What does the health care ruling mean for small business?

In an historic decision, on June 28, 2012, the U.S. Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act (PPACA), often referred to as Obamacare. From its passage in the House and Senate and later challenge at the federal level, the lead-up to the final SCOTUS ruling was bitter and contentious. At issue was whether or not the new law was constitutional or if Congress overstepped its bounds.

While the goal of the law was primarily to decrease the number of uninsured Americans and reduce the cost of health care, many saw the law as damaging to small businesses, especially because the plaintiff challenging the law in federal court was the National Federation of Independent Businesses (NFIB), a membership organization composed mostly of small businesses. But has the law truly earned its rap for being bad for business? Read on.

Small businesses offering health care are eligible for tax credits

If a business employs fewer than 25 full-time equivalent employees, whose wages are less than $50,000 a year and it covers at least 50% of the cost of health care for employees, the business is eligible for a tax credit. A full-time equivalent employee can be two part-time employees, who together, work a full-time schedule. The tax credit can counter 35% of the cost of health care for for-profit companies and 25% for nonprofit companies. In 2014, the credit will increase to 50% for for-profits and 35% for nonprofits. To see if your business qualifies for this benefit, visit the IRS website.

If a business employs more than 50 people and does not offer health insurance, the business may have to pay a share responsibility penalty. This penalty is only imposed if the government subsidizes the company's employees to purchase health insurance through a state-regulated healthcare exchange. Individuals who are not insured through their employer, or Medicare or Medicaid, will be required to purchase health insurance through the exchange, which, in accordance with the PPACA, will be operational by January 1, 2014.

The health exchange will be a government entity or quasi-government entity that helps private insurance companies comply with consumer protection. Subsidies will be available to individuals who are not able to afford government-mandated plans. Therefore, the employer responsibility penalty will only be imposed on businesses that do not offer health insurance or enough salary for people to afford private purchase. However, the penalty is quite significant: $2,000–$3,000 per employee, and the penalty will not apply to businesses that employ less than 50 people.

'SHOP' exchanges open the market for small businesses to obtain group plans

By 2014, the PPACA will implement state-run Small Business Health Option Program (“SHOP”) Exchanges, which will make better insurance plans available to small businesses. SHOP Exchanges aim to make health coverage affordable for small business employees, by pooling more people together. Initially, in 2014, SHOP Exchanges will be available to small businesses with 100 or less employees, but eventually, they will open up to all employers. Small businesses with only a few employees have been at a disadvantage for purchasing group plans because if only one member of the group is ill, private insurance companies do not believe the risk is adequately spread to offer affordable premiums.

Generally, those that oppose the PPACA are against being forced to comply with government-imposed standards regarding the type of health insurance being provided to employees and the additional taxes involved. However, the financial incentive for offering government-approved health insurance to employees is quite substantial. And asking small businesses to either pay workers enough to purchase their own insurance or offer insurance outright might ultimately reward businesses with a healthier workforce than before.