Small-business owners who provide health insurance for their employees often have significant concerns and challenges in affording these benefits. An unfortunate combination of ailing economic conditions and rising health care premiums puts an even tighter squeeze on the small-business owner. With the cost of an average worker's health insurance plan rising to $15,000 in 2011, by the Kaiser Foundation's estimate, controlling health health care costs is an issue that is in every business's interest.
Health insurance is getting less affordable. In 2011, premiums for health insurance provided by employers rose 9 percent with wages rising a mere 2 percent to offset the increase. The Kaiser Family Foundation reported that 150 million Americans relied on employer-provided health insurance.
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act (PPACA) became law in 2010 and is scheduled to take full effect by 2014, barring successful court challenges. Before 2014, small businesses may qualify for tax credits to offset the expense of providing health insurance for employees. Businesses with up to 10 employees receive a full 35 percent tax credit beginning in 2010. For businesses with between 11 and 25 employees, the tax credit operates on a sliding scale providing a smaller credit. Businesses with more than 25 employees cannot receive a credit. Additionally, to qualify for the tax credit, businesses must pay each employee $25,000 annually or less and businesses must cover at least 50 percent of health insurance costs for employees. Businesses must use IRS Form 8941 to calculate the amount of the credit. Include the credit amount on your income tax return as a general business credit.
Health Insurance Tax
Of crucial significance to small businesses, the impending health insurance tax – often referred to simply as HIT – is expected to increase health insurance premiums. Provisions of the PPACA distribute HIT over health care providers, beginning in 2014 and increasing every year. Insurers may have to pass the cost of the tax on to consumers in the form of higher premiums. According to the National Federation of Independent Business, the financial burden of HIT will impact small businesses especially hard. The NFIB, which has been a strenuous political opponent of the bill, predicts that HIT will cause a sizable reduction in private sector employment, with 59 percent of the reduction for the small business sector.
Small businesses that want to maintain their current health insurance coverage have this option under PPACA. Companies with insurance plans in effect prior to March 23, 2010, can continue these plans and even enroll new employees in the plan. To retain grandfathered status for a health care plan, a business must submit a statement to participants that describes the benefits and the company’s assertion that the plan conforms to grandfather requirements under the PPACA. Some changes that could cause a plan not to conform to the grandfathering criteria include switching insurers, changing cost-sharing requirements, changing contribution rates and eliminating benefits for the diagnosis and treatment of some conditions.
Options for Reducing Health Insurance Costs
If your small business has been covering 100 percent of your employees’ health insurance, consider changing to an alternative plan that requires employees to pay a portion of the premiums or a plan with higher deductibles and more co-payments. In addition, a prescription drug plan that requires employees to use generic brands can also result in significant savings. Find out about specific reforms and subsidies available in your state by contacting your state insurance department.
- Kaiser Family Foundation: Rising Health Costs Are Not Just a Federal Budget Problem
- NFIB: Reform Timeline
- NFIB: PPACA's Health Insurance Tax (HIT) -- an NFIB Research CribSheet
- IRS.gov: Small Business Health Care Tax Credit for Small Employers
- NFIB: Compliance
- The Wall Street Journal: More Small Firms Drop Health Care
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