How Does Healthcare Reform Affect Businesses?

The sweeping federal health care reform known as "Obama-care" involves major changes to the way businesses insure their employees. Prior to Obama-care, health insurance decisions (including whether to offer health insurance at all) were largely in the hands of individual businesses themselves. Now, reforms require that businesses of certain sizes provide insurance – or else pay a penalty. Health care reform affects businesses in numerous other ways, and while many of the requirements do not become law until 2014 (the year after the next election), it pays to be aware of what lies ahead.

Businesses With Fewer Than 25 Employees

How the health care reform affects your business depends largely on how many employees you have and whether they are currently insured. Smaller businesses will generally receive assistance and tax credits as incentives to insure their own employees. In a March 2010 article, CBS News wrote that:

"Businesses with fewer than 25 employees that pay an average of no more than $40,000 will get a tax credit – up to 35 percent of the company's share of their total health care premium."

This credit – which eventually rises to 50% – represents an attempt by the government to avoid over-use and over-reliance on the government-subsidized plan which uninsured employees will, in 2014, have the option of signing up for. The more employees who receive insurance from their employers, the fewer that will require government assistance (and the lower costs will be.)

Businesses With 26-49 Employees

Mysteriously, CBS News notes, businesses with anywhere between 26-49 employees are "unaffected" by Obama-care. For these businesses, the arrival of 2014 will mean nothing in terms of practical changes related to health insurance. Whatever they were doing before (presumably) would still be legal by that time, with nothing being offered to them (in the way of tax credits) nor taken away (in the form of penalties.) Jim Garland, CEO of Sharp Details, told BusinessWeek "merely knowing that the 50-employee threshold exists may discourage growing enterprises from adding full-time employees."

Sharp Details, a private plane cleaning company based at Washington's Dulles Airport with 35 full-time employees, is already "wary" about crossing this important and looming threshold. Currently, Sharp Details grants 100% coverage to management and 50% to employees who choose to be covered. Presumably, other cost-conscious businesses could fear surpassing 49 employees as well.

Businesses With 50 Or More Employees

The bulk of Obama-care's requirements (and penalties) concern businesses with 50 employees or more. As Entrepreneur.com noted in March, these firms will be forced to either provide health insurance to all of their employees voluntarily, or else pay a penalty of $2,000 per year, per full-time employee. Should even a single employee request government assistance in purchasing health insurance, his or her employer will be stuck paying the $2,000 for every employee that it has.

Nor will just any health insurance satisfy the government's requirements. In order for the coverage an employer provides to avoid the $2,000 fine, it will have to cover "both a specific set of services and 60% of employee health costs overall." Failure to comply will result in "additional penalties" above and beyond the $2,000.

Tax Hike on High-Income Individuals

Another consequence of health care reform falls upon high-income individuals, including business owners. According to CNN Money, individuals earning over $200,000 per year (or couples earning more than $250,000) will be forced to pay a new 3.8% tax on investment income to help finance the reform package. Though 3.8% may sound too small a percentage to matter, it is substantial enough that wealthy investors could withdraw their financial support from businesses, Cox Industries CEO R. Michael Johnson warned BusinessWeek:

"The 3.8% tax on unearned income will increase the earnings requirements on [subchapter S corporations] such as Cox to satisfy the risk our shareholders take by investing in small businesses like ours.

This small percentage seems benign, due to the small number and putting it on 'unearned income,' but this income is earned. In fact, our team works hard every week to earn this income and reward the shareholders that patiently leave their capital in the business."

SHOP Exchanges

Obama-care also mandates that states set up what are known as Small Business Health Options Programs (or "SHOP" Exchanges) by 2014. SHOP Exchanges, CNN Money explains, will allow small business to pool together to buy health coverage at reduced, bulk rates. By banding together to buy larger quantities of insurance than any of the participating businesses would buy individually, the theory goes, small businesses should qualify for the preferential pricing that larger companies get.

"Small businesses", for purposes of participating in SHOP Exchanges, are defined by the reform bill as those with no more than 100 employees. States, however, will have the option of restricting pools to companies with 50 or fewer employees through 2016, while "companies that grow beyond the size limit will also be grandfathered in."

Source: contactme.com