How Health Care Reform May Affect Your Small Business
Small business owners across the country are scrambling to learn how the recently passed federal health care reform legislation may impact them. Once it is fully implemented, the new law requires every legal resident of the United States to carry medical insurance. It also requires certain businesses to provide health insurance to employees or face hefty fines.
While the details are still being worked out, small businesses wait to see if their health insurance cost may decrease as promised by the Obama Administration. Although not all of the law's provisions apply to small businesses, both owners and employees can expect changes to their health care in the upcoming years.
Short-Term Insurance Changes
The insurance mandate provisions of the health care reform law do not go into effect until 2014. Until then, there are short-term insurance changes that begin immediately. For small businesses, the most important change is the implementation of tax credits to make small business group health insurance more affordable.
According to the Small Business Administration, small businesses pay 18 percent more than large firms for the same medical coverage. To level the playing field, from 2010-2013, small businesses can receive tax credits in the following situations:
- Businesses with 10 or fewer full-time employees and an average annual wage less than $25,000 are eligible for a tax credit of 35 percent of the business contribution toward employee health care premiums.
- Tax-exempt businesses meeting the above criteria are eligible for a tax credit of 25 percent of their contribution toward employee health care premiums.
- Small businesses with fewer than 25 full-time workers and an average annual wage less than $50,000 are eligible for a partial tax credit.
In all scenarios, the business must pay at least 50 percent of the cost of its employees' medical insurance premiums.
2014 Changes to Small Business Group Health Insurance
In 2014, all businesses employing more than 50 full-time workers must offer medical health insurance as a benefit. In addition, to make low cost health insurance available to workers, the government is requiring businesses to foot the bill for at least 60 percent of the plan premium. Failure to do so results in fines of $750 as well as $2,000 in tax fees per worker. However, the first 30 employees are exempt for the purposes of calculating fines and fee costs.
To help businesses locate affordable small business group health insurance plans, states are required to set up Small Business Health Options Program (SHOP) Exchanges. Businesses with fewer than 100 employees can purchase affordable health insurance through the exchange and receive tax credits.
In 2014, the tax credits for SHOP Exchange insurance will be:
- 50 percent for businesses with 10 or fewer employees and an average annual wage of $25,000 or less.
- 35 percent for tax-exempt businesses meeting the same criteria as above.
- Partial credits to small businesses employing 25 or fewer employers and having an average annual wage of $50,000 or less.
These credits are only guaranteed for two years unless renewed by Congress before 2016.
The Obama Administration estimates that some 4 million small businesses may be eligible for $40 billion in tax relief during the next 10 years. In addition, with approximately 75 percent of the workforce employed by small businesses, it is hoped that the tax incentives will make low cost health insurance available to millions of American families.