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Health Care Reform and Small Business

With a 219 to 212 vote, the House of Representatives finally approved the health care reform bill passed by the Senate. President Obama signed the bill on Tuesday. Whatever your politics, you’re probably wondering how exactly this bill affects you and your small business, and what the legal and tax implications are.

In the short term, not much will change the way you do business or pay taxes, as most of the major provisions don’t kick in till 2014. For the most part, small business owners will be buying insurance in the same market. However, one immediate change that could help you is the tax credit for small businesses, to help you buy insurance for your employees. For the next four years, businesses with fewer than 10 full-time employees earning on average under $25,000 a year will be eligible for a credit of 35% of their plan’s premiums. Businesses with 11 to 25 employees earning average wages under $50,000 can apply for partial credits.

More changes that will affect businesses will be implemented in 2014, including:

  • Employers with 50 or more workers (part time employees are counted toward this number) can be fined by the federal government if they don’t provide insurance for employees. The penalty will be $750 per employee, and could rise to $2000. The company’s coverage has to meet minimum benefits, covering both specific services and 60% of employee overall health costs; otherwise, additional penalties will be imposed.
  • States will have to set up Small Business Health Options Programs (called SHOPs) that allow small businesses to pool together their resources to buy insurance. These SHOPs are basically exchanges, or marketplaces, supervised by each state, where private insurance companies have to sell policies to individuals and small businesses without excluding people with pre-existing conditions. Right now, small businesses are defined as those with no more than 100 employees, but states can change their definition to 50 or fewer, and if businesses grow they can be grandfathered in.
  • The exchanges will also help those who quit or lose their jobs, or who start their own business, to move easily from their employer’s insurance to a new policy. Furthermore, if you can’t find a plan costing under 8% of your income, you’ll be eligible to buy the cheaper “catastrophic policy” which normally would only be available to those younger than 30. These options should increase your employment flexibility.
  • The tax credits in place before the establishment of SHOPs will increase to 50% of costs for the first two years that a company buys insurance through its state’s exchange. According to a CNN report, “The Congressional Budget Office predicts that the tax credit will affect about 12% of individuals covered via the small-group insurance market, lowering their cost of insurance by between 8% and 11%.”

You can use our Business Legal Check Up to make sure your business affairs are in order to prepare for these changes. You can also keep track of important and relevant information about your employees with our Employee Benefits Tracker.

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