Health Care Reform and You


Business is fairly brisk these days at Sam Light Loans & Mercantile near downtown St. Louis. Manager and owner Ronnie Light is looking out from his office over the shop his grandfather founded almost 80 years ago. Ronnie has four full-time employees at his store but none has health care coverage. As it now stands, the recently passed health care reform act likely won’t mandate coverage for a company the size of Ronnie’s but so far, there’s much more doubt than certainty.

“I don’t know enough about it,” Light says of the reform package. “I have to see what comes out of Congress.”

Light’s comment reflects 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 is 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.

For still others with far fewer employees, many questions remain. Kevin O’Dell is general manager at Route 50 Gold and Jewelry Exchange in Falls Church, Va. He’s frustrated and is blunt in his opinion.

“I’m not at all confident it’s going to be much of change, no matter which party had drafted it.” O’Dell says. With the price of gold climbing, O’Dell says times are already tough enough selling jewelry and meeting budget without having to consider providing coverage for his employees. He says he has called his senator and congressional representatives to register his complaints and answer his questions, “but it doesn’t do any good.”

Some owners express concern over the staffing levels that trigger tax credits. For example, if business begins to pick up and more employees must be hired, can they afford coverage for the additional staff? And with so much still not known about the law, such long-range planning becomes problematic.

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).

Experts Still Guessing, Too

“We’re still having a hard time guessing its impact,” says Jerome Katz, Coleman Professor of Entrepreneurship at the John Cook School of Business at St. Louis University in Missouri.

For example, Katz notes, division of power and responsibilities among government agencies must be defined.

“The role of the Small Business Administration as an advocate of small businesses is in flux. Plus, issues surrounding part-time and full-time employees must be addressed,” he says.

Katz also notes the ripple effect the act will have throughout government will be significant — and long-lasting.

“Agencies charged with enforcing such programs as the Paperwork Reduction Act have yet to receive their marching order from the White House,” he says.

But Katz downplays concerns by companies that worry about the added costs the act will place on their business. Yes, their prices may rise accordingly, he acknowledges, but he adds that, “Customers will always pay for companies that give them great service.”

Katz also dismisses concerns by businesses that complain their expansion may be compromised by the act.

Baldwin is quick to agree.

Details from Insurers

On the insurance companies’ side, the reform act will demand greater transparency. For example, they’ll have to report the proportion of premium payments they make instead of administration and marketing costs.

Furthermore, insurers will have to justify premium increases. States will be to block insurance companies from the exchanges if they determine the premium increases are being made without good cause.

As with any legislation, however, the 2010 Health Care Act is not necessarily set in stone. Already, a GOP lawmaker has introduced a bill to repeal the new 1099 reporting requirements.

For now, however, small businesses of all sizes should continue digging for answers to their questions and turning to available resources, such as the Small Business Administration, to determine how the new health care reform act will affect them.

Also, employers should be documenting exactly how they count their employees, whether they’re FTEs or contract workers. This is because the tax breaks around the 50-employee mark could be significant.

There’s another provision in the new law that companies need to note. Two part-time employees will be calculated as a single full-time employee when it comes to determining the tax penalties for not offering coverage.

Closing a Gap?

As small business owners wait and wonder what if any costs they will face as they digest the law, it’s worth noting that employees will likely welcome any coverage they’re offered and give them another reason to stay. The health coverage gap between very small businesses and larger businesses was one driving impetus behind the legislation.

The Council of Economic Advisors noted in 2008 that 99 percent of companies with more than 200 employees offered health insurance, whereas less than half (49 percent) of companies with between three to nine employees offered coverage.

At the bill signing in March, President Obama said, “It’s about every small business owner forced to choose between insuring employees and staying open for business.”

For owners such as Light, tax credits are appealing. “If they make coverage worthwhile for my business and my employees, I’d be interested,” he says. “I’d definitely be interested.”

Still, managers such as O’Dell remain skeptical. He was opposed to the health care reform package from early on. “Times are tough,” he says, “and I think the government taking over any area of our economy will be disastrous.”

  • More Paperwork on Tap
    Beginning in 2012, a provision included in the 2,000-page act will significantly expand a specific area of information reporting for businesses: The 1099 form. Under current tax law, every person engaged in a trade or a business who makes payments aggregating $600 or more in a single taxable year must file a 1099 form with the IRS.


This is a condensed version of the cover story of the Summer 2010 issue of Today’s Pawnbroker. To read the entire story, subscribe to Today’s Pawnbroker.

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