The new healthcare bill will have a big impact on small companies. As changes are implemented as early as this year, small companies, from 10 to 100 employees, will find that when it comes to healthcare reform, it's anything but business as usual.
There are many pros and cons of the new legislation for small companies, depending on the company size, annual payroll and employee income. It is most interesting that companies with 26-49 employees are not eligible for tax credits or required to provide healthcare coverage for less than 50 employees, potentially slowing employment growth for the smallest companies.
To help small companies make the transition, the Healthcare Commissioner and Small Business Association will provide counseling, technical assistance, information on available affordability credits, and enrollment and plan selection assistance to small companies participating in the health insurance Exchange.
Companies that elect to offer coverage through their own group insurance plan before 2013 will have a 5-year grace period before they must meet the same requirements as government run Qualified Health Benefits Plans. Premiums for these plans can be increased for risk groups, but only if they are increased for all enrollees in same risk group.
Pros and cons of the new health care bill for small companies:
Tax Credits
The smallest companies with the lowest wage workers will get the biggest tax credit
• In 2010, companies with less than 10 employees who make an average of $25,000 a year could get a 35% tax credit.
Pros: The smallest companies will need the most help. Cons: The smallest companies with the lowest wage workers will get the biggest credit.
Smaller companies will have to pay at least 50% of employee premiums to receive credit
• 2010-2013, companies with less than 25 employees who make an average of less than $50,000 a year can earn a tax credit of up to 35% year if they contribute at least 50% of the total employee premium cost or 50% of a benchmark premium. Tax-exempt small companies that meet these requirements can earn credit up to 25%.
Cons: This may not provide enough incentive for small companies to provide coverage.
Most small companies do not get a tax break
• Companies with more than 25 employees are not eligible for a tax credit.
Healthcare Coverage
Small companies with 50 or more employees will have to provide coverage or pay
• Beginning 2014, companies with 50 or more employees must provide at least 60% of overall employee healthcare costs, including 72.5% of individual and 65% of family coverage costs. Companies that do not provide coverage, through their own plan or public Exchange, and have at least one full-time employee who receives a premium tax credit, must pay a $2,000 annual fee for each full-time employee, excluding the first 30 employees from the fee. This means a company with 51 employees would pay a $2,000 annual fee for each of their 21 employees.
Pros: With a majority of small companies paying in excess of 10% of annual operating expenses for healthcare costs, small companies may find it more affordable to pay the penalty taxes than to provide coverage for employees.
Small companies that offer coverage could pay higher taxes for subsidized employees
• Companies with more than 50 employees that do offer coverage will pay a higher tax penalty, but only if they employ low and moderate-income individuals who qualify for and accept premium subsidies. Employers will pay the lesser of $3,000 for each person receiving premium subsidies or $2,000 for each full-time employee.
Cons: This tax penalty would discourage some companies from hiring low-income workers who receive subsidies, leading to job discrimination and increased employer costs.
Companies with less than 50 employees are not required to provide coverage
• Companies with less than 50 employees will be exempt from the above penalties.
Pros: The smallest companies will save thousands of dollars on healthcare coverage.
Cons: The smallest companies may not be able to afford to grow beyond 50 employees.
Small companies will be able to pool together to buy insurance
• By 2014, companies with less than 100 employees (less than 50 in some states until 2016) will be able to pool together and buy health insurance through state run Small Business Health Options Programs, or "SHOP Exchanges."
Pros: These Exchanges are predicted to save small businesses 1%-4% in insurance costs and are more affordable than the public health insurance Exchange for employees.
Cons: If employers choose not to provide coverage, they must pay the Health Choices Commissioner (the head of the SHOP Exchange) the following applicable taxes based on annual payroll:
Does not exceed $250,000.................................... 0 percent Exceeds $250,000, but does not exceed $300,000 2 percent Exceeds $300,000, but does not exceed $350,000 4 percent Exceeds $350,000, but does not exceed $400,000 6 percent
Small companies can receive the largest tax credit for purchasing coverage through the Exchange
• 2014-2016, small companies that purchase coverage through a state Exchange can earn a tax credit of up to 50% if they contribute at least 50% of the employee premium cost. Tax-exempt small companies that meet these requirements can earn credit up to 35%.
Pros: SHOP Exchanges may provide an affordable option and encourage small companies with less than 50 employees to offer coverage.
Cons: Smallest companies with less than 50 employees, with an annual payroll between $250,000 to $400,000 per year, will pay a tax if they do not contribute to the SHOP Exchange.
In summary, small businesses will have to make some big decisions about providing employee health care coverage. The feedback from many small businesses is that it may be more affordable to pay the government imposed fines and drop their existing employee health plans. With this in mind, perhaps the more important question to ask may be, "How will the new healthcare bill will affect employees of small businesses?"