Written By: Dennis J. Alessi
Mandelbaum, Salsburg, Gold, Lazris & Discenza P.C.
West Orange, NJ
The Health Care Reform Bill, signed into law on Tuesday, March 23, 2010, provides for a sweeping overhaul of the American healthcare system. While the Bill will have widespread impact on individuals with and without health insurance in the United States, it will also directly affect employers, both large and small. Most importantly, the Bill will have a major and immediate impact on small businesses, as a number of the provisions directly target small employers.
There are certain provisions of the Bill which, within six months, will impact the provisions of all employer-sponsored group health insurance plans. These are:
1. Annual dollar limits on covered benefits are restricted;
2. Lifetime dollar limits on covered benefits are eliminated;
3. Coverage cannot be rescinded except in very limited circumstances;
4. Coverage for dependent children up to age 26;
5. Eliminate pre-existing condition exclusions for dependant children.
Exactly how these immediate changes will affect premiums is uncertain; although the Bill affords small employers immediate financial assistance with expected increases in premiums.
Most notably, the Bill provides a tax credit to small businesses. In Phase I, starting in 2010, small businesses with no more than 25 employees and average annual wages of less than $50,000 per employee which choose (there is no mandate) to purchase health insurance for their employees will receive a tax credit. For tax years through 2013, the government will provide a tax credit of up to 35% of the employer’s contributions toward its employees’ health insurance premiums (provided the employer contributes at least 50% of the total premium cost or benchmark premium).
The full credit is available for those employers with 10 or fewer employees with average wages per employee of less than $25,000. As the business size and average wages increase, the credit begins to phase out.
Many small employers are worried that even with these tax credits, the changes will prove more harmful than helpful. First, employers with more than 25 employees or higher than $50,000 in average per employee wages do not get any tax credit. Many employees fear this provision could lead to reduction in jobs, as employers just above the limit shed employees in order to qualify for the tax credit.
In addition, because of skyrocketing health insurance costs, some employers note that it would be cheaper to avoid paying health care coverage for their employees and instead pay the $2,000 per employee fine to the government for not providing coverage. (The Bill exempts businesses with 50 or fewer employees from this fine.) Further, the tax credits are only available for six years, complicating small businesses’ long-term financial strategies, especially considering that Americans may see as much as a 13% increase in insurance premiums over the next few years.
Additionally, some employers fear that the tax credits will be offset by tax hikes to finance health care coverage for the millions of uninsured Americans. Finally, many small businesses are concerned that the larger companies with whom they do business may raise their prices in order to compensate for the mandatory insurance coverage which they are now required to provide.
However, most small employers are happy to take advantage of any tax credit and the ability to simultaneously provide health insurance to their employees. Also, almost all such employers acknowledge that some reform measures are necessary to address the rising health care costs and the shrinking pool of insured Americans. The money saved from the tax credit may be just the extra cash these small businesses need to keep them afloat during these tough economic times.