In the battle to pass some form of healthcare reform, small business is a major player. Earlier this year, Congress proposed reform bills that would put in place heavy fines on businesses that fail to provide healthcare for their employees, with the exception of those that have just a few employees. Small-business political associations in Washington quickly denounced these provisions as too burdensome for too many businesses.
Now, what's on the table for healthcare reform has changed. In early September, the Senate Finance Committee put forth a new healthcare bill that removes those penalties on businesses. Instead, it offers carrots to employers that provide healthcare, while keeping a few sticks. The bill, associated with its main sponsor, Democratic Sen. Max Baucus of Montana, seeks to expand insurance coverage through the creation of nonprofit insurance exchanges at the state level. These exchanges, under recent amendments Baucus accepted, will be open to small businesses with up to 100 employees.
Although the Senate is currently debating numerous amendments to the bill, many of the most relevant pieces that apply to small business don't seem to be points of contention. One thing is for sure: Many elements of the bill will have a profound impact on how employers seek out and pay for insurance for their employees.
Here are, from the perspective of small-business owners, some of the most important pieces of the current plan to reform healthcare.
Tax credits. The new carrots in the bill are in the form of tax credits for employers that provide their employees health insurance. But not every employer can cash in on these incentives. Only businesses with 25 or fewer employees would qualify. However, about 92 percent of small businesses with employees fall into this category, according to the SBA. There's one further qualification: The average wage of all of the business's employees must be no greater than $40,000. Most business owners will want to pay attention to how much these credits could save them, and when.
In 2011 and 2012, the bill would allow employers to deduct from their taxes an amount equal to the dollar amount the employer contributes for each employee's coverage, multiplied by a certain percentage. This percentage would be based on the amount of the employee's total premium contributed by the employer, or the average premium in the employer's state. Starting in 2013, the state insurance exchanges kick in, and the credit applies only to businesses that purchase insurance through those exchanges.
So would these write-offs revolutionize the way small businesses provide employee healthcare? Bill Rys, tax counsel for the National Federation of Independent Businesses, says expectations shouldn't be too high. The size and length of the credit—just four years—aren't high enough for businesses that are strapped for cash to suddenly consider buying healthcare. But the credit could make a difference for business owners "on the cusp"—those unsure if they can afford employee coverage. "It does provide some immediate cost relief," he says. The relief is especially large for the smallest businesses. Businesses with fewer than 10 employees and less than $20,000 in average wages get to keep the tax credit in full. For larger businesses, it begins to phase out starting in 2013.
But there are also some potential problems. If a business owner starts paying employees more and the average wage surpasses the $40,000 mark, the business could no longer be eligible for the credit. That wage requirement could make employers reluctant to give out raises. Rys says that this is a real concern, but he's not too worried. There isn't much incentive for employers to keep average wages down for the same reason that the tax credits won't have small businesses rushing out to buy health insurance. The length of the credits is just too short. "The concern would be greater if the credit were longer, but the credit is for only two years before the exchange starts," Rys says.