How Does The New Health Care Law (HR .33590) Affect Your Small Business

The Patient Protection and Affordable Care Act (HR.35.90) was signed into law by President Obama on March 23, 2010.  In addition to bringing coverage to a greater percentage of the population this law was intended to bring relief to small businesses.  To determine if that is the case we have to take a closer look at the individual provisions of the law that affects small businesses. 

First, a quick summary of the eight (8) provisions that affect small businesses, then some analysis.

Small Business Tax Credits:

The bill includes a sliding scale tax credit for small businesses. From 2011 to 2013, a temporary credit would be available for up to 35 percent of employer costs for employers who provide 50 percent of the cost of a health plan. The credit is limited to firms with fewer than 25 workers with wages up to $40,000. In 2014, the credit would be available only to firms that purchase insurance through the exchange. The full credit would be available to businesses with 10 or fewer workers whose average wages are less than $20,000, and it would begin to phase out for employers with 25 workers with average wages up to $40,000.  The credit would equal 50 percent of total premium cost for full-time employees.  It would only be available to a firm for two years.

Workplace Wellness:

The bill includes a provision expanding the ability of businesses to offer incentives to employees for participating in wellness activities and meeting healthy behavior targets. The bill would codify the existing regulations and expand the reward allowed for meeting wellness targets to 30 percent (from 20 percent) of the employee’s premiums.

“Medicare AMT” Payroll Tax:

Increases the Hospital Insurance (HI) payroll tax rate on wages in excess of $200,000 for an individual and $250,000 for a married couple from 1.45 percent to 1.95 percent. The tax would be effective January 1, 2013. Since the income thresholds are not indexed for inflation, this new tax will hit more and more Americans each year as inflation drives up their wages. 

Itemized Medical Expense Deduction:

A taxpayer would no longer be able to deduct medical expenses that exceed 7.5 percent of adjusted gross income. Instead, the income threshold would be raised to 10 percent. Taxpayers 65 or older, however, can continue to use the current 7.5 percent threshold, but only through 2016. The tax would be effective January 1, 2013.

$2,500 Cap on FSAs:

Contributions to a health Flexible Spending Arrangement (FSA) would be limited to $2,500 per year. The limit is not indexed. The tax would be effective January 1, 2011.

Corporate Information Reporting:

Businesses paying $600 or more during the year to corporate providers of products and services would be required to file a report with each provider and the IRS. Information reporting already is required on payments for services to non-corporate providers. The requirement would be effective January 1, 2012.

Elimination of Deduction for Expenses Attributable to Part D Subsidy:

Currently, the subsidy for an employer sponsoring a prescription drug plan under Medicare Part D is excludable from income and expenses related to the subsidies are deductible as a business expense. Under the bill, the amount otherwise deductable for retiree prescription drug expenses is reduced by the amount of the excludable subsidy. The proposal would be effective January 1, 2011.

Auto-Enrollment:

Employers with more than 200 employees must automatically Enroll employees in health coverage.

As of today more than 100 companies have applied to Health and Human Services (HHS) for an exemption to the new Health Care law.  The realization that the new law will come at a high price to business is beginning to set in.  Already businesses are experiencing increase premiums.  This is obviously not good for business.  If you’re lucky to have a growing small enterprise (given the state of this economy) you may be considering hiring new employees.  If you hire new employees and provide them with health care, you (the employer) will have to pay at least 50% of their health care cost.  You will get a 35% deduction for two years then its back to normal.  Deductions will phase out the more employees you hire and the more you pay them.  You will have to buy health care from an Exchange setup by the government for Small Businesses.