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Keeping Your Business Healthy Under Health Care Reform

We don’t know all the consequences the health care bill may have for business owners, but it isn’t too early for employers to start now to consider the possibilities.

The health care bill includes no meaningful malpractice reform, no reduction in drug patent lives, no incentive for insurance companies to reduce premiums, no limitation on end-of-life health care procedures, nothing to encourage consumers to shop and compare services, and no meaningful incentives to encourage healthier habits.

As a result, it is reasonable to expect insurance costs to continue increasing for the foreseeable future. Employers need to consider options for coping with those higher costs. Getting rid of insurance for “extras” like dental and eyeglasses is one choice. For closely held C corporations, a medical reimbursement plan may allow writing off all qualifying non-deductible expenses without being subject to the caps placed on HSA and FSA plans.

Beginning in 2014, deductibles for group health plans cannot be higher than $2,000 for individuals and $4,000 for families. Apparently, existing policies with higher deductibles will be grandfathered, so implementing a high-deductible plan now may help keep future premiums more affordable.

Already, a study just released by Health and Human Services finds the Congressional Budget Office’s projections that the health care bill will reduce the federal deficit are overstated. Their study finds it will actually increase the deficit by $311 billion.

Higher government debt could put upward pressure on interest rates, which could become a drag on the economy. Business owners should consider refinancing loans now to lock in today’s low interest rates, as well as paying off existing debt and avoiding new debt.

For the next few years, small firms (those with 10 or fewer workers and average annual wages of less than $25,000) will be eligible for tax credits of up to 35% of their annual health insurance premium costs. The credit is phased out for larger firms.

Beginning in 2014, small firms will receive tax credits for signing up with one of the new health insurance exchanges. There is little specific information on these exchanges yet, so employers will need to learn about them as they are created.

Starting in 2014, the health care bill will mandate that businesses with over 50 employees offer adequate coverage to their employees or face a penalty of $2,000 per employee. Smaller companies are exempt from the penalties, and some will receive a tax credit for providing health insurance—as long as they have fewer than 25 employees and average annual wages of less than $50,000 per employee.

The bill rewards companies that remain small and pay lower wages. Strategies might include spinning off companies to non-controlled or affiliated groups, downsizing employees, or outsourcing the workforce to fall under the minimums. Even though these provisions don’t kick in until 2014, it’s not too soon to be considering the options, which could take one to two years to implement.

Larger companies will need to calculate the cost of the penalty against the cost of providing health care. If the penalty is smaller, the obvious choice will be to not offer health coverage at all and allow employees to obtain insurance privately or from a state-based exchange. Other possibilities for offsetting increased health care costs include reducing employees’ current pay or future pay increases, cutting costs elsewhere, outsourcing, or moving some of the labor offshore. Employers should start educating employees soon about the required increases in costs and benefits.

Perhaps the most important strategy for employers is to pay close attention as the law is implemented, in order to manage its impact on the health of both their businesses and their employees.

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