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If you are a little confused by the details of the Affordable Care Act, signed into law on March 23, 2010 by President Obama, you're not alone. Polls on health care reform highlight misunderstandings and a variety of opinions. Some people don't like the overall philosophy, but do like some components. Others don't feel the overhaul went far enough. Regardless of your opinion, the changes are moving forward, so it's important to understand the implications on your business.
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Are You a "Small" Business?
Much of the discussion centers on the impact of health care reform on small business. In other discussions, the Small Business Administration (SBA) generally defines "small" for government purposes using number of employees and sales volumes by industry. For example, manufacturing businesses can employ 500 employees and some retail businesses can earn up to $29 million. Under the Affordable Care Act, a definition for "small" is not provided. However, the implied definition is much, much smaller, ranging from 25-50 employees depending upon the provision.
In order to dissect the impact of this sweeping legislation on small business, "The Six Ways Health Reform Will Help Small Business" posted on the official government website has been compared with the "Implementation Timeline" documented by the Kaiser Family Foundation. The results of this analysis show that the following areas will affect small business:
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A small business owner can receive a health care tax credit to partially cover premiums paid for employees effective January 1, 2010 if certain conditions are met:
- The company must have less than 25 full-time equivalent workers.
- The average annual wages must be less than $50,000.
- The employer must cover at least 50% of the cost of health care for the workers.
The credit amount is worth up to 35% of the premium costs in 2010 and increases to 50% in 2014. The exact amount decreases as average wages approach $50,000 and as the number of full-time equivalent workers approaches 25. The premiums paid must be for a plan with costs that are representative for the state.
Once you delve further into the Internal Revenue Service (IRS) rules, it is worth noting that this credit is refundable (you get it even if you don't earn income) and applies to all qualifying premiums paid during 2010 including those made before enactment. Also noteworthy, the premiums paid for owner-employees or for employees that are family members do not qualify. According to the IRS, this credit specifically targets employers with low- to moderate-income workers.
The credit is available for 2010 through 2013 and for any two subsequent years (6 years in total).
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Health Insurance Exchanges
A small business (with less than 100 employees) will be able to purchase insurance for employees through a newly established American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges beginning in 2014. It will be available to companies with more than 100 employees in 2017. The SHOP Exchanges are designed to provide more insurance plan choices and lower prices. The SHOP Exchanges will be administered by the state or a non-profit group.
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If you have more than 50 full time employees, then you will be required to offer health insurance to employees or pay a penalty, beginning in 2014. If you have less than 50 full time employees, you won't ever be required to purchase health insurance for your employees. But, your employees will be required to obtain coverage somewhere.
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Health Care Security
Employees will be able to move more freely between companies or leave an employer to start their own business. This shift will enable companies to hire talented employees that might otherwise stay at a current job to ensure continuing health care coverage for themselves or their family. The security should also spur entrepreneurship. Some health care reform initiatives impacting small business by providing health care security include:
- Effective 2010 children can't be excluded from a health care policy because of pre-existing conditions and will apply to adults beginning in 2014.
- Effective in 2010 insurance companies can't drop someone if they get sick and lifetime limits on coverage will be eliminated.
- Effective 2010 policies must allow children to remain on their parent's policy through the age of 27.
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The proponents of the Affordable Care Act contend that premium costs will be lower for a small business. Hidden taxes to cover the uninsured will be eliminated. The SHOP exchanges are expected to promote competition and lower rates. In 2014 "community rating" rules will go into effect that will prohibit insurers from raising rates to cover sick employees. Additional requirements will go into effect to reduce the administrative costs that should provide further downward pressure on costs.