It’s all the buzz on the streets: “Obamacare” is going to ruin small business. The talk has centered around how the Affordable Care Act is going to run small business out of business because they must now offer health insurance to all employees.
This is a stretch of the truth.
The Affordable Care Act has very different implications for companies employing fewer or greater than 50 employees.
The Act attempts to address issues that will occur in this country without some reforms, according to the Council of Economic Advisors in 2009:
n Health care expenditures would increase from 18% of GDP to 28% in 2030 and 34% in 2040, the result of which would be rising insurance premiums and stagnating take-home wages.
n All of the rise in average compensation due to increasing productivity over time would go to health insurance, not to take home wages.
n The government would experience increased spending in Medicare and Medicaid as health care costs continued to rise.
n The number of uninsured would increase from 46 million in 2007 to 72 million in 2040.
According to the U.S. Small Business Administration, as of 2006, businesses with fewer than 10 employees made up 79 percent of total employers, businesses with fewer than 20 employees made up 89 percent of total employers, and businesses with fewer than 50 employees made up 96 percent of total employers.
According to the White House’s white paper entitled, “The Economic Effects of Healthcare reform on Small Businesses and their Employees,” firms with fewer than 20 employees accounted for 25 percent of net employment growth from 1992 to 2005. Additionally, when compared with their share of all private sector employment during the same period, the rate of job creation in firms with less than 20 employees was 40 percent greater than the corresponding rate for all other firms.
Under the Affordable Care Act, employers with fewer than 50 employees are not required to provide health insurance, nor are they required to make contributions to the federal government for those employees who seek access to new health insurance tax credits.
In fact, there are tax credits available for employers who do offer health insurance to their employees and who employ less than 25 full time equivalent (FTE) employees.
For the under 50 employee company, the big impact of the Affordable Care Act will be on entrepreneurs, or business owners, themselves, who may not be covered by insurance. The requirement for uninsured individuals to obtain health care coverage will impact the uninsured entrepreneur beginning in 2014, however, if you are eligible for the self-employed health insurance deduction or other health care related tax credits, the impact of purchasing your own insurance will be somewhat offset.
The main coverage requirements of the Affordable Care Act are as follows:
n The more than-50 employee firm will be required to offer coverage to full time employees and their dependents or face penalties.
n Coverage must be affordable and of a minimum value for certain employees.
n The Act creates state based health insurance exchanges.
n If an employee receives tax credits for exchange coverage, the employers may be subject to tax penalties.
The affordability provision of the act mandates that:
n Employee’s share of the self-only insurance premium cannot exceed 9.5 percent of W-2 wages.
Beginning in 2014, individuals and small business will be able to buy insurance through new state-based exchanges. The tax credits under the act are only available to individuals purchasing insurance through the Exchange. Open enrollment for the Exchange begins Oct. 1, 2013.
You should always contact your tax advisor when determining the impact of new legislation on your tax position. Your tax adviser can help you to determine your eligibility for available tax credits and deductions. Additionally, your tax adviser can help you to determine whether it makes more sense to purchase insurance from an insurance company or through the exchange to take advantage of available tax credits.
While I am optimistic about the impact these changes will have on our economy and health care costs, it remains to be written whether this new law will achieve its stated objective, which is to ensure that all individuals will receive health care coverage while at the same time controlling health care costs. Due to minimum coverage requirements and the tax credits available, it is plausible that the act will achieve its objective.
Jackie Compton, a certified public accountant with 20 years of experience. She runs Compton Accounting, 1555 Main St., Suite A-3, in Windsor. She can be reached at (970) 481-1286 or firstname.lastname@example.org.