ObamaCare was sold as a way to help the little guy, including small businesses, especially against those big, bad insurance companies. However, when this legislation was passed by Congress and signed into law by President Obama in March, supporters failed to mention the many ills it would impose on small businesses and their employees.
Wait a minute, one might ask, didn’t we hear a lot about a tax credit for small businesses so they could better afford health insurance coverage? Unfortunately, this much-vaunted small business tax credit is far more elusive than substantive.
First, the credit is only available to firms with fewer than 25 full-time equivalent employees, with an average annual wage of less than $50,000. Second, the business owner and any family members working for the firm are not considered employees for purposes of the tax credit. Third, and arguably most important, the tax credit is temporary. When the legislation’s insurance exchanges start operating in 2014, the tax credit will be limited to two years.
It’s hard to see how a very narrow, temporary tax credit will make any real difference when it comes to small businesses offering health care coverage to employees.
In contrast, it’s easy to start tallying up the various costs affecting small enterprises. Those costs come as increased taxes and more regulation.
On the tax front, starting 2013, a new 0.9 percent surtax on upper incomes (over $200,000 for individuals and $250,000 for couples) will hit the bottom line of many entrepreneurs, since more than 90 percent of small firms pay the personal income tax, rather than the corporate income tax. In addition, a 3.8 percent Medicare tax would be imposed on so-called “unearned income,” including capital gains, dividends and interest, at those upper incomes. That means diminished resources and incentives for business investment.
A 2.3 percent tax on medical device manufacturers, also starting in 2013, will hit many small, innovative firms. According to the latest Census Bureau data, 98.3 percent of medical equipment and supplies manufacturers have fewer than 500 employees, and 84.6 percent less than 20 employees.
Then there is a mix of taxes and mandates. Starting in 2014, firms with 50 or more employees must offer health coverage. If not, they would face a $2,000 annual tax penalty for each full-time employee over the first 30 as long as one employee receives a credit or subsidy. Individuals, including the self-employed, also would face a new mandate: Either have health insurance or pay a tax penalty reaching as high as 2.5 percent of income. In each case, these mandates mean increased costs for businesses.
ObamaCare also holds out the very real possibility of removing a key choice for small businesses from the health insurance market.
Tax-free health savings accounts (HSAs), tied to traditional high-deductible health plans (HDHP), offer significant savings for employers, while putting consumers in control of their own health care.
America’s Health Insurance Plans just reported that more than 10 million individuals were covered by HSA/HDHP products in January 2010 — a 25 percent increase over the previous year and up by 121 percent over the last three years. That 10 million included over 2 million in the individual market and nearly 3 million in the small-group market. Depending on how government bureaucrats wind up defining “acceptable coverage” under ObamaCare, HSAs could be regulated out of the marketplace.
In the end, ObamaCare is all about expanding government in health care. More than any other group, small businesses owners understand that more government means more costs, and those costs tend to hit the little guy hardest.
Keating is chief economist for the Small Business & Entrepreneurship Council. He can be reached at email@example.com.