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Your small business and health care reform Posted: December 1st, 2010

By Jim Sloan

The Patient Protection and Affordable Care Act--commonly known as federal health care reform--may affect millions of small businesses. The health reform law encourages small business owners to provide health insurance to workers and rewards small businesses that already offer medical benefits to their employees.

The cornerstone of the incentive is a small business tax credit to offset the additional costs of providing health insurance benefits. The small business tax credit may be as high as 35 percent (25 percent for nonprofit organizations) of the business' contribution toward the employee's health insurance premiums. This tax credit is available immediately.

Beginning in 2014, small businesses that buy coverage through new health insurance marketplaces called "health insurance exchanges" can claim a 50 percent tax credit for up to two years.

What small business owners should know about the health reform law

Here are a few of the key provisions of the health care reform law as it pertains to small business:

  • You can qualify for the 35 percent tax credit if you have up to 25 employees, pay average annual wages below $50,000, and provide health insurance. You also get a tax credit if you have 10 or fewer employees making average annual wages of $25,000 and you provide health insurance. To qualify for the tax credit you must pay at least 50 percent of your workers' health insurance premium costs.
  • Beginning in 2011, employers have to disclose the value of each employee's health insurance coverage on the employee's annual Form W-2.
  • Employers who provide health insurance to early retirees who are too young to qualify for Medicare may receive financial help through the Early Retiree Reinsurance Program, a $5 billion assistance program. That program ends in 2014 when early retirees qualify to purchase medical insurance coverage in the health insurance exchanges.

Health care reform aims to encourage, not penalize, small businesses

In 2014, large firms with more than 50 employees who don't offer health insurance are likely to face employer responsibility payments; however, businesses with fewer than 50 employees will not be subject to the employer responsibility payment.

According to healthcare.gov, more small businesses may be likely to provide coverage because of lower premiums and a wider range of medical insurance choices available through the health insurance exchanges.

Other changes affecting small businesses

Beginning in 2014, the state-based Small Business Health Options Program (SHOP) Exchanges will be open to small businesses with fewer than 100 employees. The SHOP exchanges are to be designed by individual states or groups of states, and are expected to make health insurance rates cheaper and to simplify the process of acquiring medical insurance coverage. In 2017 states may allow the exchanges to be open to larger companies as well.

Also in 2014, health insurance companies can no longer charge higher premiums because one member of your small workforce has a serious health condition. The new law also limits the premiums, co-pays and deductibles that can be charged to those purchasing coverage through the exchanges. The states have the option of setting up separate exchanges for businesses and individuals, and each exchange should feature a website with comparative information for policy shoppers, as well as a toll-free phone line for help.

Cost benefits anticipated for small businesses

Because small businesses frequently change insurance carriers due to fluctuating rates, the exchanges are expected to save business owners administrative costs, as well as premium costs. The Congressional Budget Office estimates that medical insurance premiums will be 14 to 20 percent lower by 2016 thanks to competition, lower insurance overhead, and increased pooling and purchasing power.