Healthcare Reform: How it affects your business
Scott Sevon, partner in the remodeling firm of MAW Chicago got pretty excited about one provision of the Patient Protection and Affordable Care Act, the wide-reaching health care reform law that was signed into law in May. The section that caught his attention was the tax credit for small businesses that pay for health insurance for their employees.
If he was reading the law correctly, his company would qualify for a credit available to employers with 25 or fewer full-time equivalent employees and average annual wages of less than $50,000. The maximum credit goes to businesses with 10 or fewer full-time equivalent employees and average annual wages of less than $25,000, according to the Department of Health and Human Services. HHS estimates that about 4 million small businesses could qualify for the tax credit this year. To be eligible, the employer has to contribute at least half of the total premium cost.
No problem there. MAW Chicago pays the whole bill for a high-deductible health insurance plan for four employees – himself, his partner and their spouses – at a cost of nearly $4,000 a month.
“I read that and jumped all over it,” Sevon says.
Then he ran it by his accountant.
“He told me to read the fi ne print,” Sevon says. “We can’t take the credit for family members. It won’t benefi t me.” He’s right. According to the Internal Revenue Service, the tax credit is only available on premiums paid for “eligible employees.” Owners and their family members aren’t eligible.
That got Sevon thinking about other remodelers who, like himself, are primarily family businesses.
“They’re father and son or husband and wife,” he says. None of those companies will qualify for the tax credit.
While it may sound like a way for small remodeling companies to fi nally be able to offer their employees health insurance, the availability of the tax credit is very limited. The full 35 percent tax credit can only be taken by companies with 10 or fewer full-time equivalent employees – not including owners or partners and their family members – with average salaries of $25,000 or less per year, according to the IRS. For coMpanies with 11 to 25 employees, the credit goes down per employee.
It also goes down as wages go up, and that caps at an average of $50,000 per year. Only businesses that cover 50 percent or more of the cost of health care are eligible.
And even those that do qualify for the tax credit can only take it through 2013. For 2014 and beyond, only small employers who buy coverage through the still-to-be-created health insurance exchanges will be eligible for a tax credit, according to HHS.
“We looked at that provision and rolled our eyes at it,” says Jenna Hamilton, assistant vice president of government affairs at the National Association of Home Builders. “It’s a big pile of garbage that almost no one will be able to use.”
As far as NAHB is concerned, the tax credit sounds like a way for small businesses to level the playing field against larger competitors, giving them a way to attract and retain employees by making it affordable to offer health insurance as a benefi t. It also makes for a great election-season sound bite for campaigning incumbents who want to be Seen as pro-business without actually having to pony up much very money, Hamilton says.
“They wrote it in such a way that it would be almost useless,” Hamilton says. “The lawmakers want to go to heaven without dying on this one.”
Provisions of the law
While the tax credit may not do much to help remodelers, health care reform also doesn’t seem to have much of an impact either. Most provisions of the law only apply to companies with 50 or more full-time employees. In August, NAHB summarized those provisions, most of which will not going into effect until
2014. Employers with 50 or more full-time employees will be required to:
•Provide “minimum essential coverage” to all full-time employees, defi ned as those who work more than 30 hours per week. Part-time employees are counted as partial employees for determining how the employer gets to 50 “full time equivalent” employees, but tax penalties for failing to provide coverage ($2,000 per full-time employee) don’t apply to the part-timers.
• Cover at least 60 percent of the cost of minimal essential coverage; the total employee cost for coverage should not be more than 9.5 percent of any employee’s household income. Minimum essential coverage has not yet been defi ned.
• Offer a voucher to purchase coverage through a statebased exchange to any employee whose cost of coverage exceeds 8 percent of income, and if the employee’s household income is less than 400 percent of federal poverty level. The voucher amount is the cost the employer would have paid to cover the employee under the most generous option in the employer’s plan, paid directly to the exchange.
• Pay the full cost of preventive coverage, including immunizations, breast cancer screening and other services as recommended by the U.S. Preventive Services Task Force.
• Extend coverage to adult children, regardless of marital status, up to age 26, if they offer dependent coverage. This went into effect this year.
• Provide coverage for clinical trials for lifethreatening diseases.
• Employers with more than 200 employees must automatically enroll all full-time employees as soon as they are eligible for coverage. Employees may opt out.
Starting in 2011, all employers will need to report the total cost of any medical benefi ts provided on their employees’ W-2 forms. In 2012, businesses are scheduled to start issuing 1099 forms for all vendors from which they buy more than $600 worth of goods or services. (See sidebar, “The 1099 Debacle.”) Employers will also have to provide employees with information about the health insurance exchanges, eligibility, free choice vouchers and premium credits. They’ll also need to certify that all full-time employees were offered coverage, along with information on the length of the plan’s waiting period, the premium and the employer’s share of the cost.
On the individual side, taxpayers earning more than $200,000 ($250,000 for joint fi lers) will see a .9 percent increase in their Medicare payroll taxes starting in 2013.
In 2014, individuals who can afford health insurance and don’t carry it will pay a penalty that will gradually increase over several years.
Those who earn between 133 percent and 800 percent of the federal poverty level – currently $29,327 to $88,000 for a family of four - - and don’t have access to affordable coverage through their employer will be eligible for tax credits of 2 percent to 9.5 percent of their income to pay for coverage.
What it all means for remodelers
For many remodelers, health care reform will have minimal impact on how they run their companies. None of the 7,500 member companies of the National Association of the Remodeling Industry has more than 25 employees, and most have 5 or fewer, says NARI president Paul Zuch, owner and president of Capital Improvements in Dallas.
Even some larger fi rms don’t envision a big change in how they operate as a result of the new law. Portland, Ore.-based remodeling fi rm Neil Kelly Co. Has 130 employees. President Tom Kelly says the company already provides health insurance for them.
“I don’t see a big impact on us, unless I am missing something,” he says. “Our competitors that aren’t paying (for health insurance) may be put on a more even playing field.”
Where there may be an impact is in how remodelers choose to grow their business.
Kelly says he suspects more remodelers will try to sub out their work instead of having employees, “further dividing the industry between those who have employees and those that don’t,” he says.
While most of the provisions don’t go into effect for a few years, there are some recordkeeping steps remodelers should consider taking now to prepare. “There’s a ton of tracking,” says Jason Beans, CEO of Chicago-based Rising Medical Solutions, a medical cost containment fi rm. “I saw a lot of little areas where if you didn’t track correctly, you can get dinged.”
For example, the law says that fi rms with fewer than 50 full-time equivalent employees are exempt, but that’s based on workable Hours, Beans says.
“If you’re paying overtime or have contract employees who come in seasonally, each eight hours counts as a day,” he says. “I’d start putting that tracking in place right now.”
Zuch says there’s nothing in the new law that will help him. In fact, he thinks it will deter him as a business owner from hiring additional employees when the economy turns around.
“Remodelers as a group are a bunch of strong, independent-thinking people,” he says. “If the government tries to push this down my throat, I won’t hire. I’ll outsource it, Zuch says there’s nothing in the new law that will help him. In fact, he thinks it will deter him as a business owner from hiring additional employees when the economy turns around.
“Remodelers as a group are a bunch of strong, independent-thinking people,” he says. “If the government tries to push this down my throat, I won’t hire. I’ll outsource it, plain and simple.”
Beans agrees that health care reform will have a big impact on hiring. “I’ve talked to some businesses who are at 48 employees who won’t expand to 50,” he says. “They might hire through contracted employees. I think that’s an unintended consequence.”
Robin Burrill’s company, Curb Appeal Renovations in Keller, Texas, has three employees – herself, her husband, Rob, and one other person. They made a decision some time ago to sign up with Administaff, a professional employer organization (PEO). In those arrangements, the PEO becomes the employer of record and handles payroll and benefi ts. By pooling the employees of all of its clients, the PEO can leverage their size to access better Benefi ts at lower costs. By making the switch, Burrill says her company is able to pay 100 percent of its employees’ health insurance premiums.She’s not at all happy about the new law.
“I’m thinking everybody’s insurance will go up,” she says. “They’ll have to charge you more to put in all these things the government is requiring. To me, by instituting the health care plan, it’s great for Some, but it’s screwing me and my employees. … I wish they hadn’t messed with it. I was fi ne with the way things were.”
Sevon says that in the big picture, the new law won’t have much of an effect on him, at least in any kind of a positive way.
“Everyone gets a little cynical when the government gets involved,” he says. “There are so many cockamamie rules out there.”
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