How Health Reform Affects Small Businesses

(CBS)  More than half of all American workers are employed by businesses with fewer than 100 employees. Forty-six percent of them get their health insurance through work. The rest have to look elsewhere for coverage.

Will companies still offer insurance under the new health care law? CBS News correspondentJim Axelrod looked into it for our User's Guide to Health Care Reform - and found that it all depends on size.

Special Report: Health Care Reform

Last year, Allentown, Pa., businessman Dick Bus saw his health insurance costs spike 33 percent - a trend that will quickly make providing coverage unaffordable.

The new law seeks to limit those kinds of increases, while giving businesses incentives to cover more workers.

Here's how:

• Businesses with fewer than 25 employees that pay an average of no more than $40,000 will get a tax credit - up to 35 percent of the company's share of their total health care premium.

• Companies with 26-49 workers are unaffected.

• Businesses with 50 or more workers must offer coverage or pay $750 per worker. That penalty applies for every employee if even one signs up for government-subsidized insurance.

But there are potential problems. Case in point: It would be much cheaper for Dick Bus to drop the generous coverage he now offers and take the hit at $750 a head for his 120 workers. The penalty would be $90,000 a year. He's currently spending $480,000.

Bus would save $390,000, but canceling his plan would force his workers to the health plan exchange and could cost more than they're paying now. The Senate is considering an increase in the $750 penalty to prevent that scenario.

The law's benefits are clearer for Fank Hesch and the four employees at his auto shop. He provides insurance for two, and pays $4,800 a year. Under the new law, he would get a tax credit of $1,680 and he says he would roll the money into health insurance for new workers as his business grows.

At the Lehigh Valley Zoo, CEO Rick Molchany pays $189,000 to insure 21 workers.

"Our health care is in excess of 10 percent of our annual operating expense," he said.

As a non-profit, the zoo gets a smaller credit for insurance than other businesses. The savings - about $9,000.

When you add it all up, most small businesses could save up to 4 percent on what they pay for employee health insurance.

Nationally, that savings could exceed $10 billion.

More Details of the Bill:
Summary of What's in the Bill
Uninsured? What the New Bill Means for You
Already Insured? Get Ready to Pay More
Feds Eye Big Savings from Health Reform
How Health Reform Affects Small Businesses
Provisions Which Take Effect in Short-Term
Read the Text (PDF): Complete Senate Bill | Reconciliation Measure

[michaeljameswebster]

Nice article, and I agree that it is can be difficult to access the health tax credit.

But, I would like to point out an additional way to access the health tax credit: combining a limited medical benefits program with a high deductible HMO.

The limited medical benefits program generally won't qualify for the health tax credit, but wrapped with a high deductible HMO, the package may qualify and be affordable.

I go through a general example here: http://www.franchise-info.ca/supply_chain/2010/07/Small-business-tax-credits.html

[mlr1040]

As a small business owner already paying for health insurance which just keeps getting more expensive each year the tax break is a welcome relief. As an accountant I've already done the math, and this appears to be quite a large credit. We have 8 employees year round (seasonal employees don't count for the credit so I'm excluding those), 4 qualify for the credit (no officers or shareholders are eligible for this), we pay $22,795.56 a year on those 4 employees (that's only our portion of the health insurance cost because the amount they pay is through a cafeteria plan and can't be included in the calculation since there's already a tax savings there). According to what I've read we are eligibld for the full 35% credit, that's almost $8,000! If they set a cap on this of $1,000 allowed per eligible employee that would be $4,000... still a nice chunk of change and it will be a welcome relief. You'll not hear any complaints from me.

[improana]

Let's face it, the federal government is responsible for the deplorable shape of Social Security. It was a Democratically controlled Congress that voted to use the interest earned from SS investments, the same money that was originally planned to continue funding SS, to be used for their pet projects. Since that money was used elsewhere (for other entitlements) it was no longer funding SS and now estimates give the Social Security program less than 10 years before going bankrupt.

The same is happening with Medicare. Because of mismanagement and poor planning, the new health care law is cutting $500,000,000,000 (half a trillion) in Medicare benefits to try to keep that program from going belly up for a little longer. Included in the health care bill (but recently removed to get the bill passed) was the federal takeover of the student loan program and the earmarking of half a billion dollars from federal money for student loans being paid to health care making student loans and Pell grants a federally run program instead of allowing the private sector to continue funding and operating. Bet all those students who would no longer be able to afford college because of that "missing" half a billion dollars are thrilled with the new law. The federal government can't even keep the US Post Office from operating in the red. Even after the several increases in the cost of first class stamps over the last few years, the US Post Office announced they need to cut service back a day to stay in business. Maybe we would be better off allowing Fed Ex and UPS and Airborn take over the postal system completely and run it like a business.

But aside from the fiscal irresponsibility, more and more "real" Americans are NOT depending on the federal government as much for things like airports/airline safety (air travel is still down since 9/11), public education nor even police (more states are allowing gun ownership and carry concealed licenses with 36 states have reciprocal agreements for carry concealed) when the number of American citizens buying/owning firearms LEGALLY is on the rise.

There are certainly some areas where the federal government is beneficial....like providing for the common defense. But "real" Americans do NOT need Uncle Sugar Daddy taking care of our day to day lives. We do not need to be told what type of light bulbs we MUST use, we do NOT need to be told where we MUST invest our money and we do NOT need them using OUR money to bail out illegals or citizens who bought more house than they could pay for. What we DO NEED is a little more PERSONAL RESPONSIBILITY and a little voluntary charity.

[the_mick]

No Congress, Dem. or GOP, ever voted to use the interest on Soc. Sec. for pet projects. The interest earned by the Soc. Sec. Admin is credited to Social Security and it has $2 trillion in net worth right now. Social Security will NOT go bankrupt within 10 years, but it will run out of it's excess in between 2037-2042. What crackpots do you follow to get this misinformation which you pass on without checking?

[Reillybink]

The Democrats totally took the wrong road on Healthcare reform. I support the Republicans plan to open state lines, torte reform and
give Medicare/Medicaid totally to the states. Take that power out of Washington DC which will take the politics out of healthcare. States
have more effective ways to control fraud, waste and abuse. They know their hospitals, providers, pharmacies and medical supply companies and an Atty General on staff to deal with them if they falsify claims.
Take the employers out of it and let individuals shop, compare and purchase plans that suit themselves. This is the only way to get costs down. Dems just want control, power and manipulatin of our lives. We plan to vote them out in Nov and hope they repeal this takeover.

[tsigili]

The costs for everyone, are going to skyrocket, under this plan.....business and citizen, alike.

[Reillybink]

How about seniors on Medicare and how much their costs have gone up
since the Dems took control of congress in 2007? Medicare premiums, co-pays and deductibles have all gone up, some over 20%. The inpatient deductible for just one hospitalization is now at a RECORD $1,100.00 for
2010! That resets after a 60-day benefit period and may happen several times a year if the senior is re-hospitalized. Also, no cola for social security! Dems are robbing our seniors of their savings and retirement!
Seniors, vote out the democrats!! They are not looking out for you!

[mcrich3]

Do not confuse the health care bill with health care for the poor. It's primary purpose is to raise taxes and provide wealth distribution. As a small business owner with 2 restaurants, I employ 90-100 employees. My annual payroll last year was $850,000 and my salary was $45,000. Most of my employees are working while attending school and working for me because I work around their schedules and provide a positive work environment. As a result of this leglislation, I will be forced to raise my menu-prices, which will result in fewer customers, which will result in the need for fewer employees. If I don't change my business model, I go bankrupt. Of course, I've sent numerous e-mails and letters to Harry Reid and I get the same form letter back touting the benefits of this new utopian law. Harry, Obama and Pelosi are great with not letting facts get in the way of their bad judgement.

[manofmanytrades014]

Your absolutely right

[gekkobear]

"Businesses with fewer than 25 employees that pay an average of no more than $40,000 will get a tax credit - up to 35 percent of the company's share..."

So don't hire more than 25 people, and don't pay them more than $40,000? That's difficult, but manageable I suppose. Thanks for setting the guidelines.

Lets give incentives to companies to encourage them to have fewer employees that are paid less? Is this the "jobs" part of the bill I was told about? Incentives to keep fewer employees at lower pages?

Brilliant.

[mcrich3]

As a small business owner, having worked for a large Quick Service Restaurant for 30+ years, I finally got the chance to purchase my own business. With the 2000 dollar per year cost penalty (per employee) this bill will cost me $200,000 per year, not to mention the added paperwork on my 100 employees. My approach will be...
1. Increase prices by 25% 2. Reduce customers 3. Reduce employees. After sacrificing my life's savings, I just hope it works. When you see a Big Mac cost $10.00, it's not by my choice.....

[mikeoliphant]

With the passage of this bill. It appears from www.HealthInsuranceSource.net and www.AHealthInsuranceQuote.com analysis that employers nationwide will be assessed a $2,000 penalty for every employee not offered group health insurance or commonly referred to employer sponsored health insurance. Does this include part time employees that traditionally didn?t qualify or buy health insurance in the first place because of the cost vrs. Hours worked? How in the world is an employer going to absorb this cost? So if an employee doesn?t want to participate in paying their share, the employer is penalized $2,000?

[rwfromks]

I definitely believe that something is needed, but this article shows some real flaws.

First, the bill will cause employers to drop coverage, as no doubt many will if it saves them as much money as it saves that first guy.

Second, there is something wrong if the exchange system will still cost people much more than the employer-provided plan. That's no better than the current "high risk pools" that gouge people to death.

Frankly, that means this won't do squat to lower costs (which was already obvious, but now confirmed).

[BettyRita]

OhCry and jimbom121
You really miss the reality of thing. Currently those employers do not have to ensure them and they are not having to pay a penalty. Yet never the less they are paying for those employees to be insured. Why on earth would they stop insuring them now because a fine is cheaper. Health coverage will still be a way to attach good employees and with the exchanges there will be more choices for the small employers to provide that.