What Healthcare Reform Could Mean for Your Pharmacy
The new law contains some surprising advantages that could benefit most community pharmacies.
This article is not intended as a substitute for professional advice. Always seek guidance from tax, legal or other professional advisers about your specific situation.
As the January 1, 2014, deadline approaches for implementation of key provisions of federal healthcare reform — formally known as the Affordable Care Act (ACA) — small business owners across the country need to prepare for the law’s potential impact. Like other small business owners, many pharmacy owners are particularly worried about the employer mandate, which requires employers to purchase insurance for employees — or face stiff penalties. However, it is important to note that the mandate only applies to companies with 50 or more full-time employees. See below.
The ACA Employer Mandate: Does It Apply to Your Business?
Fewer Than 50 Employees: NO
Under the ACA, companies with fewer than 50 full-time or full-time equivalent employees will not be required to provide health insurance, but there may be additional federal, state and/or local laws that impact your insurance requirements.
Certain companies with fewer than 25 full-time equivalent workers are eligible to receive tax incentives if they offer coverage. Beginning in 2014, these firms must purchase coverage through an exchange if they wish to claim the tax credit.
50 or More Employees: YES
Under the ACA, companies with 50 or more full-time or full-time equivalent employees will be required to offer health insurance coverage. Under the ACA, large employers are subject to a penalty when: (1) the employer does not offer full-time employees minimum essential coverage and at least one full-time employee receives a premium tax credit or cost-sharing reduction through an exchange; or (2) the employer provides coverage but at least one full-time employee receives financial assistance through an exchange due to the employer coverage being unaffordable or not providing minimum value.
A Brighter Picture for the Smallest Firms
Few independent pharmacies have to worry about the 50-employee threshold. According to the National Community Pharmacists Association (NCPA), community pharmacies employ on average 3 pharmacists and 4 technicians, and only 24% of owners have two or more stores. Even a pharmacy that has a few full-time employees other than pharmacists and technicians will still fall short of the 50-employee threshold.
And when it comes to companies that fall under the threshold, the reality is that the ACA doesn’t require them to provide insurance coverage for their employees (as stated above), although there might be additional requirements outside of the ACA. What’s more, the ACA’s reforms might make it a bit easier for small employers who want to provide coverage to do so. Here’s how:
- Increased access. In general, small businesses are likely to find it easier to purchase health insurance after reforms take full effect. Health insurance companies won’t be allowed to base rate decisions on health status. And they cannot cancel coverage if someone in your group becomes sick.
- More generous benefits. Beginning in 2014, small employers (those with up to 50 or 100 employees depending on the state) can select from a menu of comprehensive plans offered through Small Business Health Options Program (SHOP) exchanges. All plans will be subject to some minimum standards such as:
- A 90-day limit on enrollment waiting periods for new hires
- No lifetime and annual benefit limits*
- Dependent coverage (if offered) for adult children up to age 26*
- No pre-existing condition exclusion periods
- A cap on annual deductibles of $2,000 for single coverage and $4,000 for family coverage (unless additional amounts are offset)
*Prohibitions on lifetime and annual benefit limits and the requirement to extend dependent coverage have been in effect since 2010.
- Potential rate savings. The idea behind the SHOP exchanges is for small companies to be able to take advantage of the lower insurance rates typically available only to larger groups through increased bargaining power and administrative simplification. According to projections by the nonpartisan Congressional Budget Office (CBO), SHOP exchanges could lower annual premiums for small businesses by 1% to 4%.
- A substantial tax credit. The Small Business Health Care Tax Credit (part of the ACA) could significantly reduce costs for some employers. This credit is available to companies that have fewer than 25 full-time equivalent employees, pay average annual wages below $50,000, and cover at least 50% of the cost of workers’ healthcare coverage. Currently, the credit is worth as much as 35% of premium costs — not to exceed the average cost of health insurance in an employer’s state. On January 1, 2014, the top rate of this tax credit will increase to 50%. Firms can claim the credit for 2010 through 2013 and for any two years after that.
- Continued access to HSAs. Since 2003, any adult who is covered by a high-deductible health plan (HDHP) and who has no other coverage has been able to establish a health savings account (HSA) and use the tax-exempt funds in the account to pay for covered medical expenses. This typically has saved money because high-deductible plans have significantly lower premiums. The ACA doesn’t change that basic premise — although it does raise the penalty for ineligible HSA withdrawals and require written prescriptions for over-the-counter medications.
Go to www.healthcare.gov for more detailed information about the ACA’s provisions.
More Coverage for Your Customers
Another change with implications for independent pharmacies: About 27 million Americans — according to CBO estimates — who don’t currently have health insurance could gain coverage under the ACA. As a result of having access to care, many more people could receive prescriptions. Depending on the demographics of your area, the expansion of health insurance could result in a significant increase in the number of customers able to fill those prescriptions in your pharmacy.
Under the ACA, small employers face distinct advantages. In general, independent pharmacy owners with larger operations (50 or more employees) are likely to face higher costs and less flexibility. But more typical single-store pharmacy owners could reap some benefits as they take advantage of new exchanges and tax incentives. And, community pharmacies may stand to gain from the millions of individuals in communities across the country who will obtain access to health insurance.
Please note: The information provided here is for reference only and does not constitute legal advice. We make not representations with regard to the comprehensiveness of this article. You are solely responsible for investigating and complying with all applicable laws that govern the operation of your business.
- The Healthcare Playbook: A Small Business Guide to the PPACA, National Federation of Independent Businesses
- The Effects of Health Reform on Small Businesses and Their Workers, Urban Institute
- Business Owner’s Toolkit, Health Policies Listed by State, BizFilings
- Independent Pharmacy Today, National Community Pharmacists Association