By Linda Doell
If you don’t know what’s in the healthcare law and how it impacts your business, you’re not alone.
A Wall Street Journal survey of small businesses in June found that two-thirds of small-business owners didn’t know if their companies qualified for one of the key provisions of the law—a tax credit to offset the cost of providing insurance for their workers.
What’s more, business groups and merchants alike have said the requirements are too complex for them to want to take advantage of programs under the law. Let’s take a look at three ways the Affordable Care Act will effect your small business.
1. Small business tax credits. To qualify, companies must have less than 25 full-time equivalent workers, pay average yearly wages below $50,000 and pay at least 50% of the health-care coverage cost for their employees.
In return, small businesses get a tax credit up to 35% of its premium costs. In 2014, the tax credit rate increases to 50% of the premium costs. The tax credit will phase out for companies with average wages between $25,000 and $50,000, or businesses with employee numbers that add up to 10 to 25 full-time workers.
The government estimated 4 million small businesses were eligible for the tax credit. Just 170,300, however, claimed the tax credit in 2010, the U.S. Government Accountability Office said in a May report. Of that number, only 28,100 businesses were able to claim the full tax credit because of the average wage or full-time equivalent requirements. The rest of the businesses got a partial tax credit.
The low participation was partially due to small businesses not viewing “the credit as big enough incentive to begin offering health insurance,” the report said. “While some small employers could be eligible for the credit if they began to offer health insurance, small business group representatives and discussion group participants told us that the credit may not offset costs enough to justify a new outlay for health insurance premiums.”
The report also cited the complexity of the tax credit requirements being a deterrent to more employers seeking it.
2. Insurance mandate for small business. Beginning in 2014, businesses with more than 50 employees must either offer healthcare coverage or face paying a fine of $2,000 a year for each full-time worker over the first 30 employees if at least one of its workers is getting a tax credit for coverage.
The healthcare coverage itself must meet minimum standards or the business would risk more fines. Each state would set the minimum standards for policies issued within its borders. The states have to ensure the essentials healthcare package includes categories such as preventive care, hospital and doctor visits and maternity care.
Business groups and owners have voiced concern over the mandate, fearing it will drive up operation costs and force them to cut back on workers to make ends meet.
“Employers are left trying to financially prepare for unknown conditions such as the household income of their employees, leaving little certainty for their business,” National Federation of Independent Business President and CEO Dan Danner says in a statement. “What’s more, those employers who are in a position to expand their operations may be inhibited from doing so if they want to avoid the 50 plus one threshold of the employer mandate.”
3. Small business exchanges. By 2014, states are required to set up exchanges where small businesses can pool their resources—and therefore their buying power—to get health insurance.
Called “Small Business Health Options Programs,” the exchanges will be administered by either a state agency or a nonprofit group and be open to companies with up to 100 workers. Each state also has the option to let larger businesses buy insurance from the exchange as well.
Linda is an award-winning journalist with more than more than 20 years’ experience as a reporter, editor and blogger. Linda blogs via Contently.com.