Impact of Health Care Bill on Businesses
On May 24, 2010 in Tax Revenues
The Health care reform bill was signed by the President on 23rd March 2010 bringing into effect, The Patient protection and Affordable Care Act. The new legislation will bring about sea of changes, especially affecting the small businesses employing less than 100 employees
The new reform, presently, does not require any employer to provide insurance to its employees. However beginning 2014, some businesses (employing 50 or more workers) would have to mandatory provide insurance coverage or else pay federal fines.
Benefits to small businesses are
° Immediate benefit : New Tax credit
° Future benefit 2014 onwards: Using Small Business Health Option Program (SHOP Exchange) for insurance premiums
A. Tax credit for small business- who are not covered by mandates of providing insurance!
If an employer does provide or is providing insurance coverage to his employees, he can claim new tax credit for the premiums paid by him, upto 35 percent for year 2010 to 2013, increasing to 50% in 2014 for any two consecutive years.
The credit is specifically targeted at helping small businesses and tax-exempt organizations that primarily employ low and moderate income workers, one can claim the maximum credit if they employ fewer workers on low wages. So if you are providing or will be providing Health coverage to employees, ensure that you meet the additional requirement laid down by the IRS, they are-
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The employer should cover at least 50 percent of the cost of health care coverage for the worker
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Have less than 25 full-time equivalent employees(FTE) for the tax year and
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Pay average annual wages below $50,000 per FTE
Further the tax credit, covers only insurance provided to the employees, owners and their close relatives are not counted for meeting eligibility requirements, and their health care expenses cannot be offset by the credit.
B. Setting up of SHOP Exchange
A key provision of the reform is setting up “small-business health options program” (SHOP exchange) in 2014. These Exchanges will be established by states, the small business and individuals would be able to purchase insurance from private insurer through these Exchange which would be “one stop shop” for researching, comparing and purchasing health insurance. SHOP exchanges provides these businesses with better negotiating power and lower their expenditure on premiums.
Timeline for Other Significant Changes:
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2010 -Young adults would be able to stay on their parent’s insurance until their 26th Birthday.
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2011 – Medicare taxes increased from 1.45% to 2.35% for high earners
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2013 – Increase of income threshold from 7.5% to 10% of AGI.
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2014- Penalties on individuals and large companies for non coverage.
Changing the rules of the game —–Eventually insurers can no longer refuse to renew or sell policies because of individual’s health status or pre-existing conditions and won’t be able to charge high rates because of health, gender or other factors.