Some smaller companies have been able to find immediate benefits from the law in the form of a tax credit available to qualifying companies that offer employees health insurance. Failing to take advantage of this provision of the law can result in significant money left on the table, but many small employers have found it difficult to qualify, or they simply qualify for a much lower amount than expected.
The law allows certain companies — those that employ fewer than 25 full-time equivalent employees with an average annual salary under $50,000 — to qualify for a tax credit of to up to 35 percent of the cost of providing their workers with health insurance (this amount will increase to 50 percent in 2014). The credit phases out for average wages between $25,000 and $50,000 and between 10 and 25 full time employees.
But the true linchpin of the system is the health care exchanges, which are set to begin in 2014. These are generally state-regulated health insurance markets where individuals and small businesses will be able to shop for plans that provide comparable benefit levels, require guaranteed issue regardless of health status, prohibit annual or lifetime limits on essential benefits and limit premium variations by age.
While those factors may provide for benefits in shopping and comparing various health plans, the real question for small business is: What impact will the exchanges have on my health care costs?
Unfortunately, the answer to that question isn’t immediately obvious. For very small companies with a low-wage worker base, the answer might, in fact, be to stop offering insurance at all. This isn’t as heartless as it sounds. Low-wage workers will be eligible for significant federal subsidies to fund the purchase of individual insurance policies through the exchanges, and an employer’s decision to stop offering coverage could save enough money to provide wage increases that would offset any increased cost to workers.
For companies with more than 50 employees, the decision becomes even more complicated because those firms will face financial penalties if they do not offer health insurance that provides minimal essential coverage (meaning it covers an average of 60 percent of medical costs while charging employees no more than 9.5 percent of household income). Employers also must consider the tax benefits of employer-provided coverage versus higher wages that become taxable to employees.
Whether the exchanges will actually serve to lower the premium cost, however, will remain unknown until the health care exchanges are put in place, and insurers begin to tailor their offerings to fit the various states’ requirements.
While nobody enjoys the waiting game, the important thing to understand about the new health care law is that its impact is unlikely to match the extreme rhetoric of either its supporters or its detractors.
The law is not a silver bullet that will save money for all small businesses providing health care. But it’s likely not a massive job killer, either. As with most politically charged issues, the reality is somewhere in the middle.
For small business owners, one can only hope that good things really do come to those who wait.
Robert Glus is a health care actuary and chair of the health and welfare committee at Conrad Siegel Actuaries in Harrisburg, Pa.
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