Historically, small businesses have struggled to provide quality, affordable health insurance for their employees. According to the United States Bureau of Labor Statistics, this problem persists. In fact, March 2012 data indicates that access to employer-provided benefits was significantly greater in medium and large businesses (500 employees or more) than in small businesses (100 employees or less), with health benefits available to only 57% of small business employees as compared to 89% of employees in larger businesses. A “primary beneficiary” of the Exchange could be small businesses.
The Affordable Care Act (“ACA”) introduced Health Benefit Exchanges to create a competitive marketplace for individuals and employees of small businesses to shop for health insurance based on price and quality. Banahan and Nold expect Kentucky’s Exchange to improve access to health insurance for Kentucky small businesses and their employees, while also saving employers time and money.
By Federal mandate, all state exchanges must have a Small Business Health Options Program (“SHOP”) to provide health insurance options to eligible small businesses. Small businesses may elect to purchase coverage through SHOP if the business has less than 50 employees and elects to offer coverage to all full-time employees. When a small business elects to provide coverage through SHOP, its employees will be able to choose from at least four plans offered by insurance companies as well as plans that are offered through the Federal Exchange according to Banahan. Without access to the Exchange, small businesses will typically provide employees with only one option for coverage. Tax credits will be available to small businesses who provide coverage through the Exchange.
Small group employers will not be required to offer health insurance to employees under ACA, but Banahan and Nold believe that the Exchange will offer convenience and the value of comparison shopping for businesses that elect to offer coverage. The Exchange will be operational on January 1, 2014, but enrollment will open in October 2013. The Exchange will also offer individuals the opportunity to shop for coverage.
Benefits for the Exchange include the following:
1. Plans will be vetted. The ACA mandates that all plans offered on the Exchange cover Essential Health Benefits (“EHBs”), which are a comprehensive package of items and services specified by federal regulation. EHBs include the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive wellness services and chronic disease management; and pediatric services, including oral and vision care. By excluding plans that do not provide basic coverage from participation in the Exchange, the Exchange will assure that uniform basic benefits are offered.
On October 1, 2012, Kentucky recommended that the Anthem Preferred Provider Organization Plan, the largest small group plan currently offered in Kentucky, serve as the benchmark plan for the Exchange. This recommendation has been submitted to the Department for Health and Human Services for approval. If approved, this Plan will serve as a model for all other plans participating in the Exchange.
2. Medical underwriting will be eliminated. As part of the 2014 Small Group Insurance Reforms, the health status of individuals in a group can no longer be considered and medical underwriting will be eliminated. This means that small employer groups may be rated only on community rating requirements (geographic location, age, and smoking status) and not on individual health status. These community rating requirements are expected to change the premium structure of the marketplace causing premiums for younger “healthy” groups to increase and premiums for older “less healthy” groups to experience decreased premiums.
3. Administrative burdens will be eased. Banahan and Nold expect SHOP to ease burdens on small business by performing the administrative function for small group plans. For example, the Exchange will collect premium payments for the small business and deliver payments to the plans covering its employees.
SHOP will also facilitate plan enrollment through the virtual marketplace. Once an employer chooses the Exchange plan(s) for his/her employees, the search engine will provide employees with Health Care Quality Ratings and network provider information to educate employees on available coverage options before they choose the best plan for their needs and the needs of their families.
4. Premiums will be subsidized. The federal government will provide subsidies to assist qualifying Kentuckians with the cost of health insurance coverage. A small business may qualify for a tax credit if it has fewer than 25 full-time employees for a taxable year, the average annual wage of the group is less than $50,000, and the business pays at least 50% of premiums for each employee. For example, if a print shop with 10 employees and paying $250,000 in wages (or $25,000 per employee) and $70,000 in employee health care costs would receive a 2012 tax credit of $24,500 (35% credit) and 2014 tax credit of $35,000 (50% credit). These tax credits will help businesses cover the costs of employee health insurance premiums.
Establishing a state-based Exchange is a tremendous project undertaken by the Commonwealth. Just under $60,000,000 in funding will be directed to developing the Exchange, including the development of the information technology support system necessary for its implementation, operational planning, technical design, architecture of the system, and integration with Medicaid and sustainability. Funding will also be used to launch a robust marketing effort to educate Kentuckians about the Exchange. Banahan and Nold agree that education about the benefits of the ACA’s impact on Kentucky’s small businesses will be important and have a positive impact on those businesses that may purchase health insurance through the Exchange.
Lisa English Hinkle
McBrayer, McGinnis, Leslie & Kirkland, PLLC
Molly Nicol Lewis
McBrayer, McGinnis, Leslie & Kirkland, PLLC