By guest blogger Robert Field:
The new health reform law will directly affect small business. In fact, it will probably change things more dramatically for smaller businesses than for larger ones. Will these changes help or hurt them? The answer is a bit of both.
The good news is that under health reform it will be easier for small businesses to offer health insurance to their workers. Several elements of the law will help, but the most important one is a tax credit to help cover the cost. Starting immediately, companies with fewer than 25 employees and average wages of less than $50,000 can receive a credit of up to 35 percent of the cost of coverage. In 2014, the value of the credits rises to a maximum of 50 percent.
Small businesses have historically had more difficulty than larger firms finding affordable coverage, because they have less bargaining clout and fewer beneficiaries over whom to spread the insurance risk. Starting immediately, they can participate in exchanges in many states that permit them to pool their insurance purchasing with other firms. In 2014, they will be able purchase coverage through larger exchanges that will have even more bargaining strength. There will also be stronger regulation of insurance rates and review of premium increases that are considered unreasonable.
For small business employees, the coverage they receive will be better. There will be no lifetime or annual limits and no rescissions of coverage for anything other than fraud in the application. The terms of policies will also be subject to minimum standards.
The bad news comes in two parts. The first is that some companies will have to pay a penalty if they do not provide coverage and one or more of their employees receive a government subsidy to purchase it on their own. The penalty only applies to firms with 50 or more employees, so most small businesses will be exempt. However, this provision could discourage them from adding workers if they are close to the 50-employee threshold.
The other piece of bad news comes in the form of new taxes. The payroll tax that funds part of Medicare will rise from 1.45 percent to 2.35 percent for higher income workers. They will also face a new tax of 3.8 percent on unearned income. This is especially significant for small businesses, because they often pay out earnings to their owners in dividends rather than salary. The law also imposes a new tax on the most expensive health insurance policies starting in 2018. Finally, there are new tax reporting rules.
So, on balance, should small businesses look on health reform with enthusiasm or dread?
To a large extent, the answer depends on each firm's circumstances. However, if the law succeeds in its basic goal of extending health coverage to everyone, the American workforce should be healthier overall and individuals will be freed from the threat of losing coverage when they have it. This can lead to greater productivity, which will benefit all businesses, both large and small.
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