The final health care reform bill has been signed by the President. Now, businesses across the country are beginning to prepare for its impact.
While the bill is set to cost $938 billion over the next 10 years, it is set to provide insurance for an estimated 32 million more people.
Businesses won’t feel the full effect until 2014, when they are required to make the changes that would have them insure more employees. The requirements for that coverage will expand thereafter and reflect political decisions made in the future.
Small businesses with fewer than 10 employees will receive government help to meet the new requirements. If employees are making an average of $25,000, the employer will receive a 35 per cent tax credit for insurance costs. Companies with more than 10 but fewer than 50 employees can receive partial tax credits.
The higher the average salary of their employees, the fewer tax credits companies are given for insuring them. Credits are likely to benefit low-paying businesses like hair salons more than higher-paying businesses like consultancies due to their payroll differences.
Employers with 50 or more employees will have to cover at least 60 per cent of worker healthcare costs by 2014 as well. If they choose not to, they will be hit with a fine of $750 per employee; that fee will eventually be raised to $2000 a year.
The first 30 uninsured workers will not be subject to this fine. Employers who have small office staffs and large warehouse or production operations may be able to utilise this provision as a loophole to cut spending.
For all full-time employees, employers must cover 72.5 per cent of the cheapest health plan on offer, and no less than 65 per cent for plans that cover entire families.
On the high end, insurance companies that offer plans that cost more than $10,200 for an individual, or $27,500 for a family, would face a 40 per cent tax on offerings above that value. These costs will likely be passed on to consumers as the amount of high-end insurance plans decreases.
Employers are likely to start offering cheaper plans to their staff to cut spending as a result, which will pass on further deductible costs to employees.
Part-time workers are included in these initiatives, but the value employers are required to supply is based upon the amount of hours they work.
While tax credits should ease this increase in insurance costs for some companies, the costs of adding employees are likely to be higher than the tax benefits, though, of course, this is a business-by-business calculation.
By 2014, states are required to create Small Business Health Options Programs, or SHOP Exchanges, which will enable small business owners to pool together to reduce insurance costs. These exchanges should help reduce premium costs for business owners: by bringing more insurable individuals into a pool, insurance ultimately declines in cost because the risks of outliers are reduced by more people being insured. This pooling option will be open to businesses with 100 employees or fewer.
The reality is that costs are certain to rise for businesses due to the expansion in coverage, but further changes in rules on the state level may alleviate these cost gaps. As the majority of these changes won’t take effect until 2014, there is plenty of time for all American small business owners to prepare.
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