How to Make Health Care Reform Work for Your Business
Before you break into a sweat over the small business requirements in the health-care legislation signed into law last month, take a deep breath: Many of its provisions will take months if not years to go into effect. Moreover, it may never really affect you – at least not directly.
Small business owners who employ fewer than 50 worker are largely exempted from being required to provide coverage to their workers. These companies will not pay a partial tax penalty for failing to provide insurance. Businesses with more than 50 employees that do not offer coverage will be taxed based on the size of their payrolls, but the cost will be significantly less than the cost of providing insurance benefits, and the tax is not set to go into effect until the 2014 fiscal year.
Indeed, the bulk of the provisions covering small businesses don't kick in until small business group buying plans roll out at the state level. You'll hear those called "state exchanges" or SHOP exchanges – that stands for Small Business Health Option Program. These plans are designed to allow small businesses to join pools in order to reduce premiums and minimize administrative fees.
If your state fails to set up a SHOP exchange in time, the federal government will be obligated to provide an alternative, most likely one of its own. Still, that's a lot of time – four years – for the exchanges to crystallize. Political analysts and experts predict we'll see some changes in what they might entail in along the way – based both on political climate and economic factors.
"My speculation is that this health care, and specifically the state exchanges, might evolve into something different as the political landscape changes," says health care expert Bilyana Savic, president of Insurance Insights, an Ohio consulting firm. "Whatever takes place will be an evolution over the next few years, and that has yet to be seen."
Health Care Reform and Small Business: The Recent Past
Experts who support what's been dubbed "Obamacare" say even if you fret now about the costs of insuring your employees, they will thank you – and have an added incentive to stick around and not jump to a larger firm. The health-care situation for small business employees has been bleak in recent years. A report by the Council of Economic Advisers found that 99 percent of companies with more than 200 workers offered health insurance to employees in 2008. In contrast, only 49 percent of firms with between three and nine workers offered a health plan. Fully 29 percent of adult workers at companies with fewer than 25 employees were uninsured in 2007.
Expanding coverage for small business owners is one of the main reasons for passing the legislation, its supporters say. "It's about every small business owner forced to choose between insuring employees and staying open for business," President Obama said at the bill-signing ceremony in March. "They are why we committed ourselves to this cause."
Between the expansion of Medicaid, tax relief for small businesses, and state exchanges, the law is expected to provide coverage to more than 30 million uninsured Americans. All this will cost the government about $938 billion over 10 years. The Congressional Budget Office further reports that the law will reduce the federal deficit by $138 billion by 2020.
These are just estimates of course. The cost of health insurance premiums has skyrocketed by more than 130 percent over the past decade, and it is possible they will be impervious to reform efforts. That's the concern of Anthony Cancela, president of the New Jersey-based Cancela Insurance Brokerage, which serves small businesses with between one and 300 employees. His market, the New York tri-state area, already has in place many of the provisions included in the health-care overhaul, including a provision that dependent under the age of 30 need be eligible for family coverage, and he's seen rates continue to rise over recent years, making him skeptical of the plan's ability to hold costs down for small businesses.
"If you look at the legislation, in what's written in there for business, the goal is to increase the pool of businesses in each state to keep costs down, but its unclear whether the incentive is actually there for them to not opt out?" Cancela says. "If premiums keep going up, where is the money coming from?"
Health Care Reform and Small Business: 7 Key Policies
Now that the new legislation has made it through House and Senate reconciliation, certain aspects of how it will affect small businesses have become clear – but depending on the size of your outfit, the ramifications will vary tremendously. We've analyzed small business provisions of the law and created this breakdown of the rules according to the size of your company.Aside from the big question of whether small businesses will benefit from joining a state exchange, a few policies included in the overhaul will affect anyone who runs a business that subsidizes health care for employees.
Expanded dependent coverage. In as soon as six months, employer health plans that provide dependent coverage will be required to allow it up to age 26.
Ban on lifetime limits. Also effective in six months, the law prohibits insurers from imposing lifetime limits on benefits.
Annual limit ban. By 2014, annual limits on new plans in the individual market and all employer plans will be banned.
No pay-based discrimination. The law also prohibits new group health plans from establishing any eligibility rules for healthcare coverage that have discriminate against lower-wage employees.
Taxes on "excess benefit" plans. Dubbed "Cadillac" plans, health care insurance that exceeds $10,200 for individual coverage will be taxed at 40 percent on any offerings above that value.
Part-time workers count. In calculating various levels of fees for an employer not providing coverage to employees, part-time workers are counted by their hours, which are added up to equate to full-time employees. Two 20-hour per week employees, thus, would add up to a single full-time employee.
Working parents benefit. Amending the Fair Labor Standards Act, the legislation requires employers provide breastfeeding breaks – and a clean location for them – for new mothers. It is unclear whether fathers are allocated any additional child care or feeding time.
Dig Deeper: 9 Ways to Reduce Your Health-Insurance Costs
Health Care Reform and Small Business: If You're Just Starting Out
If you're self-employed or an individual contractor or entrepreneur, how the health care overhaul might affect you largely depends on your income bracket. By 2014, anyone with earnings of up to 133 percent of the federal poverty level, or $29,300 for families of four, will be eligible for coverage under Medicaid. From 2014 through 2017, the federal government will pick up the entire cost of these new enrollees before gradually transferring responsibility to state governments.
If you already have obtained private health insurance, you will no longer have lifetime limits on what insurance companies pay for your care, and annual limits will be tightly regulated, according to statements by House Speaker Pelosi. Similarly, privately-insured individuals cannot in the future be dropped from coverage should they become ill, and preventative care will be free under new plans, Pelosi says.
If, as an self-employed individual or start-up founder, you constitute a state-recognized business, you could benefit from the SHOP Exchanges, and qualify by 2014 to enter into the buying pool for state run insurance programs. But if you would indeed be considered a company, you would not be penalized for not purchasing insurance – aside from in cost of coverage and out-of-pocket expense, which could vary based on the market.
"There's going to be a lot of out-of-pocket expense when they buy into the plan," Cancela says. "There may be some advantage to the ones who are self-employed and make under the limit set, but that's yet to be determined."
There will likely be subsidies for middle-class families to help with the cost of purchasing care or insurance. But, if you make more than $200,000 a year, you'll likely be hit with additional taxes to help cover the cost of expanding Medicare.
If you aren't currently insured and cannot find a plan because you have a pre-existing condition, you could benefit soon. In less than three months the legislation says you should have access to a high-risk pool with affordable premiums. And that will operate until the state exchanges are up and running. At that time, all health plans will be banned from limiting coverage to people without pre-existing conditions.
And young entrepreneurs: if you're just starting out, and had been on your parents' insurance policy through college, you should very soon be able to stay on your parents' coverage until your 26th birthday.
Dig Deeper: The Connection Between Health Care and Start-ups
Health Care Reform and Small Business: If Your Small
Once states establish SHOP programs to enable small businesses to buy insurance, businesses with 10 or fewer full-time employees who earn less than $25,000 (on average) will be eligible for a tax credit equal to 35 percent of the premium's cost. By 2014, the tax credit increases to 50 percent for businesses with 10 or fewer employees with wages below $25,000. An analysis conducted by the Small Business Administration indicates that this program will affect a large number of private companies; in 2006, more than 75 percent of U.S. small businesses had fewer than 10 workers, according to the SBA.
Businesses with as many as 25 employees who earn up to $50,000 (on average) can receive partial credits, so long as they cover at least 50 percent of the total premium cost for their employees.
For businesses with between 10 and 25 employees, the tax credit phases out gradually based on employee counts, according to an analysis by USA Today. And the tax breaks are only guaranteed to last for the first two years during which a company buys into a state exchange. But an analysis by the non-partisan Congressional Budget Office estimates that the tax credits could lower the cost of insuring employees by between eight and 11 percent.
Kelly Conklin, whose New Jersey-based architectural woodworking business, Foley-Waite Associates, employs 11 workers, currently provides health insurance to employees and pays 85 percent of the premium. He's optimistic about the federal overhaul, enthusiastic that it could establish a universal standard for health insurance. And he's hopeful that the costs of providing health care insurance as a benefit to small business employees could be driven down, though he knows that depends largely on how the state exchanges are formed and operate.
"The state based health insurance exchange is one of those wrinkles that we'll have to see how smooths out," Conklin says. "For companies with 50 or fewer employees, that's going to give us tremendous leverage that we do not have now. That's going to provide some downward pressure."
Dig Deeper: The Case for Self-Insurance
Health Care Reform and Small Business: If You Have 50 Employees
Starting now, companies that are growing or which are already hovering around 50 employees should make sure they can document exactly how they count employees versus contract workers, temps, and full-time equivalents. That's because the possible tax benefits – and potential penalties – vary greatly for companies that fall just above and just below that threshold.
By 2014, companies with more than 50 employees will be required to offer health care. If a business fails to do so, it could face penalties of up to $2,000 per employee for every worker beyond the first 30.
That's only if the company has at least one full-time employee eligible for a premium assistance tax credit or cost-sharing reduction created by the legislation – and analysts say that eligibility isn't an easy thing to judge, meaning all larger employers could face the responsibility come tax-time.
Critics of the legislation say there is little incentive for businesses to buy into the state exchanges – and there is every reason to remain below a headcount of 50 – if costs of insuring workers rise. "If I'm a small business, I'm going to stay at 49 employees so that I don't get into that next bracket," Savic says. "If I'm already there, I'm either going to downsize so I can stay under that, or I'd consider paying the $2,000 per employee as a penalty and call it a day."
Dig Deeper: Health Care Reform Red Tape
Health Care Reform and Small Business: If You're Midsize
Employers with more than 50 workers should be aware that they will be responsible for covering at least 60 percent of workers' health care costs by the year 2014. If they fail to, they could be fined $750 per employee, and up to $2,000 per worker each year in tax fees. Thirty of the company's uninsured workers, though, will not be subject to this fine. (Of course, most organizations at this size already provide health insurance.)
One important aspect of the law to note: Larger companies should be aware that two part-time employees can be counted as one full-time employee in calculation of the monetary penalties for not providing insurance.
For companies employing 200 or more people, the new law will require that employees be automatically enrolled in health coverage – though individual employees seem to be able to opt out of coverage after their automatic enrollment. Whatever the case, if you have this many employees, you are probably already providing insurance to some degree.
Health Care Reform and Small Business: Additional Resources
The Small Business Administration has created a guide to health care for small business owners.
The office of Health and Human Service Secretary Kathleen Sebelius posted this web chat on small business and health care reform on YouTube; it features Secretary Sebelius and SBA Administrator Karen Mills.
The White House' official health care web page offers a breakdown of the new law.
The conservative National Review posted this column on the battles that lie ahead over health care.
CHRISTINE LAGORIO-CHAFKIN | Staff Writer | Senior Writer
Christine Lagorio-Chafkin is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, The San Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is a senior writer at Inc.