For months now, the debate has raged over the impact that the Affordable Care Act, a.k.a. Obamacare, will have on businesses. A number of the law’s provisions are only beginning to take effect, so the jury is out. But one thing seems clear: For start-ups, the law’s impact is almost entirely positive.
Unlike your larger peers with 50 or more employees, you won’t have to pay penalties if your start-up doesn’t offer health insurance starting in 2015. That alone could be an advantage as larger competitors struggle to ensure they are in compliance. Moreover, your start-up is likely to qualify for a sizable federal subsidy if you do decide to offer health benefits.
Companies with 25 or fewer employees making an average annual salary of less than $50,000 are eligible under the new law to receive a refund up to 50 percent of their outlay on health insurance in 2014, provided they purchase through the federal Small Business Health Options Program, or SHOP, exchanges.
A major benefit of the SHOP exchanges is that the plans offered are specifically aimed at businesses and typically cost less than comparable plans on the open market. If your employees’ pay averages more than $50,000, you can still purchase through SHOP, although you won’t qualify for the tax benefits.
The benefit of being able to offer employees health insurance shouldn’t be underestimated for start-up founders. Your business is now in the running for talent that might have shied away from working at a start-up for fear of not having health coverage. Beyond that, having access to health insurance will presumably keep existing employees healthier as well.
Affordable health insurance also holds the promise that aspiring entrepreneurs will be able to take the plunge and pursue their business ideas. You have to be comfortable with risk to start a business, but lack of health insurance has long been one gamble too far. If you are a sole proprietor, you can purchase health insurance from your state exchange or the federal exchange--once the technical bugs are worked out. If you’re just starting out and have little or no income coming in, you will also probably be eligible for a tax subsidy.
Craig Garthwaite, an assistant professor of management and strategy at Northwestern University, has studied the phenomenon of “job lock”--in which employees hold on to their jobs purely for health care benefits.
He estimates close to a million people could leave their jobs as a result of the ACA, a number of whom will go on to start companies.
“This will allow people to be entrepreneurial, because it lessens the risk that you will go without health insurance until the business is a certain size,” Garthwaite says.
Confused about Obamacare? You're not alone.
A recent poll of small-business owners with fewer than 50 employees demonstrates just how much misunderstanding still exists about Obamacare
1. Percentage of small-business owners who believe they will be required to provide health insurance to their employees. (They won’t be.): 32
2. Percentage of small-businss owners who believe they will be required to pay a penalty if they fail to provide health insurance to their employees. (They won't be.) 24
3. Percentage of small-business owners who can confidently define or explain what a health insurance exchange is: 18
4. Percentage of small-business owners who said they trust the government for reliable health insurance information. 24
Source: eHealth Small Employer Health Insurance Survey