New Health Care Bill and Impact on Small Business
Of more importance however is the impact the healthcare changes will have on small businesses in the country. On a general note employers with more than 50 full time equivalent employees will be required to provide health insurance for their employee or they will be fined 2000 for every employee for every year a worker receives federal subsidies. Businesses with 50 or more full time equivalent employees will not qualify for most of the small businesses incentives while those with less than that will be considered small and medium businesses. On the other hand small businesses with less than 25 employees whose average annual wages are less than 50,000 will be eligible for tax credits of up to 35 for providing health insurance to their employees (Julie Pace 1). The Whitehouse estimates that 4 million small businesses will benefit from the credits (Julie Pace 1).
Small and Medium Business
Besides the US having the highest number of big corporations that feature in fortune 500, its by and large driven by small businesses. According to the U.S. Small Business Administration (SBA), small businesses account for 52 of all workers in the United States. The organization further estimates that 19.6 million people in the US work for companies employing fewer than 20 workers. Additionally, 18.4 million Americans work for companies employing between 20 and 99 people and finally, 14.6 million people are employed by companies with 100 to 499 workers. Estimates by the SBA show that 47.7 million workers in the US are employed in firms with 500 or more employees. The number of people employed by the largest corporations is therefore less than that of people employed by small businesses in the US. The SBA figure concur with US Census bureau 2004 statistics that confirm that over half of businesses in the united states are firms employing less than 500 people. The USCB further said that by 2004, majority of the firms that employed less than 500 people were in the less than 20 employees category. Because of its importance as suggested by the figures, many people will be touched by the changes that will be effected by the health bill.
General overview of the healthcare bill
The healthcare bill has come to effect and with it, drastic changes in the healthcare industry. Its provisions touch on both business and non business entities. Insurance companies have been bared from denying coverage based on pre-existing conditions. They have also been barred from charging discriminatory premiums based on patient history or on grounds like gender. One that touches on employers and businesses for that matter is the provision that requires employers to provide healthcare coverage for their employees or risk paying surtax on the employees wages.
Small Businesses and Healthcare What the new Law Means
The healthcare bill as said above targets businesses and employers in its pursuit of extended coverage. The bill as said above does not consider employers with more than 50 employees to be small businesses. They therefore are eligible for penalties and fines proposed in the new law. In the bill employers who have more than 50 full time equivalent employees and do not offer coverage and happen to have at least one employee that receives tax credits may be fined 40,000(Christa Rapoport, 1). That excludes the first 30 employees in the assessment. Again employers that have more than 50 full time equivalent employees and who offer coverage but happen to have at least one employees receiving tax credits amounting to 750 will pay 3000 for each employee(Healthcare Meaning, 1). Small businesses that have less that 35 employees are exempt form the above penalties.
The bill enables small businesses to buy healthcare insurance through state based exchanges. The advantages of the exchanges will mainly suit small businesses and individuals. Small businesses will be able to obtain negotiated benefits at affordable costs (Healthcare Meaning, 1). By purchasing insurance through the state exchanges, some small businesses may be eligible to receive tax credits. According to organizing for America, employers who choose to offer employees health insurance can receive tax cuts of up to 35 of premiums this year, and up to 50 in 2014. More than 60 of small employers will be eligible for these tax cuts (Organizing for America, 1). The CBO estimates that by the year 2019, the tax credits will have saved the small businesses over 40 billion. Another feature that highlights the benefits carried in the healthcare reform bill is the fact that both small for profit and for not profit organizations will be eligible for the tax credits. According to the white house, not for profit organizations will qualify for a 25 tax credit in the year 2010 and the rate will increase to 35 in 2014(1).
Small Businesses should work with the bill
The bill largely comprises give and take measures for businesses. For small businesses any attitude towards it will be influenced by the effect the bill will have on their costs. In a free market economy, most employers, businesses and consumers would rather be left alone to make their choices according to need, preference and affordability. Both merits and demerits of the bill will be explored to prove its usefulness to small businesses.
Disadvantages
Some small business owners have questioned why healthcare should be tied to ones employment. Many small business owners have been on record saying that they are uncertain how the bill will affect them. The bottom line is, if there is uncertainty, hiring new staff is difficult for business especially small businesses and that greatly affects their growth and expansion plans (Leslie Kwoh 1). The most commonly cited disadvantage is the fact that the federal government is forcing people and businesses to buy healthcare insurance. Its somehow thought to be a boon for insurance companies because no matter what, they are going to net an additional 32 million subscriptions.
In New Jersey for instance, the state chamber of commerce says that most of its member business provide health coverage to their employees. The states chapter of National Federation of Independent Business says that the average annual wage for their employees is 27,000 therefore meaning they will not qualify for the tax incentives (Leslie Kwoh 1). The Association of Builders and Contractors of New Jersey said the industry was battling record unemployment and new mandates for employers will escalate matters (Leslie Kwoh 1).
Some industries have been singled out in the bill for some negative measures. Tanning salons have been slapped with an increment of 10 tax on their sales to contribute to their healthcare costs. Only construction industries with five or fewer employees are exempt from the 2014 coverage mandate (Carol Tice, 1). In restaurants the law will consider two part-time employees as one full time worker. In the above scenarios the mandate may prove too costly for the involved industries.
Advantages
Now that the bill is law, small businesses will find it difficult and expensive to seek for an alternative out of the current law. However much this bill may not be perfect, the long-term benefits for small businesses outnumber the disadvantages
Steve Strauss, a small business expert contends that the current bill is no where near perfect, but its better than what currently exists. Strauss cites some statistics that prove that small businesses have reduced healthcare coverage in last decade. According to Strauss, only 49 of small businesses with 3 to 9 employees which are vast majority of small businesses offered any type of health insurance to their employees in 2008. That represented a decline of 10 from 58less than a decade ago. Further he says that 29 of employees at businesses with 25 employees or less were uninsured in 2007. According to him, the number has risen since then. Prohibitive practices by large insurance companies have immensely contributed to the scenario described above. There are numerous advantages associated with the bill.
According to the SBA, small businesses efforts to provide healthcare coverage to their employees have always been hampered by the premiums that insurance companies charge. Small businesses complain that they are subjected to 18 times higher premium payments that big corporations pay for the same coverage (1). Big companies have an advantage over small companies due to their size, and through the fact that the risk is spread evenly through their large pool of employees. Small businesses on the other hand pay higher premiums because they cover a narrow pool of employees. Further more, the small businesses face high administrative costs that come along with setting up and maintaining healthcare plans (white house, 1). The costs can be as three to four times those of large companies (white house,). The tax credits that the bill proposes for small businesses will offset costs associated with premiums by 35. The rate will increase to 50 from the year 2014. Effectively, small businesses, a majority of who want to provide coverage for their employees have had their load decreased. According to the Congressional Budget Office, the measures included in the healthcare bill will significantly reduce premiums for small businesses (Whitehouse 1). Tax credits will be backdated to 1st January 2010. Small businesses that are providing healthcare insurance to their employees will therefore benefit immediately from the cuts. Any other small businesses that initiate the program from this year will as well qualify for immediate benefits from the tax cuts.
The bill includes wellness grants for small businesses with less than 100 employees. Beginning 2011 through 2015, there will be a 200 million program that will execute the grants provision (Carol Tice, 1). Though grants will only last for a few years, its long enough for the businesses to take advantage and extend coverage to employees while cutting costs. Closely related to wellness grants is the availability of tax free tax saving accounts. The problem will allow workers to pay for some of the healthcare costs from their pockets by utilizing pretax dollars from the government (Carol Tice, 1).
In negotiations with large companies, small companies get exploited because they lack the necessary bargaining power. They get bullied to accept premium that raise their operational costs. According to the white house the bill allows small businesses with fewer than 100 workers to purchase health insurance through state exchanges. The firms will be able to pool their buying power in order to access the state exchange benefits. The Congressional Budget Office analyses estimate that the purchase through state exchanges will reduce administrative costs. Further, the collective bargaining power realized through collective pooling of purchasing power will ensure a level playing field with the big insurance companies. The status quo that has existed and tilted the advantage in favor of insurance companies will no longer be there as small companies have been given more ammunition to increase their bargaining power. The state exchange offers a way out of the exploitative direct bargaining with the insurance companies.
Price discrimination in the health insurance in the US is rampant. It happens to individuals and companies. Small businesses, whose workers face certain medical conditions, are subjected to premium increases effectively raising costs are reducing earnings. According to the Whitehouse, this discrimination will come to an end. Starting the year 2014, insurance companies will be bared by community rules from charging more to cover small businesses with sicker workers or raising rates when someone gets sick (1). Laws that currently exist on healthcare do not address this issues which is likely to escalate as medical complications increase.
Businesses experience high turnovers for various reasons. Small businesses on the other hand cannot absorb some of the employees who leave big companies with vast experience. This is despite these employees not satisfied with their work conditions. These employees are caught up in a job lock because big companies are better placed to handle big medical emergencies that small businesses cant. Big businesses have according the Whitehouse the capacity to absorb costs that may come with covering pre-existing conditions. Job lock affects small businesses because they cannot easily hire such productive workers. The healthcare bill eliminates exclusions for coverage of people with pre-existing conditions (Whitehouse, 1). People who have been stuck in their jobs for fear of loosing their coverage for preexisting conditions will be free to move because of the exclusion. Its will be easier for small businesses to absorb such people since purchasing insurance for them wont be a problem. The increased healthcare security will be to small businesses advantage.
The Whitehouse asserts that treating an uninsured person adds a hidden tax of 1000 to every healthcare premium (1). By the year 2019 an additional 32 million Americans would be able to access medical insurance. The number of uninsured people being treated would have reduced drastically. Effectively the hidden tax which is largely punitive to small businesses will not apply.
Conclusion
Small businesses who are busy challenging their employee health insurance policies must accept one fact, that the bill has already been passed and signed into law. To be on the safe side therefore they must start complying with its provisions. Small business owners unanimously agree that they need change regarding healthcare coverage for their employees although on different approaches. The disadvantages that are present in the bill may not be absent in a different bill proposed by the opponents so it is better the existing one which was passed. Looking on the positive side of its components will help small businesses focus on the right path to take to make the most out of the incentives.
First, small businesses comprise a big chunk of the American economy. Major policy changes will always affect them. The small businesses that are seeking to grow to big corporations all need to grow through the healthcare incentives. They can use the provisions in the bill to maintain like reduction in job locks to attract and maintain a highly motivated workforce. Development of their human resources is Key to their business growth.
There are demerits in the bill as far as small businesses are concerned. Its therefore difficult to accept the changes it their entirety. Keen and genuine observers will notice more advantages to the small business compared to the disadvantages. Amendments can be pursed later through petitions filed by unions but for the moment, the bill offers a wide framework where every business is given a level playing field for growth.