurance premiums.
Come Nov. 15, Obamacare’s Small Business Health Options Program is set to open its doors. SHOP originally was scheduled for implementation last year, but this, too, was delayed. Through a SHOP exchange, businesses with up to 50 full-time employees can offer employees either one health insurance option or multiple plans within a specified level of coverage (bronze, silver, gold, or platinum health plans). Commensurate with the law’s health insurance exchanges for individual policyholders, employers using SHOP also may qualify for government subsidies.
In a 2012 report filed by the Government Accountability Office, many small employers whose workers earn just above minimum wage do not offer health insurance. Nor do many low-wage workers prefer this fringe benefit because it often reduces total take-home pay. Based on a study by the N.C. Institute of Medicine, just 41 percent of businesses with fewer than 50 workers provided health insurance, while coverage is available from 99 percent of businesses with more than 50 workers.
With Obamacare’s expanded access to government subsidies, one would expect SHOP to expand participation and enhance employee choice. That was the federal health law’s original intent. But GAO’s report states otherwise, concluding that SHOP tax credits do not provide as much value to small employers and their workers as the Obama administration advertises. Moreover, the initiative is hardly groundbreaking. Small-employer tax credits have been in existence since before Obamacare’s inception in 2010. North Carolina implemented them in 2007 for businesses with fewer than 26 employees.
Under Obamacare, such employers may get premium assistance toward their group coverage under three conditions: They already provide health insurance and pay at least 50 percent of employees’ premiums; they employ up to 25 full-time-equivalent employees; and their average annual wages must be less than $50,000. Meanwhile, the maximum credit amount the government will offer employers (50 percent of the employer-paid health insurance coverage premium, 35 percent for tax-exempt employers) runs on a sliding scale — higher wages mean lower subsidies.
Nationwide, the number of small employers eligible for SHOP subsidies ranges from 1 million to 4 million. According to GAO’s report, of the 170,000 small employers who claimed a credit in 2010, fewer than 20 percent of firms received the maximum credit amount.
Should an employer decide to sign onto a SHOP plan this fall, premium subsidies will phase out completely by 2016. And eligible North Carolina business owners who already provide generous coverage to their workers will not gain much of a benefit, since the maximum credit calculation is based on the state’s average premiums for small-group coverage.
Overall, it looks as if the SHOP tax credits will not lure as many small employers as targeted. And without employee choice in the mix, not much will be changing in the way in which small employers provide group coverage.
Katherine Restrepo is health and human services policy analyst for the John Locke Foundation.