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What Healthcare Reform Means to Small Business

fort worth business press

(Original source http://www.texasonthego.com/government-a-business/577-what-healthcare-reform-means.html)

By CARL KLEIMANN
March 30th, 2010

While there is much that we still don’t know and understand about healthcare reform, one thing that we do finally know is that it is a reality.  On March 23rd, President Obama signed the Patient Protection and Affordable Care Act, otherwise known as the Health Care Reform bill.  And now, the Health Care and Education Tax Credits Reconciliation Act of 2010, otherwise known as the Reconciliation bill, is working its way through the Senate and if passed, will amend numerous elements of the to the health care Reform bill that was just signed into law.  Small business owners remain unclear about when and how these sweeping reforms will affect their businesses.  

No matter what side of the debate you were on, it is difficult to argue that there are both positive and negative elements of this plan.  For small businesses, it promises to improve access to group coverage and limit the significant rate fluctuations caused by pre-existing medical conditions and group demographics.  And through the proposed insurance exchange concept, it promises to create an effective vehicle for individuals to obtain coverage outside of a group plan although it is not expected to be up and running until 2014.  This could be a significant advantage for small businesses that today, have a difficult time competing for talent against their larger competitors that offer rich employee benefit plans.

Aside from the debate on U.S. fiscal policy, it is also difficult to deny the positive impact of the newly created tax credits which are available to the smallest businesses.  From 2010 to 2013, businesses with fewer than 25 employees with average annual wages of $50,000 or less per employee are eligible for tax credits of up to 35 percent of the employer’s health insurance premium.  Beginning in 2014, eligible employers can apply for a tax credit of up to 50 percent for a maximum of two years for insurance that they purchase through a health insurance exchange.  The bad news is that these tax credits are temporary and are merely intended to help ease the transition to mandatory health care.  

So, three paragraphs into this article you may be wondering what all the fuss is about.  Well, that list is too long to cover in one article so let’s hit the high points.  First of all, if Congress’ intent was to lower the overall cost of health care, they have certainly failed.  There was no effort to improve the delivery of health care, increase competition among insurers, or limit the lawsuit abuse that is inherent in today’s system. Starting in 2010, certain reforms would increase insurance claims and therefore the cost of healthcare for small business. For example, insurance companies would be banned from selling plans that contain “restricted” annual limits and lifetime benefit maximums. This opens up coverage limits, often for costly procedures like dental services that extend over several years.  Insurance providers would also be required to cover dependents until age 26, cover all preventive healthcare services and pay for reconstructive surgery for children born with deformities. 

That brings us to the controversial mother-lode – how will we pay the estimated $938 billion tab over the next 10 years?  In fact, Susan Eckerly, senior vice president of the National Federation of Independent Business stated “this isn’t a health care bill – this is a tax bill wrapped up in health care paper.” The new law will fine businesses that employ more than 50 workers if they don’t offer “affordable” coverage to their workers.  Beginning in 2014, these businesses will have to pay $2,000 per worker if any of their employees obtain government subsidized insurance on their own.  However, the first 30 employees are subtracted from the penalty calculation and part time employees are counted under an hours-based formula.  This could be particularly challenging for restaurants and other businesses that employ low wage, part time workers.   

Finally in 2018, a 40 percent non-deductible excise tax will apply to so called “Cadillac” plans that have an aggregate value of $10,200 or more for individual coverage and $27,500 or more for family coverage.  This penalty is severe to the point that it simply won’t be feasible for most companies to provide these overly “rich” plans.           

For small businesses that currently do not provide health care, this will certainly result in a significant increase in the cost of doing business. This will likely require you to increase prices to customers or make cost reductions in other areas. Making incremental adjustments over time will be much less stressful than sticking your head in the sand until the reforms are fully implemented.   

Carl Kleimann is president of human resource outsourcing firm Odyssey OneSource, based in Euless. www.odysseyonesource.com.

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