Health Care Reform and You


It’s late afternoon on a summer weekday. John Bosen, area manager for Accel Loans, is putting in the last leg of his latest journey to one of three stores he supervises around Missouri.

Each store is several hundred miles away from the other, so he spends a lot of time on the road.

“That’s what they pay me for,” he chuckles. John has four full-time employees at the three stores, though none receives health insurance coverage through Accel. As it now stands, the recently passed health care reform act likely won’t mandate coverage for a company the size of John’s but so far, there’s much more doubt than certainty.

“I’m still waiting to hear what it looks like,” Bosen says of the law. “Right now, everything about I heard is bad but you know, that’s what change is like.”

Ruth Ventura is the loan manager for A Nice ‘N Easy Payday & Title in Boise, Idaho. She and one other full-time employee manage the store, and neither is covered by their two-year-old business. When asked for her thoughts on the health care reform act, she replies, “I’m not sure yet. I need to research it.” Health coverage “is a cost we can’t afford right now,” she says, but if the tax credits offered are enough of an incentive, “I know we’d consider it.”

Bosen and Ventura’s comments reflect one fact that emerges from the debate over the health care reform act: While nearly everyone has an opinion about the health care reform package Congress has passed, its actual impact on small businesses are far less understood.

Much of this uncertainty lies in the fact the law is so complex that it will take months, even years, for its full impact to be known. And certain significant changes won’t take effect right away.

Meanwhile, small business owners are still trying to find out how it will affect their employees and their bottom line. And the bottom line on the bottom line is that the number of employees the business has on staff will determine what tax credits and other incentives will be available to them.

Then there’s a tax provision to help finance the legislation that could potentially become a paperwork nightmare for all businesses, no matter their size.

Pluses for Smallest

First, for the smallest of businesses, typically 25 or fewer employees, the tax breaks will be significant. Plus, and more importantly, these businesses will be exempt from penalties if they elect not offer health coverage to their workers.

Analysts note the Health Reform Act includes several provisions to expand access to health insurance for those who are not covered by an employer, such as state insurance pools, expansions of Medicaid, elimination of restrictions on pre-existing conditions, etc.

On the other hand, for those who decide to offer insurance to their work force, benefits kick in on next year’s federal tax return.

For example, if the business is a qualifying employer and pays at least half of the cost of employees’ health insurance premiums, the company may receive a tax credit to offset up to 35 percent of its premium contribution when it files.

The credit is generally available to employers with fewer than 25 full-time workers with an average annual wage of less than $50,000. This credit would rise to 50 percent in 2014, though an employer would have to pay half of the total premium cost or 50 percent of a benchmark premium to qualify.
Additional incentives are also offered to small businesses to provide their workers with coverage. For the smallest firms with the lowest paid workers, 10 or fewer employees with an average salary of no more than $25,000, full credits will be available. The subsidies dwindle as the company grows in size and average wages increase.

Tax vs. Coverage

Beyond the 50-employee mark, companies that don’t offer coverage will be taxed according to the size of their payrolls. This tax, however, will be less than the cost of providing health coverage.

“The penalties for not purchasing insurance in the law are not high enough to motivate people to get coverage,” Dr. Marjorie Baldwin of the W.P. Carey School of Business at Arizona State University says.

Baldwin participated with other health care experts in conference calls held by the White House Health Reform Task Force in 2009. “The monetary penalties don’t even come close to what the insurance itself would cost.”

If a business with more than 50 employees does not provide coverage, it could face fines of up to $2,000 per worker for every employee beyond the first 30. But the caveat for this penalty is that it only takes effect if the company has at least one FTE eligible for a premium assistance tax credit or cost-sharing reduction that the legislation has created.

Observers note this eligibility will be difficult to determine. Larger employers could face the penalty when tax time arrives. This is another part of the act that does not take effect until 2014. It has many small business owners in a quandary.

Some owners express concern over the staffing levels that trigger tax credits. For example, if they expand and require more employees, can they afford coverage for the additional staff? And with so much still not known about the law, long-range planning becomes a problem.

SHOP By 2014

Many of the provisions of the act that cover small businesses will not take effect until states start offering small business group buying plans or exchanges, otherwise known as Small Business Health Option Programs, or SHOP.

This will allow small businesses to join pools that can offer reduced premiums and lower administration fees, much like the large insurance pools larger companies have enjoyed for decades. (If your state does not establish an exchange by the deadline in 2014, the federal government is supposed to step in and offer an alternative program.)

Analysts argue, however, that reductions in premiums resulting from SHOP may be insignificant. In the small group market (employers with 100 or fewer employees), the Congressional Budget Office estimates change in the average premium per person that results from the reform could vary from an increase of 1 percent to a reduction of 2 percent in 2016 (compared with current law).

Specifically, the CBO states, “the average premium per policy in the small group market would be in the vicinity of $7,800 for single policies and $19,200 for family policies under the proposal, compared with about $7,800 and $19,300 under current law.”

Besides, analysts note, premiums may very well rise before they fall as plans try to make as much money as possible before the broader reforms take effect in 2014.

In addition, the CBO notes these figures don’t account for the impact of the small business tax credit on the cost of buying insurance. The agency states only about 12 percent of persons within the small group market would benefit from the credit in 2016.

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Posted in Summer 2010.