A look at the impact health reform will have on small businesses

The Detroit Regional Chamber recently announced a Health Care Reform website for employers.

To this end, I’ve been asked several times this question: What impact will the Affordable Patient Health Care Act (APHCA), aka, Health Care Reform, have on my (small) business?

Let’s try to help you out.

A brief reminder, beginning January 1, 2014, 30 million plus Americans will have access to affordable health care.

Since the law was passed, however, there has been misinformation about what this law means, specifically in the area of entrepreneurship.

Let’s take a crack at clarifying what this means for your business.

One of the stipulations is that all individuals and small business owners will be required to have health insurance beginning in 2014; if not, you may have to pay a penalty.

According to a recent Wall Street Journal online article:

  • About 71 percent of firms with 10 to 24 employees offered health insurance in 2011 — which is down from 77 percent in 2001, and
  • 48 percent of businesses with three to nine offered insurance in 2011 versus 58 percent in 2001.

For example, if you are a sole proprietor with no employees, you will, in essence, have the same impact as if you’re an individual.  In other words, if you are a U. S. citizen or a legal resident, you will be required to have health coverage or pay a penalty.  This part of the Act  is known as the individual mandate.

In order to obtain insurance, you will have purchase it through an exchange which will be set up by the state.  An exchange simply means products and services are sold and bought, or exchanged, for a price.  The exchange will enable you to shop and select insurance based on your individual needs and is scheduled to roll out in 2014.

What happens if you don’t comply?

Then you could be penalized $695 or 2.5 percent of income — whichever is greater — once the law is fully phased in.

If you have fewer than 25 full-time employees, there are different requirements, including being eligible for a tax break if you cover at least half the cost of health insurance.  And if you have fewer than 10 full-time equivalent employees with average salaries of $25,000, you’re eligible for the full credit.

According to the Journal, that full credit is 35 percent of your contribution toward an employee’s insurance premium. And as business and wages increase, the tax credit goes down. Assuming your business hits 25 full-time equivalent employees or $50,000 in average salaries, the credit is completely phased out.

Additionally, no one has to provide insurance today; however, in 2014, only the smallest businesses will be exempt from penalties if they don’t.

If your business reaches 50 full-time equivalent employees, a penalty will kick in if you fail to provide coverage for employees who average 30 or more hours a week in a given month. The penalty is $2,000 for each full-time employee in excess of 30 full-time employees.

The Journal also confirms that buying any insurance will not enable you to avoid the penalty. Your company must provide the “minimum essential” and “affordable” coverage. This simply means covering 60 percent of the actuarial value of the cost of the benefits.

Affordable means the total premium for the coverage of the individual employee cannot exceed 9.5 percent of the employee’s household income.

If the coverage is deemed unaffordable, qualifying employees can get subsidized coverage through the tax credit on the state exchanges.

The AHCA is new and complicated and I encourage you to visit various websites from the government, the SBA and other relevant sources of information.

It’s important you begin to understand the impact this breakthrough law will have on you and your employees because 2014 will be here before you know it.