There’s good news and there’s bad news when it comes to the implications of the new health care law for small businesses.
“No doubt, the law does some good things by bringing insurance to people who are sick and couldn’t afford it, and by bringing insurance exchanges and increased portability of health plans,” said Robert Graboyes, senior health care adviser for the National Federation of Independent Business. “The question is, at what cost?” Graboyes anticipates extra expense for small companies, as well as added administrative responsibilities.
How much? No simple answer applies to all small businesses. Some will save money, others will spend more on health care. The net effect may depend on just how big your small business is.
“What I want to emphasize is that every single year for the next nine or 10 years, employers need to talk with accountants, insurance brokers, attorneys,” Graboyes said, “because these rules are going to change all the time.”
BusinessNewsDaily breaks down what every small-business owner needs to know about the upcoming changes to health care laws.
- Small Business Tax Credit—Businesses with no more than 25 equivalent full-time employees whose average annual salary is $50,000 may be eligible for tax credits up to 35 percent of the cost of premiums. Employers need to pay more than half the premium for the employee to qualify. This will be a complicated calculation. The credits phase out for employers as the number of employees increases from 10 to 25 and as average salary rises from $25,000 to $50,000. Check with your accountant to see if you qualify. For the right size and type of business, this could prove to be a real cost-saver.
- Dependent Coverage Until 26—Small businesses must extend insurance to the children of their employees until those kids are 26 (previously, insurance companies could stop coverage at 23). If an adult child has access to a plan through a job or school, insurance companies can refuse coverage until 2014.
Coming Jan. 1, 2011
- Limits on Health Savings Accounts and Flexible Spending Accounts—Previously, employees could use pre-tax dollars to pay for things like over-the-counter medications. That’s no longer allowed under the new rule. And the penalty for using Health Savings Accounts for nonqualified expenditures increases to 20 percent.
- Brand-Name Drug Tax—Manufacturers and importers will have to pay a tax on brand-name drugs. This could make pharmaceuticals more expensive and drive up insurance costs.
- The Class Act: Federally Subsidized Long-Term Care—Employers can choose to participate in this program, whereby money is withheld from employees’ paychecks to fund future long-term care coverage.
- Changes for Health Plans—Health plans can no longer cap lifetime benefits for certain essential services; cannot take coverage away from employees because of fraud or intentional misrepresentation, and must eliminate pre-existing condition clauses on children.
- W-2 Reporting of Insurance Benefits—Employers will document the value of the insurance premiums they pay on behalf of that particular employee. That amount is not included in employees’ taxable income.
Coming in 2012
- 1099 Reporting—All companies will be required to issue 1099s to more vendors and providers of goods and services, beyond the independent contractors. Congress has made several attempts to eliminate this legislation because of its potential burden to businesses small and large.
Coming in 2013
- Medicare Payroll and Investment Taxes—The government will collect an additional 0.9 percent payroll tax on individuals making more than $200,000 and families making more than $250,000. These same taxpayers will pay an additional 3.8 percent on certain investment income. Robert Graboyes said that the investment income calculation is sophisticated and might best be left to the accountant. He also said that while this tax is labeled as Medicare, the funds won’t necessarily be used to shore up the Medicare trust fund.
- Medical Expenses as an Itemized Deduction—Currently, a taxpayer must have incurred expenses greater than 7.5 percent of adjusted gross income to deduct medical expenses. That figure rises to 10 percent. (While this doesn’t affect business owners, many small-business owners will be affected by this on their individual tax returns.)
- Dollar Amount Limits on Flexible Spending Accounts—Employees will be limited to $2,500 in contributions to FSAs, adjusted for inflation after 2013.
Coming in 2014, a Big Year
- Health Insurance Exchanges—States will open insurance exchanges to help individuals and small businesses (up to 50 employees) find coverage.
- Insurance Requirement for Individuals—The government will require all citizens and legal residents to obtain coverage or pay a penalty. The penalty to individuals for not doing so will start at $95 in 2014 and increase thereafter.
- Insurance Requirement for Employers—This provision would be difficult to sum up in 1,000 words, never mind this bulleted format. Suffice it to say that employers with 50 or more employees will have to provide insurance or pay a penalty. In fact, some businesses might pay a penalty even though they do provide some modest level of insurance. Penalties can be $2,000 per employee or higher (the first 30 employees are excluded). Employers may have to offer vouchers to employees if they make 400 percent of the poverty line and the health insurance costs represent 8 percent to 9.8 percent of their household income. Any businesses whose full-time equivalent of employees approaches 50 as 2014 approaches should heed Graboyes’s advice and get help from their accountants and insurance brokers.
- Automatic Enrollment—Employers with more than 200 full-time employees must automatically enroll all new employees into the health insurance plan. Employees can opt out if they don’t want coverage.
- Premium Subsidies from the Federal Government—The federal government will help families that can’t afford coverage, using a factor of the poverty line as a benchmark.
- Consistent Benefits Package—Employers will have to meet to-be-defined benchmarks for all health insurance plans.
Coming in 2018
- Cadillac Tax—The government will tax high-end insurance policies. The excise tax will apply to plans valued at more than $10,200 per individual, $27,500 per family.