Health Care Reform: Affordable Health Care for America and Impact on Small Business

The recently released version of the Affordable Health Care for America from the House of Representatives contains several provisions that would be devastating for physicians Offices and other small businesses.

Health Coverage Requirements

The house bill requires that employers with payrolls of greater than $500,000 to cover 72.5% of an employees and 65% of family coverage to all employees. The estimated cost is roughly $11,000/ per employee, and for businesses with 25 employees this adds an additional $27,500/month in additional expenses for employees with families.

Given this is equal to or greater than the amount of our net profit (after cost of goods and expenses) this creates a huge disincentive for hiring new employees especially for young hires or those starting at a lower level where health insurance payments could equal 35% or more of their compensation.

The bill is especially hard on small businesses around large cities where most of the employees of small businesses, have spouses with good insurance from large businesses and government contractors. For employees covered by their spouse’s health plan this bill offers no relief to small businesses.  It would mean an additional 8% payroll tax for those employees.   

Employers will also be at a disadvantage because part-time employees will be prorated, and since they are typically hired on as needed basis, the additional cost of prorated health insurance will prevent many companies from offering temporary jobs or summer internships. 

The fines for not insuring employees ($100/day/employee and up to $500,000) will be especially hurtful to small firms in economic downturns who for one reason or another need to cut back on benefits to survive and keep people employed. The decision to drop employees versus pay a fine or additional costs for insurance will be overwhelming and these employers will also have to think hard prior new hires.

The Income Surtax

The Income surtax is hard on small businesses which are for the most part Sub Chapter S Corporations and Limited Liability Companies. Given the current economic disaster and trends, this tax will only make it harder for small businesses to stay open, and offer new jobs. Additionally, since large profits are taxed each year in a small business at 40+%, an additional 10% created by such a tax will only further contribute to the less investment in the company and lower cash flows.

Considerations

What Americans must start to realize is that taxpayers are going to pay largely for this new health care bill, at a time when taxpayers are barely getting by. While everyone agrees that health care reform is needed, the timing and extent to which this expenditure will create on small businesses, employees and employers will provide new obstacles that may make our economic recovery even harder. Business leaders and politicians need to work together in ways to help employees stay healthy enough so that they can keep their jobs long enough to even have health insurance.