The Entrepreneur's Guide to Health-Care Reform
Friday, June 18, 2010; 12:00 AM
On March 23, the face of health care in the United States changed dramatically when President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA) into law. The legislation makes sweeping changes in the nation's health-care system, including how health coverage is obtained and what it covers.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.Immediate ProvisionsThe 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.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 asection of its websiteto information about the bill, including tax credits.Help insuring early retirees: PPACA also provides $5 billion to fund the temporary Early Retiree Reinsurance Program, which will help businesses continue to provide health-care coverage for early retirees age 55 and older who are not yet eligible for Medicare. The program started June 1, and assistance is available by contacting the U.S. Department of Health & Human Services (HHS). The program will end on Jan. 1, 2014, when other options will be available through the bill's state-run exchanges.The fund will reimburse employer plans up to 80 percent of claims costs for health benefits provided to retirees, as well as their covered spouses and dependents, totaling between $15,000 and $90,000. Expenses incurred prior to June 1 in the calendar year are credited toward the $15,000 threshold. Only medical expenses incurred after June 1 or after the threshold is met, whichever is later, are eligible for reimbursement. However, a study by the Employee Benefits Research Institute estimates that the $5 billion provision will only sustain the program for two years.Grandfathered insurance plans: Starting in 2014, all employer-offered coverage will need to comply with some of the bill's basic provisions, such as pre-existing condition coverage and increased dependent minor coverage until age 27. However, the bill also "grandfathers" policies that were in place on March 23, 2010, when the bill was signed into law, as long as they don't make major changes to benefits coverage or employee contributions. "Some policies are changing to comply with the law now, before it's required. If it's a change the insurance industry is required to make to a grandfathered plan, it will not bump people out," says Amanda L. Austin, director of federal public policy for the National Association of Independent Business, a national business advocacy group with headquarters in Washington, D.C.High-risk pools: Another immediate provision in the bill is an additional $5 billion in funding for high-risk pools, which offer health insurance to those who cannot obtain coverage due to pre-existing conditions. Some states have opted not to set up their own high-risk pools and instead have opted to let the federal government set up pools they can access, says John Arensmeyer, CEO of Small Business Majority, a small-business advocacy group with headquarters in Sausalito, Calif. "Twenty-eight percent of self-employed people don't have health insurance. They should immediately check with their state's high-risk pool to see if they might be eligible to buy insurance there when they perhaps haven't been able to buy it through traditional sources," he says. That would apply primarily to self-employed people with a pre-existing condition, he adds.Compliance and fines: In navigating the health-care reform maze, size matters. Businesses that have 50 or more full-time employees and that have at least one employee who is assessed a premium tax credit--tax credits that will be available to individuals, based on income level, to offset premium costs--could face a fine of $2,000 per full-time employee beyond their first 30 full-time employees. If your company has more than 50 full-time employees, offers coverage, and has one or more employees receiving a tax credit, it will be assessed the lesser amount of $3,000 for each employee receiving a premium credit or $2,000 per employee beyond the first 30 employees.What's ComingIn addition to these immediate aspects, small businesses also need to take a look at what's coming in the years ahead, Arensmeyer says. "You need to be aware of the changes that are coming and how they're being implemented."And there are plenty more changes coming. 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 anexcellent overviewof the changes and when they take effect.What You Need to Do NowIf 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 Businesss 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."Fact or Fiction?Rumors are flying about health-care reform. Here are a few that we've heard, as well as the real deal on each.
Health-care coverage is now reported as income on W2 forms and taxed as such.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.Businesses need to start sending 1099 forms to Staples.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.Businesses that offer tanning services face a new tax.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.Employees who belong to certain religious groups, such as Muslims, Christian Scientists and Amish citizens, are exempt from health-care reform requirements.Real Deal: Unclear. 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.