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Impacts of the Affordable Care Act
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The Affordable Care Act (ACA), also known as, “Obamacare” or the Health Care Law, was signed by President Obama on March 23, 2010. This law contains heath insurance reforms, introduced over the course of many years, most taking place by 2014. You may also recognize ACA as the law that allows some uninsured young adults to be covered by their parent’s insurance plan until they turn 26, but this law is quite complex and includes many provisions. An individual mandate of the ACA, requiring everyone to obtain health insurance, has stirred a great deal of controversy and debate; however the Supreme Court has ruled this mandate to be constitutional. As we approach the end of 2012 many businesses are preparing for changes that will become effective January 1, 2014.
Small Businesses Struggle
A major change that will taking place in 2014 is the requirement for companies with 50 or more full-time employees to provide health insurance for all workers or risk paying hefty penalties. Fees start at $40,000 and increase with the size of the firm’s workforce by $2,000 for each additional worker past 50. Any kind of insurance will not be satisfactory as employers will be held to the standard of a 60% coverage rate for healthcare expenses and insurance that costs their employees less than 9.5 percent of their family’s salary. If the offered coverage doesn’t meet this standard, then the company must pay a higher penalty fee of $3,000 per employee.
Politico.com noted a survey by the Mercer Consulting firm that showed approximately two-thirds of employers expect to see a cost increase in their health plans when the Affordable Care Act goes into effect, and a quarter say they will have to make changes to their coverage to avoid penalties. Low-wage industries like retail and hospitality are known to employ a high number of part-time workers and are preparing for the largest increase in costs, with— 46 percent saying they’re expecting costs to increase by a minimum of 3 percent. The health care industry is similar, with 40 percent expecting that same increase in costs. As recently as October 2012, foxbusiness.com reported that the owner of Darden Restaurants Inc., operating Red Lobster and the Olive Garden, expressed plans to put more workers on part-time status to reduce the impact of these mandated healthcare costs. Many small, midsize and large companies are entertaining the same strategy and it’s likely that future legislation will be introduced to ensure that loopholes are closed and/or the impact of this legislation achieves its objectives without damaging the sustainability of American businesses of all sizes.
Entrepreneurs Burdened by Coverage Requirements
Entrepreneurs will also be responsible for providing insurance for themselves. If they don’t, cnnmoney.com states that it will cost them, depending on which is higher, one percent of their income or $95 in 2014 and $325 or two percent of their income the following year. The government hopes to lessen the burden on these individuals by allowing them to shop at state exchanges. The opportunity to buy insurance on state exchanges is intended to decrease costs for anyone involved by expanding the pool of the insured and dispersing the risk. This also allows entrepreneurs to receive tax credits if their annual individual income ranges between 100 percent and 400 percent of the federal poverty line, which is at $11,170 and $44,680 this year.
Although changes have been taking place since 2010, it’s clear that small business and individual business owners will be feeling the effects of the ACA more than any other group. This is why exchanges, offering a standard set of benefits for all plans, where individuals and small business can buy private health insurance, will become more prevalent over the next few years. AARP’s department of Education & Outreach ACA fact sheet highlights changes that affect everyone including; Medicaid coverage expansion to children, parents and adults without children who have a limited income, but don’t have Medicare; the abolishment of annual dollar caps on health coverage and the inability of insurance companies to deny anyone health coverage because of pre-existing conditions. Finally, protections will also be expanded for spouses of people on Medicaid who are receiving care at home.
What do you think about the ACA changes that will take effect in 2014?