Small businesses catch a break this year without having to implement or change policies to comply with the new health-care legislation, but in less than eight months, businesses with more than 50 employees will have to start offering health insurance or face a fine.
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The costs associated with the reform vary, but for most businesses, adhering to the reform’s rules will be expensive not to mention, confusing.
The first issue is defining the scope of “full time employees” since some seasonal workers are exempt. The formula involves considering part timers fractionally and adding them together with full timers to determine exactly how many “employees” a business has for purposes of this law.
Tom Henry, president of RealCare Insurance Marketing in Sonoma, Calif., says the law is full of extra taxes yet to go into effect. “Overall, companies in the health insurance industry will be assessed an additional $8 billion in taxes and fees in 2014. Another $2.8 billion in fees will be assessed against pharmaceutical companies annually. And insurers will see a premium tax increase, which will likely to be passed along to consumers. Then there’s the 3.8% surtax on high income individuals and families.”
Group insurance plans will be taxed $63 per covered member per year. “A family of four on one plan results in a charge of $252 ($63x4),” In addition to assuming that cost, group rates in general will probably rise 15%-20% according to Henry. In 2018, an excise tax of 40% will be levied on employers with “Cadillac” plans.
Employees will also be impacted. If an employee takes a non-qualifying distribution from an Health Savings Account (HSA) plan, the penalty will be 20%, up from 10%. Contributions to a Flexible Spending Account for medical expenses will be limited to $2,500 per year. And also beginning in 2013, the itemized deduction threshold for medical expenses goes up from 7.5% to 10%, unless you are age 65 or older.
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“Some employees may actually be harmed by being eligible for employer paid health insurance. If an employee’s share of the premium for himself is less than 9.5% of his income, the coverage is considered affordable regardless of what he would pay should he have a family,” says.
Here’s a common example:
Employee single premium = $3600 per year
Employee 20% share of premium = $720
Employee annual income = $45,000
Coverage is affordable $45,000 x 9.5% = $4275 which is greater than $720.
In this example, Henry explains that “unfortunately this employee has a family of four. The family premium is a total of $11,500 per year (additional $7500 for the family) with no contribution from the employer. He could qualify for a subsidy of approximately $11,000 per year except that his employer offers “affordable” coverage. These employees would be far better off if the employer did not offer coverage.”
There is a sliver of silver lining however, in the form of tax credits for small employers. “The credits are higher the lower the average salary and the fewer FTEs you have. The max is 35% this year and rises to 50% of the annual premium paid for 2014. Businesses that provide health care coverage are eligible for tax credits if, for the tax year, they have 25 or fewer full-time equivalent (FTE) employees who are paid an average annual salary of less than $50,000. To qualify for tax credits, the employer must also contribute at least 50 percent toward the employee’s premium cost. Owner's salaries and owner's family's salaries are not counted in determining the average salary.”