What Small Operators Need To Know About Pending Health Care Changes and Tax Credits

OPERATOR FINANCES & INSURANCE: The National Limousine Association offers this primer on health care developments destined to affect the finances and benefit packages of almost every small business in the U.S.

WASHINGTON, D.C. -- The NLA released a rundown of health care changes, tips, and facts last week as part of its annual Day On the Hill Agenda. Absent any future repeal, the recent passage of a sweeping health care reform package will eventually trigger significant changes in health care costs and benefit structures for small businesses. Text of the primer from the Department of Treasury below:

NLA SMALL BUSINESS GUIDE TO HEALTH CARE REFORM

Health Care Reform has dominated the national attention for the past year.  Regardless of your support or opposition to reform, the health care situation for American small businesses is as follows:

• small businesses' health care costs have grown 129% since 2000,
• workers in small business pay an average of 18% more for premiums than those with larger firms, and
• only 45% of America's small businesses can afford to offer health benefits-the majority of uninsured Americans are small owners, employees, and their families.

WHAT THE HEALTH CARE REFORM BILL MEANS FOR SMALL BUSINESSES

AFFORDABLE COVERAGE

In 2014, the reform creates Health Insurance Exchanges, or competitive marketplaces, where small businesses and their employees, the self-employed, and the uninsured can purchase affordable coverage. Theoretically, small businesses will be able to pool their buying power and have access to the same quality plans only available to large firms today. Through the Exchanges, small business owners and workers can do one-stop comparison shopping for an affordable plan that offers:

• lower rates like what big businesses pay
• Stable pricing from year to year
• Lower administrative costs, and
• Choice of quality plans for employees

TAX CREDITS

Until the exchanges kick in, health reform provides $40 billion in tax credits for small businesses to help them offer employee health insurance coverage-if they choose to do so. More than 60 percent of small employers, or more than 4 million firms, will be eligible for these credits.

The tax credit is effective January 1, 2010. Small businesses that provide coverage for their workers will receive immediate help with their premium costs, and additional firms that initiate coverage this year will get a tax cut as well. This sliding-scale tax credit is worth up to 35 percent of a small business's premium costs in 2010. On January 1, 2014, this rate increases to 50 percent. Firms can claim the credit for 2010 through 2013 and for any two years after that.

To qualify for the tax credit, businesses must have fewer than 25 employees and average annual wages of $50,000 or less-and the full tax credit is available to businesses with 10 or fewer employees and average annual wages of $25,000 or less.

QUALITY COVERAGE

Starting in 2014, affordable plans in Health Insurance Exchanges will have a guaranteed set of minimum benefits-to eliminate fine print surprises that often face those who don't have the purchasing power of a large corporation or group. Health insurance reforms will mean:

• no more "pre-existing conditions" for children now, and adults in 2014
• no selective refusals to renew small business coverage,
• no more premium ratings for gender, occupation or previous illness or medical condition that unfairly drive up costs for some,
• caps on what you pay out-of-pocket, and
• no lifetime or annual caps on what insurance companies will pay for your coverage.

EXEMPTION FROM RESPONSIBILITY TO OFFER COVERAGE

In recognition of the fact that providing employee health coverage is simply unaffordable for many of America's small businesses, the reform exempts all small firms with fewer than 50 employees from the employer responsibility requirements that begin in 2014. PART TIME WORKERS COUNT AS EMPLOYEES.  The Congress claims that 96 percent of all firms in the U.S. or 5.8 million out of 6 million total firms will be exempt. Many small firms that do not currently offer coverage will be more likely to do so under reform - because of new tax credits, lower premiums, and better choices.

HELP WITH WELLNESS & PREVENTION

Small businesses that want to promote healthy behavior have access to health plans for their workers that provide free preventive care.

IMMEDIATE HELP FOR THE UNINSURED

For those small businesses with workers who have been uninsured for several months, or denied a policy based on "pre-existing conditions," a high risk pool will immediately offer insurance, and assistance to help pay the premiums. Some states are already saying they will opt out of the high risk pool because they are only initially funded by the Federal government, not permanently funded.

CONGRESSIONAL EXAMPLES:  SMALL BUSINESS HEALTH CARE TAX CREDIT -- THREE CASES

EXAMPLE 1:

AUTO REPAIR SHOP WITH 10 EMPLOYEES GETS $24,500 CREDIT FOR 2010

MAIN STREET MECHANIC:

• Employees: 10
• Wages: $250,000 total, or $25,000 per worker
• Employee Health Care Costs: $70,000

2010 Tax Credit: $24,500 (35% credit)

2014 Tax Credit: $35,000 (50% credit)

EXAMPLE 2:

RESTAURANT WITH 40 PART-TIME EMPLOYEES GETS $28,000 CREDIT FOR 2010

DOWNTOWN DINER:

• Employees: 40 half-time employees (the equivalent of 20 full-time workers)
• Wages: $500,000 total, or $25,000 per full-time equivalent worker
• Employee Health Care Costs: $240,000

2010 Tax Credit: $28,000 (35% credit with phase-out)

2014 Tax Credit: $40,000 (50% credit with phase-out)

EXAMPLE 3:

FOSTER CARE NON-PROFIT WITH 9 EMPLOYEES GETS $19,000 CREDIT FOR 2010

• Employees: 9
• Wages: $198,000 total, or $22,000 per worker
• Employee Health Care Costs: $76,000

2010 Tax Credit: $19,000 (25% credit)

2014 Tax Credit: $26,600 (35% credit)

Source: Department of the Treasury