What does Obamacare mean to Small Business Federal Contractors?
If small Federal Contractors didn't have enough to worry about with budget cuts and Sequestration and all there is also the unknown that relates to the pending changes in healthcare. Of course I'm referring to the Affordable Care Act (ACA) or as it is affectionately known, Obamacare. We have all heard about it in one form or the other but most people don't understand what it means to them. This is understandable since the ACA is so complex and difficult for a layperson to understand. There are a few simple directives from the ACA that are very straightforward like for instance, companies that employ more than 50 people will be required by law to provide health insurance plans to all full-time employees. Some statistics that I saw show that something like 90% of the companies with more than 50 employees already were providing health insurance to their employees. What this 90% needs to address is whether or not their plans need any revisions to comply with the minimum Obamacare requirements (if not penalties could be imposed). The real impact here is on the 10% that are not currently providing that healthcare - they will see significant increases in fringe costs. The penalties for not providing healthcare are up to $2,000 per employee and up to $3,000 per employee if the company is providing healthcare but not to Obamacare requirements.
On the other hand, if a company has less than 50 employees, they are not required to provide health insurance but the company must communicate to their employees what options might exist for these employees. There are probably over 95% of businesses in the US that have less than 50 employees and will be faced with how to address the ACA. Decisions they will be faced with include:
- How to notify employees of their options
- Should the business offer health insurance or let the employee buy their own
- Employees will be able to buy insurance from the new Small Business Health Options Program (SHOP) or from the private health care market. SHOP is designed to lower the cost to small business employees (typically small businesses pay as much as 18% more on comparable premiums than large business)
- Should the business contribute to coverage the employees purchase
- Should the business purchase a group plan through SHOP
- Business credits will increase next year from 35% to 50% of company paid premiums
There are also other provisions such as the "Cadillac" tax. This is a tax designed into the ACA that puts a 40% excise tax on health plans that cost more than $10,200 for individuals or $27,500 for families. The only problem with the "Cadillac" tax is there are no provisions for inflation so at some point in the future most plans could fit this excise tax description. There are also taxes designed to tax manufacturers of medical devices. Taxing these manufacturers 2.3% is an excise tax that most surely will be passed on to users and result in further driving up insurance costs. On a personal level, the deduction for medical expenses on your personal tax return will be reduced by increasing the threshold to 10% of gross income from the current 7.5%. We will also see a reduction in the Flex spending plan limits. Currently a Flex plan can take $5,000 per year of pre-tax dollars to deposit in the Flex account to pay for medical expenses. Starting next year that limit will be cut in half and only $2,500 will be allowed in a Flex plan.
There is no simple answer to what Obamacare will mean to small federal contractors. As you can see, there are complex programs going on and the results may not be obvious for some time. One thing for certain, small businesses with more than 50 employees will probably see the most impact. Will this trigger a flow-down and increase costs to other businesses as well? It is hard to tell. If the SHOP exchange works like many think it will, this could lower the insurance cost to some small businesses. Stay tuned.......