In March, 2010, Congress passed legislation that will fix the serious problems that small businesses, including the self-employed, face in the current healthcare system: skyrocketing costs, lack of access to affordable coverage and choice among health plans, and administrative hassles.
The law will be implemented over five-years (2010-2014) to make transitions as smooth as possible. The general approach is to build on the current employer-based healthcare system: we can still buy insurance from private insurers or not-for-profit plans, and the private sector system isn’t changing. Medicare will still cover retirees and Medicaid will continue to cover uninsured children and low-income adults, with new flexibility to cover more people.
So what does the law actually mean for small business owners?
There are several provisions that are particularly important for small business owners and the self-employed. Key elements include:
Small business tax credits
Beginning in 2010, businesses that have fewer than 25 full-time employees, pay average annual wages of up to $50,000, and contribute at least 50% of the total premium will be eligible for tax credits of up to 35% of the employer contribution. The full credit will be available for businesses with fewer than 10 employees averaging less than $25,000 annual wages; it works on a sliding scale.
In 2014, eligible small businesses buying cove rage through the exchange will receive tax credits of up to 50% of the employer contribution. The credit can be claimed for any two years.
High-risk pool
A temporary high-risk pool was established in California in September 2010 to allow people who have been denied coverage because of a preexisting condition and have been uninsured for six months to buy affordable comprehensive coverage. Participants will be transitioned to the state exchange in 2014 without a gap in coverage.
Insurance pool
A state health insurance exchange will create a pool of small businesses with up to 100 employees to leverage purchasing power, enabling insurers to offer lower premiums because they’ll have lower administrative costs, and risk will be spread across a larger population. Insurers will have to offer standardized benefit packages within the exchange, so competition will be based on price and quality, not benefit design. Combined with insurance reforms, the exchange will offer small business owners and the self-employed easy access to a broader range of plans, and stable, affordable coverage year after year.
Insurance reforms
The law includes insurance reforms that will stop discrimination and improve access to coverage:
- Medical screening for health conditions and denial of coverage for preexisting conditions will be prohibited-as of 2014, no one can be denied coverage.
- Health status, claims history and gender will no longer be used to determine premiums. Rates can only vary by age, geographic area, family size and tobacco use.
- Lifetime limits are banned in 2010, and annual limits will be banned once exchanges are established.
- Parents will be able to keep dependent children on their health plans through age 26, effective September 2010 for the new plan year.
Shared responsibility
Employers won’t be required to offer health insurance. Those with more than 50 employees who don’t provide coverage will have to pay a fee when an employee buys insurance through the exchange and qualifies for a premium subsidy.
If at least one full-time employee receives a subsidy, the employer will have to pay a fee of $2,000 per full-time employee. The first 30 employees aren’t counted (e.g., a firm with 51 workers that doesn’t offer coverage would pay an amount equal to 51-30, or 21, times $2,000).
About Small Business Majority
Small Business Majority is a national nonprofit nonpartisan organization, founded and run by small business owners, that brings the voices of America’s 28 million small businesses to the public policy table.
We are focused on solving the single biggest problem facing small businesses: the skyrocketing cost of healthcare.
We use nonpartisan scientific research to understand and represent the interests and needs of all small businesses, from sole proprietors to 100-person companies.
