Health Care Reform Impacts on Small Business

   Last week I started writing about the consequences of Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act on small businesses. This week the focus is on a policy analysis report written by John L. Ligon and published by The Heritage Foundation on their website at www.heritage.org. As I wrote previously, beginning in 2014 new taxes will be levied on small businesses. The tax burden on business will be used to help pay for the insurance premiums of employees receiving health care through state sponsored exchanges.

   The Act relegates these taxes to companies with 50-199 employees. But smaller companies will be swept up in the taxation frenzy to meet the increased expenses. As more health insurance companies opt out of offering individual policies in states, more people who purchase their own health care will be forced into the state exchanges, forcing the tax increases.

   In addition to increased taxes, as business owners are forced to pay even higher rates to offset these expenses, they will be less likely to have the money to pay for additional hires, increased wages, and benefits for existing employees, expansion, and other costs incurred in running a business.

   Ligon points out five areas where the reform penalizes small business owners.

1. Higher health care costs. These pertain to businesses that provided group policies. Heritage analysts project in increase for employers and employees for help pay for the exchanges. Many smaller firms will drop their group coverage when it is impossible for them to purchase health insurance for their employees.
2. Ineffective Small Business Tax Credit. Businesses will not be able to absorb the additional costs and the tax credits won’t counteract the increased costs.
3. Higher Regulation Compliance Costs. Businesses are not prepared to meet compliance issues with current staff. Someone has to read and respond to all those new regulations.
4. Medicare Taxes on “Flow-Through” and Investment Income. Medicare taxes will increase, as well as business taxes paid outside of payroll tax. It is coyly termed the Medicare Investment Tax. Business owners will be paying into a fund from the money they earn, increasing their taxes yet again.

   Job creation cannot compete with tax revenues. If you are paying additional taxes for health care premiums and “investments” you won’t be creating new positions that put people to work.

   Please see the original article, complete with references, on the Heritage website. Stay tuned here for more information on Obamacare.

   Have a terrific day!

Patricia