Friday, July 30, 2010

Health Care Reform: What's in It for Small Business? - New report debunks top 4 myths about reform and small business

There has been so much negativity towards the Health care reform Bill that was passed recently that is time to look at what does the bill actually do, especially when it relates to small businesses. I want to thank Jon Bailey, Rural Research and Analysis Director at the Center for Rural Affairs for sending this INFO thru my email.

Bailey says small businesses are the dominant driver of economies in most rural places. Rural areas also have higher rates of uninsurance and underinsurance and lower rates of employer-provided health insurance. Increasingly, rural small businesses are finding it difficult to continue providing health insurance for employees. Taken together, these issues act as barriers to creating a strong rural economy built on entrepreneurial development.


The Patient and Affordable Care Act will begin to lower these barriers for many rural small businesses. While exempt from mandates requiring insurance coverage for employees, these small businesses will benefit from the tax credits provided by the law, helping make health insurance more affordable and providing an incentive for insuring small business employees.

"Too often small business has been used as a foil for opponents of health care reform. While we agree that considering the impact of reform and of skyrocketing health insurance costs on small business should be an important consideration in this debate, we also believe that it is crucial that those who want to reference small business get the facts straight, according to Bailey.

Four myths that opponents of reform most often referenced about small business and the health care bill are:

(1) Small businesses will be forced to provide health insurance for their employees or face penalties. Section 1513 of the health care reform legislation, however, exempts all businesses with 50 or fewer employees from the general employer mandate in the law, freeing them from any penalty for not doing so.

(2) Small businesses cannot afford the health insurance they are required to provide

The health insurance reform law is all gain and no pain for small businesses, particularly initially. As discussed above, Section 1513 of the law exempts all businesses with 50 or fewer employees from providing health insurance for their employees and frees them from any penalty for not doing so. Section 1421 of the law establishes a Small Business Tax Credit for those businesses who do provide health insurance for their employees in order to make health insurance more affordable and to provide an incentive for employer-provided insurance in small businesses. The initial credit exists for tax years 2010 through 2013. It is a sliding scale credit for businesses with fewer than 25 full-time equivalent employees and average wages of less than $50,000 who provide health insurance for their employees. A second credit exists for any two years beginning in 2014 when the health insurance
Exchanges begin. The chart on the following page outlines the basics of both tax credits:

(3) Small businesses should be able to pool together to purchase insurance, and the new law does not allow that.

Not true. In fact, the Health Insurance Exchange concept is based on the pooling idea. The health reform law mandates the creation of exchanges in every state by 2014and allows businesses of up to 100 employees to participate. a (Sections 1304 and 1311) The result is the creation of a health insurance pool of small businesses, their employees and the self-employed. When fully implemented the exchange will allow for more attractive insurance as a result of lower administrative costs (costs will be spread across the larger pool) and the spreading of risk across the larger pool. A larger pool will also allow annual premium volatility to moderate and enhance competition (more potential customers in the larger pool).


The law also allows states to create the Small Business Health Options Program, (SHOP), a special exchange for small businesses, either within the larger state exchange or as a separate exchange. The SHOP Exchange is designed to assist small business employers in enrolling their employees in small group health plans.
The law also enables other insurance alternatives within the exchanges that could result in small business pools or groups. The law enables establishment of state-based nonprofit health insurance cooperatives and funds such efforts with loans. Small businesses or small business organizations could presumably establish a health insurance co-op that would allow small businesses across a state to band together to purchase health insurance.

The law also allows exchanges to serve more than one state. (Section 1311) Regional, interstate or multistate exchanges may exist if the states involved permit and they are approved by the federal government. These exchanges also would be a reasonable response to criticism made by some that the law does not allow for purchase of health insurance across state lines. While the authority still granted to states may make interstate sales of insurance of dubious benefit and potentially bad policy, regional and interstate exchanges could be developed in ways that provide another insurance option to benefit small businesses.

(4) The health reform law will cause my taxes to go up.

It is true the health reform law imposes some new taxes and increases others. But the real question is who is responsible for those taxes. While each individual and business has unique circumstances that will determine tax liability, it is clear that most rural small businesses will not be affected by the tax changes contained in the Patient and Affordable Care Act. Some of those changes are:

· A new 10 percent excise tax on indoor tanning services (for services provided after June 30, 2010). This excise tax will obviously be paid only by those businesses providing indoor tanning services.

· A 0.9 percent Medicare surcharge on the wages of single taxpayers earning more than $200,000 per year and couples earning more than $250,000 per year (starting in 2013). In addition, these taxpayers would incur a special Medicare tax of 3.8 percent on unearned income (interest, dividends, capital gains, annuities, royalties and rents; tax-exempt interest and income from retirement accounts would not be considered “unearned income”). While some rural small business taxpayers may earn enough income to activate these taxes, that case will be extremely rare. The non-partisan Tax Policy Center finds that less than two percent of taxpayers with small business income are in the federal income tax brackets that include the $200,000/
$250,000 income levels.

· An excise tax beginning in 2018 on insurance companies providing “high-cost” employer-sponsored health plans, defined as those with values exceeding $10,200 for individual coverage and $27,500 for family coverage. The tax is equal to 40 percent of the value of the plan exceeding the threshold amount. This tax will likely not apply to many health plans offered by rural small businesses as the 2008 average value of health plans offered nationally by businesses with 10 or fewer employees ranged from $4,536 (individual) to $11,952 (family) and for businesses with 11 to 25 employees ranged from $3,984 (individual) to $10,51 (family).

· Fees assessed on businesses that do not provide health insurance to employees will only be charged to businesses with 50 or more employees. As explained above, that's a small fraction of businesses nationwideand even fewer in rural areas.


Conclusion

The rural economy is unique in its composition, with small businesses the dominant economic driver of economies in most rural places. Rural areas not only have higher rates of uninsurance and underinsurance, but significantly lower rates of employer-provided health insurance. And these trends are growing, as rural areas have lost jobs with higher rates of employer-sponsored health insurance while gaining jobs with much lower rates of employer-sponsored coverage since the 1990s.

With increasing insurance costs many rural small employers are finding it difficult tocontinue providing health insurance coverage for employees, exacerbating the issues of uninsurance, underinsurance, and health care costs for many rural people. Taken together, these issues act as barriers to creating a strong rural economy based on entrepreneurial development. The Patient and Affordable Care Act will begin to lower these barriers for many rural small businesses. While exempt from mandates requiring insurance coverage for employees, the tax credits provided by the law will make health insurance more affordable for businesses and provide an incentive to help insure employees.

Over time as the primary features of the law areimplemented and take effect, particularly the Health Insurance Exchanges, rural small employers will reap the benefits of pooling and larger group coverage that provides comprehensive, affordable, and continuous health care coverage for their business and their employees.

And let's be real here: This Bill will not be repealed in its entirety, despite all of the talk from Republicans of repealing this legislation. The most likely scenario will be certain parts of the legislation will be repealed or fixed. As you know there will be complaints about certain aspects of this bill from people that are deemed "unreasonable" or just flat out wrong. So in my opinion the whole bill won't be repealed, but certain provisions of the bill will.

1 comment:

michael webster said...

Nice article.

I would like to point out an additional way to access the health tax credit: combining a limited medical benefits program with a high deductible HMO.

I go through the example here: http://www.franchise-info.ca/supply_chain/2010/07/Small-business-tax-credits.html

This is a Rural Blog that provides views & insights from a Conservative Georgia Democrat

Blog Archive