Health Care Reform—a Benefit or Burden to Your Business?

The Patient Protection and Affordable Care Act of 2010, which was signed into law on March 23, 2010, and corrections to the Act, which were signed into law on March 30, 2010, will certainly change the health care landscape for small business owners. The big question is whether health care reform will make things better or worse. The answer—it’s too early to say, but things aren’t looking good.

What’s good

Competitive edge in hiring. Many small business owners have been unable to afford health care for their staff, which has put them at a competitive disadvantage to larger companies offering health coverage when it comes to hiring top talent. With everyone required to obtain coverage (when this rule takes effect in 2014), small businesses may be able to attract and retain good workers; individuals working for a small business who can’t afford health coverage will receive government assistance for this.

No mandate for health coverage. Congress chose to limit the burden on employers to provide affordable health coverage to those with more than 50 employees, starting in 2014. Smaller employers, while encouraged to provide medical coverage, aren’t required to do so.

What’s bad

Costs won’t come down soon. The biggest gripe among small business owners when it comes to buying coverage is cost. Unfortunately, the new law does nothing to bring down the cost now.

For some small businesses that have so-called “Cadillac” plans, starting in 2013 insurance companies will likely pass on to consumers (these small businesses) the 40% excise tax that they will have to pay.

Taxes will rise. The law has built-in tax hikes that will affect successful small business owners:

  • Starting in 2013, the Medicare portion of self-employment tax will increase by 0.9% on earned income over $200,000 ($250,000 for joint filers.
  • Also starting in 2013, there is a new unearned income Medicare contribution of 3.8% on investment income of those with adjusted gross income over $200,000 ($250,000 for joint filers).

Tax incentives are illusory. The law creates a tax credit for certain small businesses that provide health coverage for employees. The problem with the credit is that it is limited in eligibility and in time. For example, only businesses that employ 25 or fewer workers and pay them on average $25,000 or less get the full credit; a partial credit applies if workers are paid on average up to $50,000. No credit applies to firms with more than 25 employees. And the credit has a limited duration—four years under the first phase; up to two years under the second phase (only for coverage purchased through the state).

What remains to be seen

Whether the new law ultimately reduces health care costs is uncertain. By 2014, states are required to create Small Business Health Options Programs, or “SHOP exchanges.” These exchanges are intended to provide affordable health care options for small businesses. Whether this can be done, and which small businesses will qualify to use them, is unknown at this time.

How small business owners will solve their health care concerns now and in the future is anyone’s guess.

Resources:

  • There is a concise write-up of key provisions affecting small businesses at NFIB.
  • Find a timeline of provisions affecting small business from AOL Small Business.
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