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Health reform details for small business owners

Last week we covered how health reform will affect small business, but some small and medium-sized business owners have been asking for more specific details about their responsibilities under the new law.  This post is for them. 

Taxes

Most businesses will not have to pay any new taxes as a result of the new law.  The exceptions are:

  1. Tax on high value insurance plans (aka “Cadillac plans”): Starting in 2018, the health care bill would impose an excise tax on health plans that cost more than $10,200 annually for individual coverage, or $27,500 for family coverage.  For retirees and those in high-risk professions the threshold is even higher ($11,850 for individuals and $30,950 for families).  The tax would be 40% of the cost of the plan that exceeds those dollar thresholds.  So if an individual plan cost $11,000, the tax would only apply to the $800 above the limit.   Also, technically it’s your insurance company that’s paying the tax- but you can bet that they’ll pass on the cost to consumers.
  2. Certain industries: A few specific industries will face new taxes:
  • There will be a 10% tax on indoor tanning; and
  • There will be a 2.9% excise tax on medical device manufacturers.

For a complete list of all the taxes in the new law, check out this earlier post.

Tax-related Stuff

There are a few changes that aren’t new taxes, but do involve the IRS.  They are:

  1. Reporting Requirement: As it stands now, businesses are going to have to file a 1099 form for anyone to whom they pay $600 or more for goods and services.  Both parties want to change this requirement to ease the paperwork burden, but so far neither party’s proposals have gained enough votes to pass in the Senate.  For more on the reporting requirement check out our earlier post here.
  2. Including the cost of health benefits on W2’s: Just to be clear, this isn’t so the IRS can tax health benefits, it’s simply so employees can see how much their health benefits are worth.

Penalties

Starting in 2014, employers with more than 50 employees will have to provide decent insurance or pay a tax penalty. In calculating the number of employees in a firm, part-time employees count on a pro-rated basis (so a part-time employee working 20 hours a week would count as half of a full-time employee).  Businesses with fewer than 50 full time equivalent employees (FTE’s) are exempt from this requirement.

Here’s how the penalties work:

  • If an employer with 50 or more FTE workers does not offer health insurance, and if any full time worker is eligible for a premium subsidy through the exchanges, the employer has to pay $2,000 per FTE. The penalty does not apply to the first 30 full-time workers in a company.
  • The insurance offered by companies with more than 50 employees has to cover essential benefits (the Secretary of Health and Human Services is still determining what the minimum benefits will be), and the worker’s required contribution can’t exceed 9.5% of their income.  Otherwise, the worker can buy insurance through the exchange.  If that worker is eligible for a premium subsidy then not counting the first thirty employees, the company must pay the lesser of
    • $3,000 for each full-time worker who receives a premium subsidy through the exchange or
    • $2,000 for each full-time employee.

If, like most medium-sized business owners you already provide decent insurance to your employees, this penalty won’t really affect you.  However, it will mean that you won’t be at an unfair advantage having to compete against employers who choose not to provide insurance.

Grandfathered Plans

Grandfathered plans were already in existence on March 23, 2010, when health care reform became law, and are protected so that people who have them and are satisfied with their current coverage can keep it.  These plans lose their exemption, however, if they significantly reduce benefits or raise members’ costs.  [For more on grandfathered plans, see here.]

What this means for small business: if you already provide insurance and don’t change the plan too much, you’re exempt from a lot of the new coverage requirements under the new law.

Requirements for All Plans

Regardless of whether you choose to keep your firm’s existing grandfathered coverage, here are the requirements that your plan will have to follow, starting this month:

  • Young adults can remain on their family’s health plan until they turn 26. As we pointed out in an earlier post, this is less straight-forward than it sounds.  Technically, the law states that for “plan years” starting after September 23, young adults can remain on their family’s health plan.  If, like for many people, the plan year doesn’t start until January 1, then the child may have to wait until then to get back on their parent’s insurance.  It’s up to the employer and insurance company whether to allow the child on sooner.
  • No more lifetime coverage limits.
  • Children up to the age of 19, can’t be denied coverage because of pre-existing conditions. If your company’s health insurance includes family coverage, it won’t be able to deny coverage to kids with pre-existing conditions.
  • Starting in 2014, no one can be denied coverage based on pre-existing conditions.

Requirements for New Plans

Benefits that apply to all non-grandfathered plans, meaning that if you switch to a new plan it will have to follow these rules:

  • Free immunizations for kids.
  • Free preventive care. Preventative services include things like screenings to detect diabetes, colorectal cancer, breast cancer, high blood pressure, high cholesterol and other problems.  Plans will have to offer these services without a copay or deductible.
  • Annual limits start to phase out. Three years from now, insurance plans won’t be allowed to set annual dollar limits on coverage, but this rule is getting phased in gradually.  For now, starting on September 23, insurance companies will have to cover annual medical expenses up to $750,000.
  • Limited deductibles. Starting in 2014, deductibles for health plans in the small group market will be limited to $2,000 for individuals and $4,000 for families, unless the employer chips in to help pay deductible costs over that limit.

Exchanges

Starting in 2014, if your business has fewer than 50 employees (this number is currently open to negotiation – depending on the state you live in, it may be 100 instead of 50!), instead of going through an insurance broker, you’ll be able to purchase insurance for employees through a small business health exchange.  Starting in 2016 exchanges will be open for any firm with fewer than 100 employees (although individual states can open their exchanges to firms with fewer than 100 employees in 2014 if they choose).

According to a report by the nonpartisan Commonwealth Fund

Small businesses offering insurance to their employees through the exchanges will have better information about what health plans cover than businesses do today.

  • They can select health plans with the essential benefit package with a choice of four different levels of cost-sharing: bronze (covering an average of 60% of an enrollee’s medical costs), silver (70% of medical costs), gold (80% of medical costs), and platinum (90% of medical costs).
  • For all plans, out-of-pocket costs are limited to $5,950 (single policies) and $11,900 (family policies).
  • Deductibles for small businesses can be no greater than $2,000 for a single policy or $4,000 for a family policy.
  • Employers may provide premium support for a level of coverage (bronze, silver, gold, or platinum) and employees may choose a plan within the designated level.

Transparency

The exchanges will be required to have state Internet portals, and a Federal internet portal with comparison information posted on them, updated on a daily basis.  Instead of relying on insurance brokers to get a good deal, small business owners will be able to shop around for the best deal themselves.

There are are number of other benefits to small business in this bill.  For example, annual rate reviews of premium rate increases– to make sure that insurance companies aren’t jacking up their rates for no reason.  Insurance companies have to spend at least 80% (and in the case of larger employers 85%) of the money they take in on actual patient care.  If they don’t, then they’ll send you a rebate check.

For a more complete list of ways reform benefits small business, check out our earlier post.

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