Less than 10 percent of Michigan’s small businesses impacted by Affordable Care Act’s health coverage mandate

June 3, 2013 | Publication

The Center for Healthcare Research & Transformation (CHRT) today released a brief showing that more than 90 percent of Michigan’s small businesses are exempt from the health insurance mandates that become effective January 1, 2014. The brief also outlines the decision areas that all small employers should consider when determining how to participate in health coverage under the Affordable Care Act.

CHRT’s brief, The Affordable Care Act and Its Effects on Small Employers, shows that 96 percent of Michigan’s 154,488 private-sector small businesses have fewer than 50 employees, exempting them from penalties if they opt to not offer health coverage. The Affordable Care Act (ACA) requires employers with 50 or more full-time-equivalent employees to offer health coverage or pay a penalty.

“Some small businesses will be challenged by the new provisions of the ACA. But our research tells us the impact is likely to be much smaller than most people think, at least in the early years of implementation,” says Marianne Udow-Phillips, director of CHRT. “Each employer situation is unique. In some cases there is anecdotal evidence that the ACA is having a positive effect on small employers.”

Mark Hodesh, owner of Downtown Home and Garden in Ann Arbor, sells housewares and gardening equipment, and has 12 full-time employees. Hodesh has received a tax credit of about 30 percent under the ACA for the past two years, mitigating the cost of offering health insurance. Savings enabled Hodesh to hire an additional employee.

“That was just easy math,” says Hodesh. “As a small business, we need to attract and keep good people. There’s no better way to attract people than a nice benefits package. Health care is a keystone of the benefits package.”

The effect of the ACA on a small employer will depend on a number of variables, such as insurance coverage and workforce characteristics. Not all businesses will be impacted in the same way. CHRT’s report outlines several business scenarios and shows the relevant ACA provisions for each. Employers can see where their companies fit into these scenarios, and identify the kinds of decisions they will need to make about employee health coverage.

New ACA provisions in 2014 that are likely to have the greatest impact on employers with up to 100 employees include:

  • Insurance exchanges
  • Affordability tests
  • Community rating rules
  • Essential health benefits tests
  • “Play or Pay” rules
  • Small business tax credits
  • Workplace wellness programs

Businesses with fewer than 100 employees make up the majority (78 percent) of Michigan’s private firms. In 2011, less than 40 percent of Michigan businesses with fewer than 50 employees offered health insurance coverage, compared to about 90 percent of employers with 50 to 99 employers—businesses that are subject to the “play or pay” rules.

Employers will have to balance strategic and financial factors when making decisions about offering coverage, such as the ability to attract employees to their organization, and also, tax implications, as well as their own individual circumstances.

“Every business will need to evaluate what is the best option for them. In conjunction with getting advice from their health plans and consultants, this policy brief can be an important tool for small businesses as well as policymakers,” says Udow-Phillips.