Health care law's impact on small businesses

When the Supreme Court upheld President Barack Obama's overhaul of health care in June, emails from anxious business owners began pouring into Alcott HR Group, a Farmingdale human resources consultancy.

"We got emails within two hours from our clients asking 'What are we going to do?' " said Lou Basso, president of Alcott HR.

The frustration and confusion among Basso's clients -- mainly small and medium-size businesses in the tri-state area -- mirrored that of business owners across the United States.

On Long Island, which is dominated by small business, owners fretted about complying with the law, the heavy fines they could face, the law's potential effect on their health insurance costs -- and what they saw as an expansion of big government.

The new law -- formally titled the Patient Protection and Affordable Care Act, a cornerstone of Obama's administration -- mandates that a majority of Americans buy health insurance or pay a fine. It also creates measures aimed at slowing the rise in premium costs.

Among the new requirements for businesses:

Companies with 50 or more full-time employees must offer health insurance.

Employer-offered insurance plans must cover at least 60 percent of health care costs.

Employees must not contribute more than 9.5 percent of their family's income toward their monthly premium payments.

The law looms as a major issue in the presidential race; Republican candidate Mitt Romney and Republicans in Congress have pledged to repeal the law, which they deem to be intrusive and expensive.

But waiting to see if the law gets repealed is risky. "I think everyone needs to get ready regardless of what happens in November," Basso said.

The written law is daunting in its scope. "I tried reading parts of it . . . it's more complex than the tax system," said Pat Orzano, the co-owner of a 7-Eleven in East Massapequa.

Business owners on Long Island say they worry that violating the law can lead to hefty fines, which for companies with 50 or more employees can start at $40,000 a year.

Workers at companies employing fewer than 50 people may need to buy insurance for themselves -- a task that could be made easier by health insurance exchanges mandated by the law, and by tax credits for low-income workers. Workers who earn so little they don't have to file a tax return -- $9,500 for 2011 -- aren't required to buy health insurance. And for small companies employing fewer than 25 that do provide insurance for workers, the law provides tax credits to subsidize their costs.

The law seeks to offer relief to businesses and individuals by halting double-digit annual rises in health costs; it's too early to say whether that goal will be achieved.

Ted Bier, president of T.M. Bier & Associates, an engineering company in Glen Cove that employs 75 people, said his insurance costs have gone up 10 percent to 15 percent per year in the last five years: "We're not going to refuse to hire someone because of medical costs, but it's probably going to impact what we can pay them."

Some provisions of the Affordable Care Act are already in effect -- such as the tax credits for very small businesses that offer insurance. The law could be fully implemented in 2014. Here are four key provisions affecting small companies:

FULL-TIME EMPLOYEES

There are 3,421 businesses with 50 or more employees on Long Island, according to 2010 census data. But not all of them will be required to provide full-time employees with health insurance under the Affordable Care Act.

That's because calculating the number of full-time employees is a complicated process under the law: It isn't done by counting heads, but by adding up hours worked and averaging them into a "full-time equivalent" (FTE) number.

To calculate the FTE number, add up all the hours the employees of a business worked for the entire year and divide by 2,080 -- the number of hours worked per year on a 40-hour workweek. If the number is not a whole number, always round down.

Pediatrician Neil Bellovin, part-owner of RBK Pediatrics in Commack and Bay Shore, employs 51 people and provides health insurance, but he would not be required to offer it.

Why? Because out of those 51 employees, 17 work a 40-hour week, six work a 30-hour week, 16 work a 20-hour week and 12 people work a 10-hour week. Using the formula provided in the law -- and assuming Bellovin's employees worked those hours throughout the year -- his workforce equates to 32 full-time equivalent employees.

Even if a business falls over the 50 FTE marker, it only needs to cover employees who work more than 30 hours a week. Seasonal employees who work fewer than 120 days in the year don't need to be counted.

TAX CREDITS

Businesses are already eligible for a tax credit if they have fewer than 25 FTE employees, pay an average wage of less than $50,000 and offer their workers health insurance. The tax credit is worth up to 35 percent of what the businesses pay for health insurance premiums. Businesses with fewer than 10 FTE employees are eligible for the maximum credit; larger ones get a smaller percentage.

Orzano, the 7-Eleven co-owner, said she received a tax credit worth 18 percent of her payments on health insurance premiums when she applied last year. She employs 14 people total, and provides health insurance for seven employees.

A study from the Small Business Majority, a Washington, D.C.-based nonpartisan advocacy group for small businesses, last year found that 232,730 businesses in New York State are eligible for this tax credit -- about 68.5 percent of all small businesses.

After 2014, the $50,000 wage limit will change annually depending on the Consumer Price Index.

REBATES AND CONTROLLING COSTS

A provision called the "80/20 rule" is meant to control rising premium costs. The regulation mandates that insurance companies spend 80 percent of what they take in from premium payments on actual medical care, and refund to clients what they do not use.

For 2011 -- the first year the rule was in effect -- insurance companies had to return more than $1.1 billion to about 12.8 million Americans, according to the Department of Health and Human Services. In New York, insurance companies returned $3.66 million to small businesses that offered insurance to their employees. Refunds should have been processed by August.

HEALTH EXCHANGES

Small-business owners will have a new health insurance option in the form of health exchanges, where individuals and small businesses can pool their buying power to get cheaper rates on health insurance. In April, Gov. Andrew M. Cuomo signed an executive order to build a health exchange network to comply with the new law; federal funding is available. The exchange for small companies is called the Small Business Health Options Program (SHOP).

New York's health exchanges are still in the planning stages, and it is too early to say what plans will be offered and at what rates.

Starting Oct. 1, 2013, small businesses and individuals will be able to enroll in the state's health exchange for coverage starting Jan. 1, 2014. At first, the health exchange will be available to people buying their own coverage and small businesses, said Danielle Holahan, the project director for health benefit exchange planning for New York. (The state is still trying to determine what size companies will be able to use the exchanges for coverage in 2014, she said, though firms with fewer than 50 full-time equivalent workers will definitely be entitled.)

By 2017, all companies with fewer than 100 FTE employees must have access to exchanges, under the law.

"We do intend to do significant outreach to small employers in the coming months to learn [small businesses'] needs so we can design our shop to best meet them," Holahan said.

On Long Island, a privatized health exchange at the Long Island Association's Health Alliance has been offering health insurance to small businesses for nearly 20 years.

LAW'S EFFECT ON BUSINESSES

Here's a rundown of how the Affordable Care Act will affect businesses of differing size:

1-10 Employees*: Not required to offer insurance

Eligible for maximum tax credit of 35 percent of health premiums if:

1. Company provides coverage; and,

2. Employees earn less than $25,000 per year on average

Can receive smaller tax credit if employees earn between $25,000 and $50,000 on average

11-25 Employees*: Not required to offer insurance.

Eligible for tax credits on health premium costs if:

1. Company provides coverage; and,

2. Employees earn less than $50,000 per year

26-49 Employees*: Not required to offer insurance

Not eligible for tax credits

Companies and employees can use state health exchanges to buy insurance starting 2014**

50-100 Employees*: Required to offer insurance to full-time employees

Not eligible for tax credits

Able to use state health exchanges to buy insurance starting 2017***

*Number is calculated as "full-time equivalent" employees

**Companies with 26 to 50 FTE workers

***Companies with 51 to 100 FTE workers

FULL-TIME EQUIVALENT EMPLOYEES
A key calculation in the health care overhaul is the number of “full-time equivalent” employees at a company. Larger employers have more insurance obligations; smaller companies have access to tax credits. Companies with 50 or more FTE employees are required to provide insurance. Below is a calculation for a company with 51 employees, some of them full time, some of them part time. For simplicity, the calculation assumes that the employees worked the same number of weekly hours throughout the year.

17 employees x 2,080 hours/year = 35,360
6 employees x 1,560 hours/year = 9,360
16 employees x 1,040 hours/year = 16,640
12 employees x 520 hours/year = 6,240
35,360 + 9,360 + 16,640 + 6,240 = 67,600 hours worked total per year.
67,600 hours divided by 2,080 (the yearly hours for one full-time employee) = 32.5.

All numbers round down, so this company has 32 full-time equivalent employees — and would not be required to insure its full-time employees.