How Healthcare Reform Will Impact Your Small Business SCORE LA Natalie Orta, U.S. Small Business Administration July 10, 2013

Topics for Discussion Today Tax credits Grandfather provisions Employer Responsibilities Individual Responsibility Requirement (Self-Employed) Cost Containment Provisions Marketplace / Exchange Covered California Your questions and comments

Small business tax credits In effect now (as of tax year 2010) o $40 billion in credits by 2019 Which businesses are eligible?  Fewer than 25 full-time employees  Average annual wages <$50,000  Employer pays at least 50% of the premium cost

Tax credits on a sliding scale: o U p to 35% of premium expenses for 2010–13 o Up to 50% of premium expenses for any two years beginning 2014 Tax credits do not cover premium expenses of owners or their families Tax credits can not be claimed by the self-employed Small business tax credits

Grandfathering: “If you like what you have, you can keep it” A grandfathered plan is a health plan in which a small business was enrolled on March 23, 2010 Grandfathered plans do not need to comply with several insurance reforms, but do need to comply with some provisions Regulations allow for making several changes (adding employees, changing carriers) without jeopardizing grandfather status o Significant changes (dropping specific benefits, radically increasing premiums, etc.) may be cause for losing grandfather status

Shared responsibility No business mandated to offer coverage o large firms may pay fee for not offering – Starting 2015 Businesses with fewer than 50 FTEs exempt o 96% of all businesses exempt from any fees

For larger employers ( ≥ 50 FTEs) Beginning January 1, 2015 Fail to offer coverage- $2,000 per year for each full-time employee ( ≥ 30 hours) Excluding the first 30 full-time employees o Firms only pay fee if at least one worker qualifies for federal financial assistance in Exchange. Failing to offer “affordable” coverage- $3,000 per year for each full-time employee receiving federal financial assistance in exchange o What is “Affordable”? o Employee’s required contribution must not exceed 9.5% of income o Plan covers at least 60% of healthcare expenses (on average)

Additional responsibilities W2 reporting – informational only o Allows workers to see how much employer is spending on health benefits o Firms with fewer than 200 workers exempt until further notice Summary of health plan – Insurers provide employers a summary of benefits; employers must share info with workers (Sept. 2012)

Employee Notification Two notices available: one for employers who do offer coverage, one for employers who do not. (<$500,000) Many employers are required by the Fair Labor Standards Act (FLSA) to notify employees of coverage options available through the Insurance Marketplace. Notifications to existing employees must be out by Oct 1, 2013 and all new employees beginning Oct 1 should receive this notice.

Beginning in 2014, most individuals required to obtain insurance or pay penalty May qualify for premium assistance based on income for 100% - 400% of fed poverty level (family of 4 = $23,000 to $92,000) Not eligible for premium assistance in Exchange if employer offers affordable insurance Acceptable coverage: Employer, individual, Medicare, Medi-Cal, Covered CA, etc. Individual Responsibility Requirement (incl. Self-Employed)

Exemptions for certain religions and very low-income individuals (≤ $9,500 per yr) Penalty: $95 or 1% (2014); $325 or 1.5% (2015); $695 or 2.5% (2016) About 1-2% of population expected to pay fee Individual Responsibility Requirement (incl. Self-Employed)

Cost Containment – Cutting costs saves small businesses money Exchanges leverage pooled purchasing power to lower premiums Ensure that more $$ go to medical care o 80/20 Rule- Requires insurers spend at least 80% of small business premiums on medical claims. Limits administrative costs to 20% o Must issue rebates by August 1 every year. o Estimated $1.1B issued in 2012 nationally; 28% small business plans

Cost Containment – Cutting costs saves small businesses money Premium increases are now reviewed by state Other incentives for administrative efficiency and modernization (e.g. pay for performance) Aims to reduce “hidden tax” of $1,000 per year

ACA Benefits No pre-existing conditions – Guaranteed Issue Dependents can stay on parents plan till age 26 No gender based premiums No lifetime caps All plans include 10 Essential Health Benefits

10 Essential Health Benefits 1.Ambulatory patient services 2.Emergency services 3.Hospitalization 4.Maternity and newborn care 5.Mental health and substance use disorder services, including behavioral health treatment

10 Essential Health Benefits - continued 6. Prescription drugs 7. Rehabilitative and habilitative services and devices 8. Laboratory services 9. Preventive and wellness services and chronic disease management, and 10. Pediatric services, including oral and vision care

Small Businesses struggle with costs Small Business Majority 2008 study: Small business health costs would more than double by 2018 without any reforms. 5X rate of inflation – $2.4 trillion ($243 billion in CA) Small firms pay 18% more than large businesses 29.5% self-employed: uninsured (CA: 826,000) 25% of small employers: uninsured (CA: 175,000) Their opinion survey: 86% of CA small businesses don’t offer because of cost; but would if affordable. 70% of those who do offer say they are struggling to do so

Size of American businesses Kaiser Family Foundation: o 4.8M businesses with fewer than 50 employees (35.7%) offer health insurance o 1.7M businesses with 50 or more employees (95.7%) offer health insurance. Small Business Majority and Kaiser Permanente poll: After learning about features in the marketplace, percentage of California small business owners who said they’d be likely to offer insurance jumped from 32% offering to 42%

What is a Health Benefit Exchange? One-stop shop web portal Small Business Exchange INSURANCE PLANS EXCHANGE Choice Comparison Billing Tax Credits SMALL BUSINESSES Large marketplace to buy commercial insurance Compare plans for information about price, quality and service Plans organized by level: bronze, silver, gold, platinum Calculator to compare costs across plan options Streamlined billing process

What is a Health Benefit Exchange? Two Exchanges: individuals; small businesses (2-50) Opening on January 1, 2014 (pre-enroll begins Oct. 1) Voluntary o Members of Congress and staff required to use Exchange Exchanges designed by states -- or by federal gov’t if a state so chooses o State-based exchanges mean increased flexibility and more input from small businesses and other stakeholders Not a new concept - Business groups, non-profits and state gov’ts already run similar programs in CA, CT, MA, NY, UT

California Health Benefit Exchange Our Exchange: “Covered California” First in the nation. Enacted in 2010 – Bipartisan effort Governed by independent public board Holding dozens of public board meetings Executive Director is a former business leader; hiring more staff now Received federal $$ for planning; Exchange self-funding by 2015; no state dollars spent Stakeholder advisory panels providing input from small business owners and business organizations

California’s Key Decisions Active Purchaser: Exchange will negotiate with insurers o Standard products will provide Apples-to-apples comparison Employee Choice: Employer selects “tier” of coverage; worker selects insurer; employer receives one bill Brokers can sell Covered CA products; will be paid market commission rates by Covered CA. HR Services: COBRA administration, HSAs, wellness plans, etc. Public-private partnership: Administrative management of small business Exchange to be done by private-sector vendor

Take a look…

HealthCoverageGuide.org Objective, straightforward resource to help Small Businesses navigate the new healthcare system both in and out of the SHOP marketplace Step by step guide if employers decide to offer coverage, alternative healthcare options if you don’t Tools like the Small Business Tax Credit calculator and an action plan checklist

SBA.gov Starting Point: CA Healthcare Coverage Guide: HealthCoverageGuide.orgHealthCoverageGuide.org Covered California:CoveredCA.comCoveredCA.com Health Law Guide for Business: HealthLawGuideForBusiness.orgHealthLawGuideForBusiness.org Hot Line: 24 hours a day – (800) SmallBusinessMajority.org o Information Summary & FAQ o Tax Credit Calculator More information

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