Sep 29th 2011
A Cure for Insomnia: The Healthcare Reform Act
If you are reading this article then you are probably a graphic designer or work in marketing in some form or fashion. That being said, you probably own your own company, freelance, or work for a small agency. So, how does the new health care reform bill affect you personally? If you fall into any of these categories then you probably have private health insurance, which is costing you a fortune. I initially decided to write an article on healthcare reform because I've dealt with my nine-year-old daughter being denied health insurance for two years now. When the law went into effect this year stating that she can no longer be denied coverage, I was ecstatic. However, after applying for several policies I was informed that while she cannot be denied, they can "write her up" for any amount they desire. The quotes I received back were upwards of $600 a month. This prompted a further investigation on my part into this new health care reform. It has been a difficult journey to uncover the truth about this new law, and through the process, I have gone from one extreme to another in my beliefs. Hopefully, this article can shed some light on how health care reform will affect small business owners today and in the years to come.
First of all, let's review the most important aspect of the new law: The Small Business Health Care Tax Credit. This went into effect January 1st, 2010. This is probably the portion of the law you are most familiar with. If you have 25 or fewer employees and pay at least 50% of your employee's insurance cost, you are eligible for a 35% tax reimbursement this year and a 50% reimbursement by 2014. On the surface, this sounds fantastic, but let's look a little closer. To qualify for the reimbursement, the average salary for all employees must be $50,000 or less. Okay, let's say we can live with that. The percentage of reimbursement you receive is also dependent upon salary, so if your average employee salary is upwards of $25,000 you are looking at about a 10% reimbursement vs. a 35% to 50% reimbursement. That's not a lot of money considering how much health care actually cost.
Here's the kicker‚ my favorite part.
The law includes something called a phase out. Here is the definition of a phase out found at IRS.gov: "The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalents of between 10 and 25 full-time workers". Ummm, What? So, if you have more than 10 employees, or if you have employees making more than $25,000 you will no longer be eligible for the reimbursements after a certain period of time. The period of time in which the reimbursements are available is extremely vague and not clearly defined, but it looks to be only a year. That's right, I said one year. The truth is, very few companies are eligible for these reimbursements. So, let's review: The fewer employees you have the better off you are. Is that supposed to create new jobs? What exactly is the incentive for hiring new people? What happens to the employers who purchase health care plans because of the reimbursement and it's phased out after a year? Once there isn't a tax break, they will drop employee medical coverage, and we are right back where we started.
Here is the second-most important issue for small businesses:
Individual Mandate Excise Tax. By 2014 we will all be required to have some kind of healthcare policy. If you do not have a policy by 2014 you will be taxed according to your Annual Gross Income. The fines are as follows: 2014 1% AGI, 2015 2% AGI, 2016 2.5% AGI. After 2016 the penalty will be increased annually according to the cost of living. Sixty million Americans were uninsured in 2004 and an estimated 40.7 billion dollars was spent on uncompensated health care, so this law seems to make sense. Oh, but there's another part of this law I forgot to mention. The law has exemptions for "religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases." Wait a second, who exactly are the people running up the uncompensated health care bill? Nothing against people suffering hardships or people under the poverty line, but they are the ones who can't pay, and they are still not required by law to have insurance.
By 2014 businesses who employee 50 or more employees and do not provide health insurance will pay a fine of $2,000 per worker (after 30). Many business owners have already said they will be laying off employees or not hiring new employees in order to stay under the 50 person threshold. Others have said they will pay the fine because it's cheaper than providing health insurance. Exactly how does this law create more jobs?
Last on my soapbox are the insurance exchange pools. The state is responsible for setting up a healthcare marketplace where individuals and small businesses can pool together for lower premiums‚ competitive marketplace. If the states do not provide this, the federal government will. Insurance companies are not allowed to charge higher premiums for people with pre-existing conditions or jack up rates for no reason. This sounds great on paper, but how will it be executed and mandated? Part of this policy is to include a "clear and effective process under which policyholders can appeal coverage determinations and claims." So, individuals are responsible for appealing high premium rates, rate increases, denied claims etc. The full healthcare reform bill is an estimated 2,300 pages long. Exactly how easy do you really think the appeals process will be?
How exactly are we going to pay for this bill that has an estimated $894 billion dollar cost over the next 10 years? Taxes of course! I cannot list all of the new taxes that are going to be imposed because there are simply too many. Here is one that's worth mentioning. There will be a new 3.8% tax imposed on interest, dividends, and investments for those who earn more than $200,000 a year individually or $250,000 combined. So basically, we are punishing the few Americans who actually save money. We will also be limiting deductions that those people in a higher income tax bracket can take. There are an estimated 2 trillion dollars in taxes that will be imposed in the next 10 years, and it is certainly worth some investigation.
We can all agree healthcare reform is needed, me more than anyone because my daughter still isn't covered. With the new plan she can get insurance, and by 2014 I can't be charged a higher premium, so in essence that is progress. However, that doesn't mean I will be able to afford the insurance, and any denial of claims and rise in premiums are my responsibility to appeal. How long will that appeals process take? I've read through the bill summary several times, and I still can't figure out how small business are supposed to be coming out ahead, and this bill was specifically written for them. You better believe big business is getting screwed. If you ever have trouble sleeping, you can go online and read some of the "Patient Protection and Affordable Care Act". The government is lowering medication costs already by eliminating the need for sleeping pills.