What the healthcare bill means for small businesses

March 22, 2010

— Christa Rapoport is the chief compliance officer for independent benefits consulting and brokerage firm Corporate Synergies Group, Inc. The views expressed are her own. —

The House of Representatives last night passed the Senate’s Patient Protection and Affordable Care Act (H.R. 3590), as well as the Health Care & Education Affordability Reconciliation Act of 2010 (H.R. 4872).

While the final details are being ironed out, now the big question is: what does that mean for small businesses?

The biggest change is that employers with more than 50 full-time equivalents (FTE’s) will be considered large employers. Therefore, the most essential compliance step is for you to identify how many full time employees (about 40 hours) or FTE’s you have working for you. Employers near the magic number of 50 FTE’s will have to make sure you accurately count your employees. Keep records for each non-exempt worker, and certain identifying information about the employee and data about the hours worked and the wages earned.

Once you understand your employee count, you can determine your options or penalty calculations. You may want to analyze your employee count on a quarterly or monthly schedule based on how close you are to the federal goal post of 50 FTE’s.

Employer coverage mandate (“pay or play”)

Large employers will have to make available to all employees a minimum level of coverage or pay a per-employee penalty (fee). Employers will not be required to provide coverage for part-time employees, but these employees may be counted as partial employees for purposes of determining whether an employer has 50 employees. The bill is still unclear as to how employees will be counted and what formula will be used, but it looks like the real “number” to be counted will be a baseline of total hours worked by all employees. For that reason, keep accurate time records as described above. If the employer offers coverage but employees are forced to purchase insurance through the state-based exchanges because the employer’s coverage is not affordable, the employer must pay separate fees. This “Pay or Play” provision goes live in 2014 upon the creation of the state-based exchanges. Once the exchange is established, it can:

– Assess employers with more than 50 FTE’s that do not offer coverage and have at least one full-time employee who receives a premium tax credit a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. For example, an employer with 50 employees will pay a penalty of $40,000 (20 times $2,000) for not offering coverage.

– Employers with more than 50 FTE’s that offer coverage but have at least one full-time employee receiving a premium tax credit, will pay the lesser of $3,000 for each employee receiving a premium credit or $750 for each full-time employee. (Effective January 1, 2014)

– Exempt employers with 50 or fewer FTE’s from any of the above penalties.

– Require employers that offer coverage to their employees to provide a free choice voucher to employees with incomes less than 400 percent federal poverty level whose share of the premium exceeds 8 percent but is less than 9.8 percent of their income and who choose to enroll in a plan in the Exchange. The voucher amount is equal to what the employer would have paid to provide coverage to the employee under the employer’s plan, and will be used to offset the premium costs for the plan in which the employee is enrolled. Employers providing free choice vouchers will not be subject to penalties for employees that receive premium credits in the Exchange. (Effective January 1, 2014)

Creation of state healthcare exchanges

Small businesses and individuals would have the choice of buying health insurance through state-based exchanges. The exchanges are expected to offer easy-to-understand competitive benefits at affordable prices. Some small businesses and individuals may be eligible to receive credits toward the purchase of insurance through the exchanges. The exchanges will begin in 2014.

Limitation on employee contributions to healthcare flexible spending account

Employees would be limited to an annual contribution of $2,500 to health care flexible spending accounts. One downside is that employers would no longer be permitted to reimburse employees for over-the-counter medication under flexible spending arrangements. For example, over-the-counter cough and allergy medicine that can now be paid under flexible spending arrangements will now be paid out of pocket by employees with post-tax dollars. This provision is effective at the beginning of 2011 in the Senate bill, but the House bill would delay the effective date to 2013.

Elimination of preexisting condition exclusions and lifetime limits

Group health plans and insurers will no longer be permitted to exclude coverage for preexisting conditions or place lifetime limits on coverage. Lifetime limits are prohibited effective six months after enactment of the legislation. Preexisting conditions exclusions must be eliminated for dependent children within six months of enactment and must be completely eliminated by 2014.


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This is not bad stuff… it is not that different in outcome from what a lot of other countries do. For health care to be made nearly universal there has to be some forcing of the issue or it doesn’t get done!

Posted by waveonshore | Report as abusive

I know a despot employer who avails himself of every wage limiting device he can find. His most recent play was to get good press from the local paper by offering employment to the elderly in the area. His “cradle to grave” minimum wage plan is now threatened by legislation. He’ll just make everyone a part time employee. That way he can keep driving his $80,000 sports car to the office and rub it in the faces of the people who bought it for him.
Am I a whiz kid for thinking of this or merely an immoral ass? In this society, I’d get a raise and a cool dinner for having an idea like that. Shame on this society!!!

Posted by Doc00001 | Report as abusive

I agree with Doc, there will be a lot of employers who will just cut peoples hours so they don’t meet the criteria. Look at what they have done with credit card rates, and penalties, etc, since they announced the plans to change it. The credit companies just changed it all, before the law went into effect. There should be some type of retroactive clause in these bills, if companies make changes from time of announcement to time of effect, if it is concluded that they did it to circumvent the new law coming into being, then they would be forced to reinstate rates, hours, etc, to that before the announcement of a bill coming. Also include a nice hefty fine, that could not be passed onto the consumer or employees.

Posted by RedneckTech | Report as abusive

Actually this is pretty terrible. What it ultimately means is a transfer of wealth between classes. The successful people need to pay more while the unmotivated people receive more handouts. Typical of the US to cater to the lowest common denominators of society. To force all of this on us is also just more government involvement in our daily lives. Something that is always a good thing right? And universal healthcare is so successful in other countries right?

And Doc, I’m not sure what the healthcare “reform” bill has anything to do with an employer that has bad employment practices. There are laws in place that need to be utilized to deal with those sort of practices or people need to go find a new job or even better, how about reverse the press on him and speak out against what he’s doing.

Posted by sheepherder | Report as abusive

The operative word is “must.”
This is a transfer of wealth from individuals and small businesses to large corporations.
Worse it is a transfer for a product that is so defective that people refuse to buy it.
It provides no benefits to anyone.
I applaud the AG’s who are standing against this violation of Am 10.
I wish New York’s AG would join them, if only because this statute preempts the New York regulatory scheme that serves New Yorkers well. (Ever wonder why some insurers won’t do business in NY. Because they can’t get away with stuff here.)

Posted by Miriamac | Report as abusive

Employers that spend their time worrying about gaming the system are not running good businesses to begin with, the sooner they get out of the market the better.

The delay will allow time for pooled insurance companies to pop up with new business models that should blow away the old school health insurers just like Amazon is eating Barnes and Nobles, creative destruction is the real free market force.

Good for businesses and consumers alike.

Posted by jstaf | Report as abusive

How exactly do they intend to bend costs with this??? I haven’t seen one thing that doesn’t scream “expansion of third party payment.” This is total amateur hour. Everyone from the Rolling Stones to RedState recognizes that over-utilization is causing inflated health care costs. So what do they do, they cap HFSAs and stack more people between the patients and their doctors. Since when did people ever decide to be efficient when spending other peoples’ money. Sure this program might eventually stem the over use of health care, but it is going to be done through rationing rather than smart choices.

Posted by wustl07 | Report as abusive

[…] What The Healthcare Bill Means for Small Businesses Reuters […]

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Not sure how many small businesses will actually benefit from this reform. These bills are not going to drastically impact the bottom line of most small companies. By not addressing skyrocketing health costs business owners will have to deal with annual premium increases of 20-30% for the foreseeable future. Those premium increases will be far larger than any benefit from the tax breaks or pools.

http://www.altruance.com/2010/03/health- insurance-reform-small-business-impact/

Posted by altruance | Report as abusive

Small businesses with less than 50 people are exempt from the penalties.

Large businesses should at least offer health care plans for their employees to ensure that they don’t have to be paid for by the government.

Sounds good to me. And CAT, who was claiming that this was going to cost them $100m / year was up 6% yesterday. I’m wondering exactly how much of this is political posturing…

Posted by Kumicho | Report as abusive

I am concerned any time the government mandates anything. If I were a small business owner, I too would cut hours, but increase my employees pay so that they would make the same amount. This could easily be achived by dropping them by 5 hours and increasing their hourly pay to compensate.) I waould also explain to my employees that I am doing this so I would not be forced to lay anyone off. I feel bad for not being able to offer insurance to my employees anyway, but that if we want to keep the business open and continue getting a paycheck then this is the only way I can figure it out. Also, my employees and many that I know of would be and are partial owners in the company, so bottom line is not only do they lose their job, but they lose any extra profit the company might make.

Posted by girlzsmommy | Report as abusive

well obamanomics has passed!im a small business my employees are commissioned workers no one works more than 60 hrs in a2wk period.do i have to provide insurance!or will people be forced to live in their means no blackberry~!nails pack lunch oh i forgot its not 1970!obamanomics how bout old fashion work ethic!

Posted by trybno | Report as abusive

I have a friend who works for a small company. Less than 25 employees. Average wage about 25k They offer to pay 1/2 of employee insurance premiums. This is a Bluecare insurance with dental, medical, prescription, vision, & life. The coverage is good. However, when the employer worked up my freinds payment amount it is almost double what my he can purchase this same coverage for by himself. Therefore, we firmly believe the company doubled the amount just to say they were paying 50% when they weren’t. My friend also took information on this 2010 new health care tax credit of up to 35% of the premiums a couple of weeks ago and they have yet to reply with any information on what the new premiums would be. I have also visited numerous web sites on what this really means for my friends premiums and it is so complex that tax specialists are recommended and most employers will not want to deal with the credit. If employees are not told clearly and in detail how this changes their premiums, employers will not implement this. Who gets the “up to 35%” off their premiums???

Posted by Ronnie9970 | Report as abusive

[…] applicable, only if, a low or middle income employee picks a health plan, off the state exchanges (Reuters). Also, if small businesses shop for health insurance off a state exchange, they can save on […]

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