Affordable Care Act – Where Do New Jersey Small Employers Go From Here?

Affordable Care Act – Where do small employers go from here?

Options to consider when choosing your company’s employee benefits

We are well into implementation of the Affordable Care Act (ACA) and the impact of this legislation is being felt by many small employers.

First employers must determine if they qualify as small (fewer than 50 employees). This is not as simple as it seems. An employer may have 48 employees working 30 hours or more and conclude they are a small employer. Yet if they have 10 employees working part time, less than 30 hours per week, these part-time employees must be translated to full-time equivalent employees.

Because each of these part-time employees equates to half a full-time employee, this particular employer has five additional full-time employees, or the equivalent of 53 full-time and full-time equivalent employees. This company actually qualifies as a large employer and must follow the regulations applying to large employers.

That being clarified, the next question a small employer will ask is whether they continue to offer coverage – can their business afford it? What happens if they do not offer coverage – will they still be able to attract and retain top talent? These are difficult questions with various outcomes depending on the employer’s decision.

If the employer opts to continue offering coverage, next they must consider their options. Do they offer benefits on the Small Business Health Options Program, or SHOP, the federal exchange? As of now employers are able to offer only one plan option on the SHOP, and employees can only be enrolled on paper. (In 2015 it is expected that enrollment will be available online.)

Medical plans offered on the SHOP also must be offered outside the program. So what are the benefits?

Small employers who opt to enroll employers via the SHOP may qualify for the small business tax credit, which is not available outside the SHOP marketplace. To be eligible, an employer must cover 50 percent of the employee-only cost and have fewer than 25 full-time employees, including equivalents, and employee wages must average less than $50,000 per year.

Another benefit of the SHOP is that full-time employees are defined as those working 30 or more hours per week. Outside the SHOP, under New Jersey law, full-time employees are defined as those working 25 or more hours per week.

Another area of questions for small employers are private exchanges and using defined contributions.

Private Exchanges are similar to the SHOP except the employer can offer up to six different plan options that the employee can chose from, depending on what best fits his or her needs. Defined contributions are a fixed dollar amount (a “defined contribution”) provided by the company that the employee chooses how to spend.

Choosing a private exchange in conjunction with a defined contribution approach seems to be the wave of the future. With traditional employer-sponsored health plans, employers are building their benefits around a certain plan chosen by the employer. With a defined contribution approach the employer builds their benefits around a set dollar amount. This allows employers to predict what their health benefits costs will be.

With a defined contribution employees are giving a virtual “gift card” with a set amount of money on it that they may use to shop for their own insurance from among the employer-provided multiple benefit options. It is a win/win for all. The employer can set their budget and the employee has multiple options from which to choose.

In 2014 most employers are choosing to stay with the private carriers since they offer more plan options. In addition, some employers are getting their premiums reduced by as much as 45 percent because the plans they had were very rich and the carriers are eliminating many plan options. Before ACA took effect carriers might have offered 30 plans to employers. Now they might only offer 10. On the other hand, [premium increases at] renewal have gone as high as 88 percent.

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Why Are Health Insurance Premiums Still Rising After The Patient Protection and Affordable Care Act?

Since no one seems willing to discuss the real reasons that health insurance premiums are increasing dramatically since the passage of the PPACA (Patient Protection and Affordable Care Act). Let me break down the 3 primary reasons. They are as follows:

1.) My Blue Cross Group clients are receiving 35.63% renewal rate increases this year for the first time in 15 years. Their prior premium increases were no where near this amount. This is not isolated to Blue Cross either. These premium increases are happening in many markets across the United States in both the Individual and Group markets. I’m simply using Blue Cross as an example since the name is most widely recognized. These increases are due in large part to the fact that multiple new “Preventative Care” mandates were imposed upon all “non-grandfathered” health insurance plans as of 9/23/2010 under the PPACA. A “Non-grandfathered” plan is a plan that was purchased after the PPACA (a.k.a “Obamacare”) was signed in to law on March 23, 2010. Keep in mind, these were all mandated to be covered no later than 1/1/2011 without a co pay or a deductible required. See list of mandates

2.) Multiple new policy design changes have also been mandated. If you have a Group health plan you’ve already received those new mandates.

3.) Now we come to reason number three. The new PPACA mandated Medical Loss Ratios or “MLR’s”. This is why health insurance premiums are increasing on Non-Grand-Fathered plans as well. For more about the new MLR’s visit: Who in their right mind thinks forcing all the following new mandates on to every health insurance policy in the country would actually “bend the cost curve down“?

In fact, mandates are a major reason why health insurance premiums have been increasing exponentially over the last few decades. In 1979 there were 252 mandates in force in health care, by 2007 there were nearly 1900. With the implementation of the PPACA we have tipped the scales at nearly 2000 mandates. Keep piling them on and costs will continue to rise.

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On March 27, 2020, the President signed into law the next phase of action being taken by the federal government aimed at providing financial relief to the American people and businesses in response to the economic fallout from the COVID-19 pandemic. This “thirdphase” piece of legislation is called the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).

One of the core pieces of the CARES Act is the provision of $349 billion for small businesses through federally backed loans under a modified and expanded Small Business Administration (SBA) 7(a) loan guaranty program called the Paycheck Protection Program. Congress has designed the program to make funds available to qualifying businesses quickly through approved banks and nonbank lenders.


· Under the CARES Act, qualifying businesses include businesses with up to 500 employees or which meet the applicable size standard for the industry as provided by the SBA’s existing regulations. Most small businesses will qualify.

· Loans will be provided through SBA and Treasury approved banks, credit unions, and some nonbank lenders.

· Borrowers can borrow 2.5 times their monthly payroll expenses (during the 1-year period before the loan is made (see page 18) ), up to $10 million.

· Applicable uses for the loan proceeds include: (1) qualified payroll costs; (2) rent; (3) utilities; (4) mortgage interest and other debt obligations; (5) group health care benefits including medical insurance premiums; (6) interest on any other debt obligations that were incurred before the covered period (February 15, 2020 and ending on June 30, 2020). (see page 10 re. covered period)

· Loan forgiveness is available for funds used to pay 8 weeks of payroll and other qualified expenses.

What Businesses Qualify For The Paycheck Protection Program?

Generally, any business in operation on February 1, 2020 with less than 500 employees is eligible.

What is the Maximum Loan Amount That a Business Can Receive Through the Paycheck Program?

Each business can receive the lesser of $10 million or the sum of 2.5 times the average total monthly payroll costs for the prior year.

What Can a Business Use Program Funds For?

Businesses can use funds from the Program loans to cover expenses including the following:

· Payroll costs, including compensation to employees that would include payments for severance, payments required for group healthcare benefits (including insurance premiums), retirement benefits, and state and local employment taxes.

· Interest payments on any mortgage or other debt obligations incurred before February 15, 2020 (but not any payment or prepayments of principal).

· Rent.

· Utilities.

However, the money cannot be used for compensation of individual employees, independent contractors, or sole proprietors in excess of an annual salary of $100,000; compensation of employees with a principal place of residence outside the U.S.; or leave wages covered by the Families First Coronavirus Response Act (H.R. 6201) that has already been passed and will be effective as of April 1, 2020.

How Are Loans Made Under This Program Different From Traditional 7(a) Loans?

Unlike traditional SBA 7(a) loans, no personal guarantee will be required to receive funds and no collateral needs to be pledged. Similarly, the CARES Act waives the requirement that a business show that it cannot obtain credit elsewhere. In lieu of these requirements, borrowers must certify that the loan is necessary due to the uncertainty of current economic conditions; that they will use the funds to retain workers, maintain payroll, or make lease, mortgage, and utility payments; and that they are not receiving duplicate funds from another lender for the same uses.

Payments of principal, interest, and fees will be deferred for at least 6 months, but not more than 1 year. Interest rates are capped at 4%. The SBA will not collect any yearly or guarantee fees for the loan, and all prepayment penalties are waived.

The SBA has no recourse against any borrower for non-payment of the loan, except where the borrower has used the loan proceeds for non-allowable purposes.

What Are The Loan Forgiveness Requirements?

Borrowers are eligible for loan forgiveness for 8 weeks commencing from origination date of the loan for payroll costs equal to the cost of maintaining payroll continuity during the covered period; (Note: Eligible payroll costs do not include annual compensation in excess of $100,000 for individual employees); payment of mortgage interest: rent; and utilities.

The amount of loan forgiveness may be reduced if the employer reduces the number of employees as compared to the prior year, or if the employer reduces the pay of any employee by more than 25% as of the last calendar quarter. Employers who rehire workers previously laid off as a result of the COVID-19 crisis will not be penalized for having a reduced payroll beginning February 15, 2020 and ending on June 30, 2020).

Borrowers must apply for loan forgiveness to their lenders by submitting required documentation and will receive a decision within 15 days. If a balance remains after the borrower receives loan forgiveness, the outstanding loan will have a maximum maturity date of 10 years after the application for loan forgiveness.

How Does A Business Apply For A Loan Under The Paycheck Protection Program?

We expect additional guidance from the SBA regarding how to apply for Program loans, including additional resources on the SBA website about how to find a qualified lender. Borrowers who have existing relationships with banking institutions may wish to contact these individuals to inquire about applying for loans under the Program.

Does The CARE Act Affect Any Other Loans Available to Small Businesses?

Yes. The maximum loan amount for an Express Loan is increased from $350,000 to $1 million.

The CARE Act also expands eligibility for borrowers applying for an Emergency Economic Injury Disaster Loan (EIDL) grant. Emergency Economic Injury Disaster Loans are available for most small businesses, sole proprietors, or independent contractors. Additionally, the Act waives requirements that (1) the borrower provide a personal guarantee for loans up to $200,000, (2) that the eligible business be in operation for one year prior to the disaster, and (3) that the borrower is unable to obtain credit elsewhere. The SBA is also empowered to approve applicants for small-dollar loans solely on the basis of their credit score or “alternative appropriate methods to determine an applicant’s ability to repay.”

What Are the Terms of an EIDL?

Up to $2 million

Interest Rates: Fixed at 3.75% for small business

Term: Term loans up to 30 years, structured with a 12-month principal and interest deferral

No prepayment penalty

Collateral: Required if the loan is over $25,000. Real estate is preferred but a loan will not be declined for lack of collateral. However, all available collateral will be required.

How Do You Apply for an EIDL?

EIDL’s are handled directly by the SBA. The business can submit either a paper or online application. The on-line application can be submitted at the following website:

Additionally, the business can call the SBA Customer Service Center at 1-800-659-2955 or mail [email protected] for further information on the program or for details on submitting a paper application.

Most significantly, for borrowers seeking an immediate influx of funds, borrowers may receive a $10,000 emergency advance within three days after applying for an EIDL grant. If the application is denied, the applicant is not required to repay the $10,000 advance. Emergency advance funds can be used for payroll costs, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be met due to revenue losses.

Borrowers may apply for an EIDL grant in addition to a loan under the Paycheck Protection Program, provided the loans are not used for the same purpose.

Is Relief Available For Businesses With Pre-existing SBA Loan?

Yes. The SBA will pay the principal, interest, and associated fees on certain pre-existing SBA loans for 6 months.


There are a lot of moving parts to the CARES Act and its SBA disaster relief programs which will continue to evolve with more clarity over time. Talk has already begun on Phase IV of stimulus relief due to COVID-19.

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