What Health Care Reform Means for Your Small Business
The answers to seven key questions, now that the Supreme Court has ruled that Obamacare is constitutional
You undoubtedly know that the Supreme Court upheld most of the Affordable Care Act, sometimes called “Obamacare.” But you may be scratching your head about what the decision means for your small business.
Here are seven key questions about health care reform that may be on your mind:
Must I purchase health insurance for myself?
Probably. If you’re self-employed and not covered by your own policy (or a spouse’s), Medicaid or Medicare, you’ll generally need to buy health insurance starting in 2014 or face a penalty. (More about the penalty — Republicans tend to call it a tax — below.) You'll be exempt from the mandate, however, if you can’t find coverage that costs less than 8 percent of your previous year’s income.
For details about health reform’s insurance mandate and its exemptions, I recommend you read the thorough analysis by the Henry J. Kaiser Family Foundation.
(MORE: What the Supreme Court Decision Means For You)
Will I need to provide health insurance to my employees?
That depends. The law applies only to businesses that have at least 50 employees who work 30 or more hours per week in 2014.
If your company falls below that 50-person threshold, you won’t be required to provide health insurance, just as you don’t today. But you still might want to offer this perk.
“Some companies with fewer than 50 employees may opt to provide health insurance because it’s an important factor in attracting good employees,” says Robert Litan, vice president of research and policy of the Ewing Marion Kauffman Foundation, which studies entrepreneurship.
Where can I purchase health insurance?
By 2014, each state will be required to run an insurance exchange, an online marketplace for individuals and small businesses with up to 100 employees. If a state fails to set up an exchange, the federal government will step in and provide one.
The federal government’s website, Healthcare.gov, already lets individuals and small businesses shop for health insurance policies. Beginning in 2014, this site will also be a portal to state insurance exchanges.
(MORE: What to Do About Health Insurance When You're Self-Employed)
What if I can’t afford to buy health insurance?
The law might offer you a subsidy as an entrepreneur, but the rules for qualifying are tricky.
If you’re a small employer with fewer than 25 workers who earn $50,000 a year and you pay at least 50 percent of all employees' health coverage, you’ll be eligible for a tax credit. The amount ranges from as much as 35 percent of your insurance costs through 2013 to up to 50 percent beginning in 2014. You can find more details about eligibility and the tax credit at the Internal Revenue Service’s website.
In 2014, subsidies will also be available for individuals under 65 who meet certain income guidelines. The rules vary significantly depending on where you live, but here’s an example: A single 55-year-old earning $45,000 a year and living in a high cost-of-living area like New York City would qualify for a $5,918 tax credit. The Kaiser Foundation has a useful, free online calculator that shows you whether you’d qualify for the health insurance subsidies and, if so, how much your subsidy would be.
What happens if I don’t buy health insurance or provide it for my employees?
If you aren’t exempt from the requirements and choose not to obtain individual health insurance, you’ll be subject to a penalty. The amount starts at $95 in 2014, $325 in 2015 and $695 in 2016. After that, the penalty rises with inflation.
Higher-income earners will pay stiffer penalties. FactCheck.org estimates that, by the time the law is fully phased in, a couple earning $100,000 per year would pay roughly $2,025 if they chose to go without insurance.
If you’re an employer with 50 or more employees, the calculations become more complicated. The maximum penalty, however, will never be more than the average cost of a policy providing the lowest level of coverage required by law.
And if I can’t pay that penalty?
“That’s unclear right now,” says Professor David Kautter, managing director of the Kogod Tax Center at American University in Washington, D.C.
The IRS isn’t allowed to garnish wages or place levies or liens on property to collect the penalties. However, if you are owed money from the government, like an income tax refund or a Social Security payment, that cash can be seized to satisfy the obligation, he says.
How else will the law affect small business owners?
Starting in 2014, there will be a new 3.8 percent tax on investment income received by high-income earners ($200,000 or more for individuals; $250,000 for married couples filing jointly). Investment income includes proceeds of the sale of businesses.
Be sure to consult a tax professional if you’re considering selling your business after 2013, especially if you fall into the high-earner category.