How the new law will pertain to your business
The new health care reform law contains many provisions pertaining to small businesses, and figuring it out can be tricky. Experts advise business owners to start having discussions with employees, tax advisers and other key people now.
While much of the law regarding small businesses doesn’t go into effect until 2014, there are some immediate ramifications, such as some tax credits, children being able to stay on their parents’ policies until age 26, no discrimination against children with pre-existing conditions, a ban on lifetime limits, a ban on cancelling policies already issued and for which premiums are being paid, and accountability for excessive or unjustified rate hikes by insurance companies.
Here is what small business owners need to know about how the law will affect them:
- Keep an eye on what’s going on in your state, because by 2014 states must set up Small Business Health Options Programs, called SHOP Exchanges, that will enable small businesses to join together as a purchasing pool to buy insurance.
- States can limit pools to companies with 50 or fewer employees through 2016. Those that grow beyond that will be grandfathered in. Companies with fewer than 50 workers that don’t offer insurance won’t face penalties; those with more than 50 employees that don’t offer coverage will be assessed $2,000 per full-time worker if any employee relies on government subsidies to buy coverage. The first 30 workers are excluded; two part-time employees will count as one full-time employee for penalty calculations.
- The Congressional Budget Office (CBO) predicts premiums will decrease by up to 4 percent because of the exchanges.
- Additionally, the CBO estimates tax breaks should lower the cost of insuring employees. Until the SHOP Exchanges are set up, business with no more than 25 full-time equivalent employees for the taxable year with annual average wages that do not exceed $40,000 will qualify for a small business tax credit of up to 35 percent of the employer’s contribution to purchase health insurance for employees. When health insurance exchanges are established in 2014, the tax credit will increase to 50 percent of premiums, according to information from the Association of Corporate Counsel.
- A “temporary reinsurance program” that will expire on January 1, 2014, reimburses employers or insurers for 80 percent of retiree claims between $15,000 and $90,000 for those companies that provide health insurance coverage to retirees ages 55 to 64 who are ineligible for Medicare.
- States can bar insurance companies from the exchanges if they are found to be increasing premiums without good reason.
- By 2014, insurers cannot set rates or exclude coverage on pre-existing conditions, and can only vary premiums by geographic location, age and tobacco use.
Barry Sloane, CEO of Newtek Business Services, a small business authority and nonbank Small Business Administration lender to 100,000 small business clients across the U.S., calls the new health care reform law “really complex” and says it “is going to require small businesses to have to analyze a moving target with many variables. The variables are things like tax credits, tax rates, the choices to opt out of coverage or finally begin to offer it. It’s going to require small business do an extensive analysis, which is very complicated, as they look to try to come up with a plan and a strategy.”
Carl Kleinmann, president of the human resources outsourcing firm Odyssey OneSource, says there are going to be “winners and losers” in how the new health care reform law will affect small businesses from a cost perspective. The winners: Those currently providing health care insurance to low to moderate-wage workers-the average wage is $33,000-will find the cost of doing so will be lower relative to wages, he says. The losers: Those currently not providing health care insurance. “Now they’re going to be forced to spend money, albeit a lower number than they would have to spend if they were providing it before, but it’s no longer a choice,” says Kleinmann.
One benefit of the law is that it will give small business owners the ability to compete with larger companies for quality talent, because they will also be able to attract employees by offering health care benefits, Kleinmann points out. “That’s imperative to the long-term success of any business, and for this to make sense, you have to look beyond this unemployment crisis we’re in now, because most people don’t have to look very far for qualified talent,” he says.
One drawback is going to be the administration of providing health care insurance “and pretty much everybody loses there,” notes Kleinmann. “This is going to be extremely onerous, particularly for small businesses to administer.”
Employees will have many choices, he points out. “Today, a company can say they offer Blue Cross and Blue Shield as their health carrier and everyone has to sign up for that. Now it’s more consumer-oriented, so employees can either participate in the group plan or go to the exchange on their own and buy whatever they want. There are a lot of details to be worked out on that.” If an employee opts to get health insurance on their own, “they look at it as having satisfied the requirements,” Kleinmann says. “One of the big debates right now is if you have that group plan for your company and the average age in your workforce is 30 and you have a couple of people who are 21 and just out of school, they’re probably going to go to the exchange and get it on their own because they can probably get it cheaper and be in a pool of people where the average age is 30.”
Also, young adults may still be on their parents’ plan. “The age limit is going to get bumped up to 26 years old, so there are big concerns about the viability of group healthcare going forward because the youngest, healthiest people are going to opt out and go to the exchange and leave the oldest, sickest people behind in the group plan, and that’s going to raise the cost for those people left behind in those group plans.”
What should small business operators do right now?
“If you’re currently not engaged in providing healthcare insurance, start making strategic moves in your business to prepare for the cost of health care insurance,” Kleinmann says. “If you choose not to provide health care insurance, you pay an 8 percent tax on payroll.” That will mean increasing revenues because of the cost of providing health insurance, or reducing expenses in other areas, he says.
Sloane says those companies that do provide health insurance now should start discussing the impact of the law on coverage with their health care insurance provider.
Employers also need to start discussing the healthcare reform law with employees. “The talk is different if you’re already in the health care game versus if you’re not,” says Kleinmann. “Those who are not should start talking with employees sooner rather than later. Part of that is educating them about the law. Employers don’t understand this law, so you certainly can’t expect that your employees understand it.”
It’s important to begin preparing employees for what is coming in four years and to understand their desires, says Kleinmann. “Would they all rather have the ability to go to the exchanges and get their own insurance so you pay the 8 percent penalty, or would they rather have a group plan? Most employees at this point are saying they don’t know enough to answer that question,” he says.
Kleinmann also believes that many small business owners will “make the conscious decision to pay the penalty and leave healthcare out of their business, because the smallest businesses aren’t really equipped to deal with decisions like what plan change do I make this year to try to minimize the cost of healthcare, and which of those are most powerful for my employees? Those are complex decisions, and they involve emotion. Different employees have different needs, and you could get that whole mess out of your business,” he says. Sloane also sees more businesses opting for the fine. “It’s smaller than what it would cost most businesses to insure a family of four,” he notes.
Kleinmann says experts are saying the downside is the new law will increase the overall cost of health care.
“To date, insurance carriers have had the ability to exclude coverage for certain pre-existing conditions, and in many cases they can exclude coverage for certain groups altogether because of a variety of medical conditions and underlying reasons, and whether we think that’s fair or not is not the point,” he says. “But the point is once you require insurance companies to take everything that comes at them and require them to cover things they don’t cover, the cost is going to go up. There’s just no way around that. Ultimately, this does anything but drive down the cost of health care; it just redistributes it.”
What about sole proprietors?
“Most states have small group health reform that says in any company with two to 50 employees, they are entitled to certain guaranteed issued coverage with state-mandated pricing tiers, meaning it can’t exceed a certain price point,” says Kleinmann. “But, when you have one employee, that is not group coverage, so you’re not entitled to those group reform protections. Under this new scheme with the new insurance exchange, sole proprietors with one employee are very big winners,” he says. “They are going to have guaranteed access to coverage. It’s going to put the sole proprietor in the same boat that the companies of two to 50 are in.
“If a sole proprietor buys coverage today, that person has to answer a bunch of health questions, and ultimately the carrier can either accept or deny coverage. If you are part of a group of two or more, you may have to answer those questions, but they cannot deny the group coverage. They can adjust the price, and the price is limited to how much they can increase it based on pre-existing conditions.”
If an employee is on a spouse’s health insurance plan, a business owner is still required to make those provisions to cover that employee, Kleinmann says. Additionally, family coverage will have to be made available to the employee, but a penalty would only be for the employee, not the employee’s entire family, he says.
The risk of going out of business exists for those companies that currently do not provide health care coverage, Kleinmann says. “The ones that provide it are going to get a better deal than they’ve ever gotten before,” he says. “But, the ones that don’t provide it better have 8 percent of their payroll or better be figuring out how to build that into their revenue structure. I think some will fail to do that and will go by the wayside as a result.”
Had this reform occurred three years ago, Kleinmann says he wouldn’t be concerned about “casualties” for small businesses. “But, these are tough times, and that amount of money could be the difference between life and death for some companies,” he points out.
Sloane believes the new health care reform law will require small businesses to hire a health consultant, “just the way small businesses today typically have to hire a tax consultant.” Tax consultants will also be key players in helping small business owners figure out the tax implications of their individual decisions, Sloane adds.
Like Sloane, Kleinmann views the health care reform law as a “moving target.”
“It’s not going to be a situation where you can read about it today and then know what you need to know; it will take years, and I think the next six months will be very critical because it’s going to be evolving on a weekly basis,” he says.
For instance, several states have filed lawsuits to challenge the constitutionality of the health care law. “The states are fighting this,” Sloane says. “This is a tremendous drain on state budgets. I don’t believe we’re ever going to see this law in any major form that it’s currently in.”
Carol Brzozowski is a member of the Society of Environmental Journalists and has written extensively about environmental issues for numerous trade journals for more than a decade. She resides in Coral Springs, Fla.