How Health Care Bill Affects Businesses

Now that the health care reform legislation that carries a price tag of almost $2 trillion has passed both houses and become the law of the land, many small business owners are wondering how they will be effected. For sure, they (we) can expect higher cost and more mandates from the government.

The new law will force small businesses to provide health insurance whether or not they can afford it, according to the May issue of the U.S. Chamber Magazine. Beginning in 2014 employers with more than 50 employees will be required to offer health insurance or pay a $2,000 per employee fine, if one employee receives a subsidy rather than the insurance, with the firms first 30 employees being subtracted from the penalty payment.

Businesses with more than 50 employees that offer health benefits will face a $3,000 fine for each full time employee who opts out and receives a subsidy to purchase coverage elsewhere. Part time employees who work 30 hours weekly will be considered full time under the law. The total employer penalty is copped at the maximum penalty amount it would face if it did not offer any coverage. The government will determine what the plan must cover in order to meet the law.

It is estimated that nearly 220,000 small businesses employing more than 26 million workers could be subject to the employer mandate. As premiums rise some businesses could decide that it had rather drop coverage and pay the fines. It is estimated that small businesses will pay $52 billion over ten years in penalties for not complying with the law. It is also estimated that three million fewer Americans will be covered through employer plans by 2019.

The bill imposes $569 billion in new and higher taxes on businesses and individuals. New taxes on pharmaceutical companies, medical devices and the health insurance sector will effect every American in the form of higher prices and premiums.

Upper income earners are targeted for higher tax rates. The Medicare payroll tax will increase in 2013 for individuals earning more than $200,000 yearly and couples filing jointly who earn more than $250,000. This equals $2,250 per year more for a family earning $500,000 and since thresholds are not indexed annually every year more taxpayers will be subject to a payroll tax increase.

The same households will face a 3.8% Medicare tax applied to net investment income, which captures income from dividends, capital gains and some profits from investments in partnerships and S-Corporations, according to the chamber story.

The law also curtails several positive features of the health care system designed to promote individual initiative and private sector efficiency. Caps on tax free Flexible Spending Accounts, which are used to reimburse medical bills not covered by insurance, have been cut in half to $2,500, and over the counter medications will no longer be considered a qualified medical expense.

States will be required by 2014 to offer insurance exchanges where small businesses and individuals can purchase coverage. The exchanges are restricted to small businesses with no more than 100 employees, but states will have the option of limiting pools to companies with 50 or fewer employees. State benefit mandates will apply to plans sold through the exchange.

Small businesses with fewer than 25 employees who earn less than $50,000 per year will be eligible for tax credits up to 35% of the insurance cost. However, this credit will do little to blunt new cost for businesses that previously did not provide coverage. For example, a company that pays $40,000 a year to insure employees will still face $26,000 in unsubsidized cost. The credit grows to 50% in 2014 but disappears in 2016.

If history is a guide then health care reform will probably cost businesses more than the estimates made by the chamber. This is an uncomfortable truth facing our nation.