In June, the Supreme Court upheld the health care law that was originally signed in 2010. The Patient Protection and Affordable Care Act has a reported price tag of nearly $2 trillion and will require small businesses with more than 50 employees to provide coverage for each of their employees beginning in 2014 or pay a fine.
It is estimated that nearly 220,000 small businesses employing more than 26 million workers could be subject to the employer mandate. Yet many small businesses are still left wondering what the law means for them, and several groups have voiced concerns over costs to offer coverage and the fines for not meeting the rule’s requirements.
“Small businesses want reforms that lower costs. More likely, this law will increase reporting requirements, coverage mandates and taxes for individuals and small businesses—the segment of the population that really needed the most help,” Kevin Kuhlman, manager of legislative affairs for the National Federation of Independent Business, said. “Small businesses must be prepared for many changes in the current arrangement how they provide insurance.”
The Nuts And Bolts Of The Mandate
A company with 50 or more full-time employees—those working 30 hours or more—that does not offer coverage and has even one full-time employee that receives coverage through a StateOperated Exchange—health coverage programs offered by the states—will face a $2,000 per employee penalty minus the first 30 employees. So, for example, a business with 50 employees would pay the penalty on 20 workers while a business with 75 employees would pay it on 45.
Businesses with 50 or more fulltime employees will face a $3,000 per employee penalty if a full-time employee opts-out of employer coverage and elects State-Operated Exchange coverage. However, there are some restrictions on employee opt out. A full-time employee may only opt out if the employer coverage is “unaffordable,” meaning it exceeds 9.5 percent of the employee’s income.
“A full-time employee may get ‘a better deal’ from the insurance subsidies in the exchanges. However, it is nonsensical for an employer to be punished for offering coverage,” said Kuhlman.
To help get a handle on what penalties employers may face, the National Retail Federation has a mandate cost calculator on its website, www.nrf.com/healthcare.
NFIB’s Kuhlman is concerned that the employer mandate provision deters growth above the 50 employee threshold and encourages those businesses just above the threshold to shrink or drop coverage altogether.
What’s more, part-time employees’ hours will count toward employer size. This means that a part-time employee who works an average of 30 hours per week could be in a category that requires an employer to provide coverage to all full-time employees. While parttime employees count in the size calculation, however, employers are not required to provide coverage to them, creating concerns that fulltime employees may be shifted to part-time hours as a result.
“While it may have been ruled constitutional, the law is unworkable, unaffordable and wrong for our country’s small business owners,” said Steve Caldeira, president of the International Franchise Association. “By upholding the law, 3.2 million jobs at franchise businesses continue to be put at risk due to the employer mandate provision, which forces franchise employers with more than 50 full-time equivalent employees to pay penalties, thereby discouraging and disincentivizing the creation of new jobs.”
There is still a great deal of uncertainty surrounding seasonal employees. The Department of Labor, Internal Revenue Service and other related agencies are expected to release additional guidance, but the timeline is uncertain.
Kuhlman said initial notices proposed that seasonal employees should not be included in the count when such employees work for an employer for fewer than 120 days per year. This would mean parttime employees are counted toward size definition but seasonal employees are not counted, he said.
The agencies must further clarify if the threshold is 120 consecutive days or 120 total days in a calendar year, however. For example, if a seasonal employee works during one specific season, leaves employment, and returns for a separate season then the count should begin again, Kuhlman said. In addition, requiring businesses to track seasonal employees during different parts of the year would increase complexity for small businesses.
The Inevitable Tax Increases
Under the law, individuals and businesses alike will face new taxes and fees. In June, the Congressional Joint Committee on Taxation estimated the tax increases will equal $675.3 billion between the years of 2013–2022. These revenue estimates will only grow over time, Kuhlman said.
The U.S Chamber of Commerce has said that many of those taxes and fees will be passed on to consumers in the form of higher prices and premiums. The new taxes include those imposed on pharmaceutical companies beginning in 2011, medical devices beginning in 2013, and the health insurance sector beginning in 2014.
The Congressional Budget Office, Medicare Actuary and Joint Committee on Taxation each have confirmed the tax on the health insurance sector will be passed along to individuals and small businesses in the form of higher premiums, with the Joint Committee on Taxation estimating an increase of $400 annually. This tax only hits the population that purchases coverage in the fully-insured market where individuals and small businesses purchase their coverage, Kuhlman said.
In addition, a 40 percent excise tax will be imposed on employer-sponsored health premiums that exceed $10,200 for single coverage and $27,500 for family coverage beginning in 2018.
Additional tax increases include a 0.9 percent increase in Medicare payroll tax for individuals making over $200,000 and couples making over $250,000. That equals an extra $2,250 per year in taxes for a family earning $500,000. That same demographic also will face a new 3.8 percent tax on investment income, which captures income from interest, dividends, capital gains, and some profits from investments in partnerships and S-corporations.
“Many small businesses file as individuals so this tax will hit small businesses,” Kuhlman said. “Possibly most disturbing is that this tax is not adjusted for inflation so it will absorb more and more individuals and small businesses like the Alternative Minimum Tax. The most recent numbers I have seen indicate that the tax would hit 53 percent of business income.”
Neil Trautwein, a vice president for the National Retail Federation, said there also will be a tax on un-earned income, such as the appreciation on a house. He said, “I think that tax on unearned income is going to surprise a lot of individuals and companies. All of these pay-fors are problematic. It is a very expensive law, and they had to ransack the bin of possible pay-fors in order to make the books balance or try to make the books balance.”
Tapping Into Exchanges And Tax Credits
By 2014, states are required to offer insurance exchanges where individuals can purchase coverage from an Individual Exchange and small businesses can purchase coverage from Small Business Health Options Program (SHOP) Exchanges. Individual Exchanges will offer individual tax credits and cost sharing subsidies to defray some of the cost of insurance to consumers who earn between 138 percent and 400 percent of the federal poverty level (in 2012 the federal poverty level for a family of four is $23,050, so 138 percent would be $28,267 while 400 percent would be $92,200). SHOP Exchanges will offer a limited and temporary tax credit and be available to employers with less than 100 employees.
Through 2016, SHOP exchanges are restricted to small businesses with no more than 100 employees, but states will have the option of limiting pools to companies with 50 or fewer employees.
Kuhlman said Exchanges have the potential to lower administrative burdens and costs and increase options, but there is much uncertainty about the status of both marketplaces. He said, “For example, will states proceed with implementing Exchanges and be set up by 2014? Will the federal government be set up by 2014 in states that do not proceed? What will be the cost of plans offered to individuals and small businesses within the Exchanges?”
Business owners have been eligible for some relief. Small businesses with fewer than 25 employees who, on average, earn less than $50,000 are eligible for tax credits paying up to 35 percent of their insurance costs from 2010 through 2013. That increases to 50 percent in 2014 but disappears completely in 2016. The Government Accountability Office reports that 170,000 businesses have utilized the credit.
An NFIB Research Foundation survey and subsequent reports by the non-partisan Government Accountability Office confirm that the credit provides a windfall to firms already providing insurance that fit into the limited parameters. But it is too complicated and small to incentivize firms to begin offering coverage, Kuhlman said.
While businesses continue to gain a better understanding of how the taxes and fees associated with the new law affect then, much uncertainty still remains.
Trautwein said, “We would hope a future Congress and next administration, whether it is another Obama administration or a Romney administration, will take a serious look to pushing off some of these requirements so businesses can get on with hiring.”
Photo Credit: Flynt/bigstock.com
This article originally ran in Stop Watch magazine. Stop Watch provides in-depth content to assist NATSO members in improving their travel plaza business operations and provides context on trends and news affecting the industry.
The magazine is mailed to NATSO members bimonthly. If you are a member and not receiving Stop Watch, submit a request to be added to the mailing list. Not a member? Join today or submit a request to receive additional information.
Subscribe to Updates
NATSO provides a breadth of information created to strengthen travel plazas’ ability to meet the needs of the travelling public in an age of disruption. This includes knowledge filled blog posts, articles and publications. If you would like to receive a digest of blog post and articles directly in your inbox, please provide your name, email and the frequency of the updates you want to receive the email digest.