Here Comes Healthcare Reform: What SMBs Need to Know

— By Anthony Lopez

Do the words “healthcare reform” and “employer mandate” frighten you? If they do, you’re not alone. But what does healthcare reform really mean for small businesses today? And what will it mean for your bottom-line when the last of the big provisions of the law come into effect in January 2014?

Many small business owners are confused about their responsibilities under the Affordable Care Act (.pdf). A recent survey of small businesses, conducted by eHealthInsurance, found that a third (33.6 percent) believe they will be required to provide health insurance for their employees in 2014, and another third (35 percent) aren’t sure. A similar number of respondents believe they may face tax penalties for not providing group health insurance coverage.

In fact, of the more than 400 small business owners surveyed, only two will be required by the health reform law to provide coverage to employees in 2014 — or face a tax penalty for not doing so.

3 Things Small Businesses Should Know About Healthcare Reform

Small business owners may not agree with certain provisions of the Affordable Care Act, but many will find the requirements of the law less burdensome than they fear. Some may even find that health reform provides them with new tools, resources and a higher degree of flexibility when it comes to hiring and retaining the best workers.

There are three key points that small business owners should know about healthcare reform in 2014:

• You probably won’t have to provide health insurance to your employees
• If you do provide health insurance for employees, you may qualify for special tax breaks
• If you can’t afford to provide health insurance, your workers need not go uninsured

Let’s look at each of these points in more in detail.

Most Small Businesses Not Required to Provide Health Insurance

Starting in January 2014, businesses with fifty or more full-time workers (or the equivalent in part-time workers) will be required to provide health insurance for their employees. This is the so-called “employer mandate.”

Employers who meet this criterion and do not provide coverage for workers will face tax penalties that are triggered when employees turn to a state health insurance exchange to purchase coverage on their own. Companies that provide employees with especially rich health insurance benefits (“Cadillac plans”) will be required to pay an extra tax.

However, the vast majority of small businesses have substantially fewer than fifty full-time workers, and they will be exempt from the employer mandate when it comes into effect. As they can today, they will be free to provide health insurance to workers or not. And they will not face any tax penalties for not providing coverage.

Tax Breaks for Small Businesses that Provide Coverage

Small businesses that do opt to provide health insurance may be eligible for special tax deductions. If you’re a business owner with no more than 25 employees and the average annual wages you pay them are less than $50,000, you may be able to deduct up to 35 percent of what you contribute towards their monthly premiums.

This tax credit has actually been available to small businesses since 2010. Beginning in 2014, the tax credit increases to a maximum of 50 percent of the amount you contribute towards employees’ monthly premiums. Talk to your accountant to learn more.

Also beginning in 2014, owners of small and mid-sized business (with 100 or fewer workers) will be able to turn to government-sponsored online health insurance exchanges where they can get quotes from competing health insurance companies and enroll in the plan that best meets their needs and budget.

Help for Workers without Employer-based Coverage

We all know that health insurance just isn’t affordable for some small business owners. And while the increasing cost of employer-based coverage has slowed in recent years (it went up a relatively modest 7 percent in 2012, according to the Kaiser Family Foundation), it’s not likely to start going down anytime soon.

The good news is that small business owners who find they still can’t afford a group health plan in 2014 won’t have to worry about their workers going uninsured – with all the risks to personal health and company productivity that might entail.

Beginning in 2014, most people without employer coverage will be required to obtain health insurance on their own – but with government subsidies available to make it affordable for persons making less than 400 percent of the federal poverty level. And no one will have to fear being declined coverage due to pre-existing medical conditions.

There are still unanswered questions about how healthcare reform will work, and the outcome of this November’s presidential election could send the healthcare reform law back to the drawing board. But most of today’s small business owners can take comfort knowing their worst healthcare fears aren’t going to come true in 2014.

Healthcare Reform Resources

• Healthcare.gov
• Affordable Care Act Tax Provisions
• United States Department of Labor
• Consumer Reports

 Anthony Lopez is a supervisor for small business at eHealthInsurance.com.