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Small Business Quick Guide to Healthcare Reform

July 19th, 2010 :: Steven Fisher

Over the last year the healthcare landscape has changed dramatically leaving small businesses asking “how does this impact us?”. I recently came across this post from on an “entrepreneur’s guide to healthcare reform“. It provides a great run down on the specific that impact small business along with dispelling some rumors that are floating about.

Here are some excerpts from the article:

Before you worry too much about the changes, know that if your business has fewer than 50 employees, there are no penalties if you don’t provide insurance, even after the law goes into full effect in 2014. But that leaves small to midsize businesses trying to make immediate sense of the changes that are coming and prepare for them as the bill’s execution is finalized and implemented. Adding to the confusion is a rampant mix of misunderstanding and misinformation-not to mention that some elements just haven’t been finalized yet. However, there are some important facts you need to know now, as well as some that are coming at various intervals over the next several years.

On Immediate Provisions:

The bill made some “immediate” provisions to insurance policies, which need to be met within one year of the date the law was signed. Beginning in September 2010, children cannot be excluded from coverage due to pre-existing conditions. (This provision applies to adults in 2014.) Also in September, insurance companies will be prohibited from dropping insured people after they get sick, and the provision bans limits on lifetime coverage limits, prohibits policies that provide insurance only to higher-wage employees, and allows dependent children to be insured on their parents’ policies until their 27th birthdays. In all, the bill has 18 such short-term provisions affecting everything from coverage limits to Medicare.

Of course, these changes are just the start of reform. After all, the bill is approximately 2,600 pages of “broad strokes.” It will be up to the government agencies that implement and oversee the new system-such as the Department of Health and Human Services, the Internal Revenue Service, state insurance commissions, and others-to figure out how the details will be carried out. That is happening now.

At the heart of the bill are state-based exchanges called the American Health Benefit Exchanges and the Small Business Health Options Program (SHOP) Exchanges. Administered in each state by the government or a nonprofit institution, these insurance marketplaces will offer qualified health insurance options for individuals and small businesses with up to 100 employees. They will be in place by 2014. In 2017, businesses with more than 100 employees will be able to purchase insurance through the SHOP exchanges.

On Tax Credits:

Starting this year, businesses with 25 or fewer full-time equivalent employees and that pay an average annual wage per employee of less than $50,000 are eligible for tax credits for a portion of their premium contributions. These employers must contribute at least 50 percent of the premium cost. Through 2013, the tax credit will equal 35 percent of the employer’s contribution. However, that maximum will only be available to businesses with 10 or fewer employees whose annual wages average $25,000 or less. As the number and employee wage average increases, the credit amount decreases. After tax year 2014, eligible businesses that purchase their insurance through a state exchange can receive tax credits of up to 50 percent of their contributions on the same sliding scale for two years.

“There should be about 4 million small businesses that can take advantage of this,” says Hayley K. Matz, spokesperson for the Small Business Administration. Analysis by the Congressional Budget Office and Joint Tax Commission in November 2009 estimated that only about 12 percent of those with coverage in the small group market would benefit from the credits in 2016. The IRS has devoted a section of its website to information about the bill, including tax credits.

On Tax Credits:

National Federation of Independent Business analysis cites fewer deductible medical expenses, an increase in Medicare payroll taxes on wages, and self-employment income in excess of $200,000 ($250,000 joint) will increase to 2.35 percent and is not indexed to inflation, and flexible savings account contribution limits will be capped at $2,500 per year. In addition, if you offer more than “minimum essential coverage” under the law, your policy may face an additional tax to the insurance company, which will likely be passed along to you, says Arensmeyer. Employees may opt out of employer-offered plans and are then entitled to employer-sponsored vouchers that help them purchase individual policies in the exchanges.

There will also be changes at the individual level that may affect small-business owners and shareholders, including new taxes of 0.9 percent for individuals earning more than $200,000 individually ($250,000 for married couples) and a new 3.8 percent tax on unearned income, such as income from investments, real estate and business investments for high-income taxpayers. The Kaiser Family Foundation has published an excellent overview of the changes and when they take effect.

On the 50 Employee Threshold:

If you have or plan to have more than 50 employees by 2014, it’s probably a good idea to sit down with an accountant or qualified financial advisor and take a look at which provisions apply to you to begin planning for them, says the National Association of Independent Business’s Austin.

“There are several different phases of the bill, as far as implementation,” she says. “It’s important to know what is going to affect you and when it will affect you.”

Arensmeyer agrees that it’s critical for business owners to educate themselves and speak out through the channels available to them to help shape implementation. Various state and federal agencies are in the process of determining exactly how these changes will be implemented, so it’s time to make your voice heard. He encourages business owners to voice their opinions directly to government entities, including their state insurance commissioners, which will be very involved in setting up the exchanges, as well as through organizations like Small Business Majority, Chambers of Commerce, trade groups, and other business-related organizations.

“This is going to be a constant process of providing input to the states and to the federal government, which is writing regulations,” Arensmeyer says. “This is not the end of the game. This is a dynamic process and an interactive process going forward. It’s not too early to start weighing in on these issues, even though they don’t take effect until 2104.”

Dispelling Rumors:

Rumors are flying about health-care reform. Here are a few that we’ve heard, as well as the real deal on each.

  1. Health-care coverage is now reported as income on W2 forms and taxed as such. THE REAL DEAL: No. While the cost of health insurance and some other related expenses must now be reported on an employee’s W2 form, it is for information purposes only and not considered taxable income. The total is not used in calculating the individual’s tax liability.
  2. Businesses need to start sending 1099 forms to Staples. THE REAL DEAL: Maybe. Beginning in tax year 2012, if you spend $600 or more on business-related purchases with any supplier or vendor over the course of a year, you must gather that entity’s tax identification number and issue a 1099 for the total purchased. However, several of the small-business advocates and agencies interviewed for this piece are awaiting further direction from the IRS on this matter, so keep an eye on the agency’s website for updates.
  3. Businesses that offer tanning services face a new tax. THE REAL DEAL: Yes. As of July 1, 2010, there is a new 10 percent tax on indoor tanning services. Some medical devices will also be assessed new taxes. In 2013, certain medical devices will also face a new 2.3 percent tax.
  4. Employees who belong to certain religious groups, such as Muslims, Christian Scientists and Amish citizens, are exempt from health-care reform requirements. THE REAL DEAL: At this point, it appears that the exemption primarily applies to Amish citizens. However, more guidance on this matter will likely be issued by the Department of Health and Human Services.

Read the rest of the article over at


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