The flurry of misinformation around the new health care law is clouding the reality that reform is providing relief to many small business owners.
Health care costs for small businesses have risen 129% since 2000 and contribute significantly to the high rates of uninsured rural residents. Less than half of U.S. small businesses can afford to help their employees pay for health insurance.
So, just how does the new law impact small businesses?
For starters, small businesses with fewer than 50 employees are exempt from the 2014 mandate that requires businesses to offer employee insurance. That is, these businesses will not face a penalty if they don’t pay for their workers’ insurance.
Then how does the new law help small business employees?
The law provides an incentive for small businesses to offer employees insurance through tax credits that make coverage more affordable. Businesses are eligible if they have fewer than 25 employees and their median wage is under $50,000. This tax credit is worth up to 35% of small business’ premium costs in 2010. Starting in 2014, this rate increases to 50%. Firms can claim the credit for 2010 through 2013 and for any two years after that.
Here’s an example. Let’s say you own a hardware store and staff 10 employees, each receiving an annual wage equaling $25,000. Your employee health care costs are $70,000. In 2010, you are eligible as a small business owner to receive a $24,500 tax credit (35% of your employee health care costs). In 2014, you are eligible for a $35,000 tax credit (50% of your employee health care costs).
And when state insurance exchanges go into effect in 2014, small businesses will benefit from pooling and larger group coverage to provide comprehensive and continuous coverage for their employees. The take home message is this: small businesses (most businesses in the nation, in fact) are not required to pay for employee insurance. However, the new law provides tax credits to small businesses that provide coverage for their workers and for those businesses that initiate coverage this year. These credits make it more affordable for small businesses to offer employee coverage and help reduce the number of uninsured Americans.
Learn more by reading our May 2010 report (PDF) that debunks the myths of health care reform as they relate to small businesses. Share it with small business owners so they know how reform can benefit their bottom line and workers alike.
By Kristina Hubbard
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