Bob Stein runs a knockout business as a co-owner of two LA Boxing gyms in Marlboro and Shrewsbury, N.J.
But on a personal level, he knows the company could be faced with a one-two punch if anything happened to him or to his partners, William Connelly and his wife, Suzanna Stein. The problem: They don't have any life insurance earmarked to support the business should one of them die prematurely.
"It's on the to-do list," says Bob Stein. "Too many things are on this list."
Insurance salesmen like to say that if people are counting on you, you need life insurance. Small-business owners like Stein certainly fall into that category. But their needs can be different than other people’s when it comes choosing the right coverage.
Should you die prematurely, a personal life insurance policy can replace your income and protect your family. In the event an owner, partner or key employee dies, life insurance could also ensure business can continue.
Here are things to consider when buying life insurance as a business owner.
Types of Insurance
There are two basic kinds of life insurance policies: term and permanent.
Term life insurance: This option is simple. You choose a death benefit -- how much money your heirs would be paid when you die -- and a "term" of how long you want the coverage to stay in place. For example, you might choose a $500,000 policy for a 20-year term.
If a need is temporary, such as covering college costs or a mortgage balance, term insurance is the way to go, says Carolyn McClanahan, a certified financial planner with Life Planning Partners in Jacksonville, Fla.
Bob and Suzanna Stein use term insurance for their young family, with kids ages 8 and 6. Bob Stein says term insurance is economical.
Term is also a good option for business owners with partners who may be retiring at a certain date in the future. For example, imagine Jim and Sara own a business together. They have an agreement that if either dies before a future retirement date, the other partner would buy the deceased's half of the business. They might each take out term policies, making the partner the beneficiary. So if Jim dies, Sara would receive a life insurance payout that she could use to buy Jim's half of the business from his heirs.
The downside to term is that it's only good for a specific length of time. If you and your partner plan to stay in business forever, but your term insurance is over after 20 years, you could be without coverage. As people get older, term insurance is more expensive. You may want to consider a permanent policy instead.
Permanent life insurance: These policies offer both insurance and an investment component, generally called "cash value." Part of your premiums pay for the insurance element of the policy and part goes to the investment part. This is unlike term insurance, which is insurance only. When you're done paying term insurance premiums and the term is over, you get nothing back. Permanent life insurance policies will always have the investment part, and even if you let the policy lapse, you can still walk away with your investment account.
The cost of permanent insurance is much more than term insurance, but as long as premiums are paid, the policy stays in force for your lifetime. These kinds of policies are attractive to those who want insurance that will stay in force for longer than a specific term, or for a lifetime.
Depending on the kind of permanent policy, you can choose different ways to invest your cash value -- the investment portion of the policy. You can also often borrow against the investment portion and use the funds as you wish, or you can direct the insurance company to use the money in the investment account to pay premiums.
When you die, your beneficiaries would receive both the death benefit and the investment part of the account.
A permanent insurance policy is what ophthalmologist Monique Barbour has on the life of a key employee for her business, Clear Vue Laser Eye Center in Lake Worth, Fla. The policy would pay three times the employee's annual salary.
"It gives the corporation about 50 percent coverage of the income generated per year by this individual,'' says Barbour.
Should that employee die unexpectedly, the payout would buy Barbour some time to replace that employee without worrying about the financial implications for the business.
Permanent insurance can also be used among partners to help the surviving partner buy out the part of the business owned by the deceased partner, but it's a lot more expensive than term.
Things to Consider
Deciding which kind of policy is best for you depends on your needs. You may decide both kinds of policies are appropriate.
Your family: First, consider your family. Life insurance will protect younger families from loss of income or to maintain a certain level of lifestyle in the event of an untimely death. Older couples may use insurance as a way to transfer wealth or a legacy to younger generations.
Some families choose both a term policy and a permanent one to satisfy different needs, says Vince Pallitto, a certified financial planner and certified public accountant with Summit Asset Management in Florham Park, N.J.
"A young couple with two young children and a $300,000 mortgage may need a $500,000 permanent policy that will be in place to age 100, and a $1 million 25- or 30-year term policy to protect the family while the mortgage balance is high and the kids are young," Pallitto says.
Barbour uses both kinds of policies for her husband and three children, 15, 13 and 6. She says she hopes the policies would pay current living expenses for the family, and more.
"I also hope that they would be able to attend college and continue to operate the businesses that I have started," Barbour says.
Your business: Business owners need insurance for similar reasons: income replacement and to protect the future of the company. If a partner, owner or key employee is suddenly gone, the business can deteriorate very quickly. With the right insurance in place, the surviving business partners will have enough capital to keep the business going while looking for a replacement for the deceased partner, or to buy out the heirs of the deceased partner.
"If a person plans on being active until death and the business really depends on that person, permanent insurance should probably be used, although it will be much more costly," McClanahan says.
Term insurance can work in the event key members of the business, who, for example, generate most of the income for the company, die. The time frame for the insurance could be linked to the key person's expected retirement date.
Life insurance is also commonly used to buy out partners or shareholders in a buy/sell agreement if there's an unexpected death of an owner. Or if a partner personally guaranteed leases or loans for the business, Pallitto says a term policy could be appropriate.
How much to buy?
How much insurance your family or business needs will depend on your expected income over your lifetime, debts and future expenses, and the general structure of your business. Try BankRate.com's life insurance calculator for more guidance.
How to Buy
Before you start shopping, make sure you go with a highly rated insurance company no matter what kind of policy you buy. You want to make sure that company will still be around decades in the future when your beneficiaries may need a payout. You can check out the health of insurance companies with ratings services such as A.M. Best, Standard & Poor's and Moody's.
If you need a simple term policy, you can shop online to compare policy prices and company ratings. Sites such as LifeQuote.com, IntelliQuote.com and QuickQuote.com will compare policies from dozens of different companies.
But most business owners should get professional advice before buying. A pro may point out needs you didn't realize you have, or give you the pros and cons of various policies as they relate to your particular situation.
Be aware of who is doing the selling. Many permanent insurance products earn high commissions for the salespeople.
Pallitto recommends working with a certified financial planner who can look at your insurance needs in relation to your complete financial plan and the needs of your business.
"Insurance salesmen tend to oversell insurance," Pallitto says.
On March 23, the face of health care in the United States changed dramatically when President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA) into law. The legislation makes sweeping changes in the nation's health-care system, including how health coverage is obtained and what it covers.
Before you worry too much about the changes, know that if your business has fewer than 50 employees, there are no penalties if you don't provide insurance, even after the law goes into full effect in 2014. But that leaves small to midsize businesses trying to make immediate sense of the changes that are coming and prepare for them as the bill's execution is finalized and implemented. Adding to the confusion is a rampant mix of misunderstanding and misinformation--not to mention that some elements just haven't been finalized yet. However, there are some important facts you need to know now, as well as some that are coming at various intervals over the next several years.
Immediate Provisions
The bill made some "immediate" provisions to insurance policies, which need to be met within one year of the date the law was signed. Beginning in September 2010, children cannot be excluded from coverage due to pre-existing conditions. (This provision applies to adults in 2014.) Also in September, insurance companies will be prohibited from dropping insured people after they get sick, and the provision bans limits on lifetime coverage limits, prohibits policies that provide insurance only to higher-wage employees, and allows dependent children to be insured on their parents' policies until their 27th birthdays. In all, the bill has 18 such short-term provisions affecting everything from coverage limits to Medicare.
Of course, these changes are just the start of reform. After all, the bill is approximately 2,600 pages of "broad strokes." It will be up to the government agencies that implement and oversee the new system--such as the Department of Health and Human Services, the Internal Revenue Service, state insurance commissions, and others--to figure out how the details will be carried out. That is happening now.
At the heart of the bill are state-based exchanges called the American Health Benefit Exchanges and the Small Business Health Options Program (SHOP) Exchanges. Administered in each state by the government or a nonprofit institution, these insurance marketplaces will offer qualified health insurance options for individuals and small businesses with up to 100 employees. They will be in place by 2014. In 2017, businesses with more than 100 employees will be able to purchase insurance through the SHOP exchanges.
Tax credits: Starting this year, businesses with 25 or fewer full-time equivalent employees and that pay an average annual wage per employee of less than $50,000 are eligible for tax credits for a portion of their premium contributions. These employers must contribute at least 50 percent of the premium cost. Through 2013, the tax credit will equal 35 percent of the employer's contribution. However, that maximum will only be available to businesses with 10 or fewer employees whose annual wages average $25,000 or less. As the number and employee wage average increases, the credit amount decreases. After tax year 2014, eligible businesses that purchase their insurance through a state exchange can receive tax credits of up to 50 percent of their contributions on the same sliding scale for two years.
"There should be about 4 million small businesses that can take advantage of this," says Hayley K. Matz, spokesperson for the Small Business Administration. Analysis by the Congressional Budget Office and Joint Tax Commission in November 2009 estimated that only about 12 percent of those with coverage in the small group market would benefit from the credits in 2016. The IRS has devoted a section of its website to information about the bill, including tax credits.
Help insuring early retirees: PPACA also provides $5 billion to fund the temporary Early Retiree Reinsurance Program, which will help businesses continue to provide health-care coverage for early retirees age 55 and older who are not yet eligible for Medicare. The program started June 1, and assistance is available by contacting the U.S. Department of Health & Human Services (HHS). The program will end on Jan. 1, 2014, when other options will be available through the bill's state-run exchanges.
The fund will reimburse employer plans up to 80 percent of claims costs for health benefits provided to retirees, as well as their covered spouses and dependents, totaling between $15,000 and $90,000. Expenses incurred prior to June 1 in the calendar year are credited toward the $15,000 threshold. Only medical expenses incurred after June 1 or after the threshold is met, whichever is later, are eligible for reimbursement. However, a study by the Employee Benefits Research Institute estimates that the $5 billion provision will only sustain the program for two years.
Grandfathered insurance plans: Starting in 2014, all employer-offered coverage will need to comply with some of the bill's basic provisions, such as pre-existing condition coverage and increased dependent minor coverage until age 27. However, the bill also "grandfathers" policies that were in place on March 23, 2010, when the bill was signed into law, as long as they don't make major changes to benefits coverage or employee contributions. "Some policies are changing to comply with the law now, before it's required. If it's a change the insurance industry is required to make to a grandfathered plan, it will not bump people out," says Amanda L. Austin, director of federal public policy for the National Association of Independent Business, a national business advocacy group with headquarters in Washington, D.C.
High-risk pools: Another immediate provision in the bill is an additional $5 billion in funding for high-risk pools, which offer health insurance to those who cannot obtain coverage due to pre-existing conditions. Some states have opted not to set up their own high-risk pools and instead have opted to let the federal government set up pools they can access, says John Arensmeyer, CEO of Small Business Majority, a small-business advocacy group with headquarters in Sausalito, Calif. "Twenty-eight percent of self-employed people don't have health insurance. They should immediately check with their state's high-risk pool to see if they might be eligible to buy insurance there when they perhaps haven't been able to buy it through traditional sources," he says. That would apply primarily to self-employed people with a pre-existing condition, he adds.
Compliance and fines: In navigating the health-care reform maze, size matters. Businesses that have 50 or more full-time employees and that have at least one employee who is assessed a premium tax credit--tax credits that will be available to individuals, based on income level, to offset premium costs--could face a fine of $2,000 per full-time employee beyond their first 30 full-time employees. If your company has more than 50 full-time employees, offers coverage, and has one or more employees receiving a tax credit, it will be assessed the lesser amount of $3,000 for each employee receiving a premium credit or $2,000 per employee beyond the first 30 employees.
What's Coming
In addition to these immediate aspects, small businesses also need to take a look at what's coming in the years ahead, Arensmeyer says. "You need to be aware of the changes that are coming and how they're being implemented."
And there are plenty more changes coming. National Federation of Independent Business analysis cites fewer deductible medical expenses, an increase in Medicare payroll taxes on wages, and self-employment income in excess of $200,000 ($250,000 joint) will increase to 2.35 percent and is not indexed to inflation, and flexible savings account contribution limits will be capped at $2,500 per year. In addition, if you offer more than "minimum essential coverage" under the law, your policy may face an additional tax to the insurance company, which will likely be passed along to you, says Arensmeyer. Employees may opt out of employer-offered plans and are then entitled to employer-sponsored vouchers that help them purchase individual policies in the exchanges.
There will also be changes at the individual level that may affect small-business owners and shareholders, including new taxes of 0.9 percent for individuals earning more than $200,000 individually ($250,000 for married couples) and a new 3.8 percent tax on unearned income, such as income from investments, real estate and business investments for high-income taxpayers. The Kaiser Family Foundation has published an excellent overview of the changes and when they take effect.
What You Need to Do Now
If you have or plan to have more than 50 employees by 2014, it's probably a good idea to sit down with an accountant or qualified financial advisor and take a look at which provisions apply to you to begin planning for them, says the National Association of Independent Business's Austin.
"There are several different phases of the bill, as far as implementation," she says. "It's important to know what is going to affect you and when it will affect you."
Arensmeyer agrees that it's critical for business owners to educate themselves and speak out through the channels available to them to help shape implementation. Various state and federal agencies are in the process of determining exactly how these changes will be implemented, so it's time to make your voice heard. He encourages business owners to voice their opinions directly to government entities, including their state insurance commissioners, which will be very involved in setting up the exchanges, as well as through organizations like Small Business Majority, Chambers of Commerce, trade groups, and other business-related organizations.
"This is going to be a constant process of providing input to the states and to the federal government, which is writing regulations," Arensmeyer says. "This is not the end of the game. This is a dynamic process and an interactive process going forward. It's not too early to start weighing in on these issues, even though they don't take effect until 2104."
Fact or Fiction?
Rumors are flying about health-care reform. Here are a few that we've heard, as well as the real deal on each.
Health-care coverage is now reported as income on W2 forms and taxed as such.
Real Deal: No. While the cost of health insurance and some other related expenses must now be reported on an employee's W2 form, it is for information purposes only and not considered taxable income. The total is not used in calculating the individual's tax liability.
Businesses need to start sending 1099 forms to Staples.
Real Deal: Maybe. Beginning in tax year 2012, if you spend $600 or more on business-related purchases with any supplier or vendor over the course of a year, you must gather that entity's tax identification number and issue a 1099 for the total purchased. However, several of the small-business advocates and agencies interviewed for this piece are awaiting further direction from the IRS on this matter, so keep an eye on the agency's website for updates.
Businesses that offer tanning services face a new tax.
Real Deal: Yes. As of July 1, 2010, there is a new 10 percent tax on indoor tanning services. Some medical devices will also be assessed new taxes. In 2013, certain medical devices will also face a new 2.3 percent tax.
Employees who belong to certain religious groups, such as Muslims, Christian Scientists and Amish citizens, are exempt from health-care reform requirements.
Real Deal: Unclear. At this point, it appears that the exemption primarily applies to Amish citizens. However, more guidance on this matter will likely be issued by the Department of Health and Human Services.
But on a personal level, he knows the company could be faced with a one-two punch if anything happened to him or to his partners, William Connelly and his wife, Suzanna Stein. The problem: They don't have any life insurance earmarked to support the business should one of them die prematurely.
"It's on the to-do list," says Bob Stein. "Too many things are on this list."
Insurance salesmen like to say that if people are counting on you, you need life insurance. Small-business owners like Stein certainly fall into that category. But their needs can be different than other people’s when it comes choosing the right coverage.
Should you die prematurely, a personal life insurance policy can replace your income and protect your family. In the event an owner, partner or key employee dies, life insurance could also ensure business can continue.
Here are things to consider when buying life insurance as a business owner.
Types of Insurance
There are two basic kinds of life insurance policies: term and permanent.
Term life insurance: This option is simple. You choose a death benefit -- how much money your heirs would be paid when you die -- and a "term" of how long you want the coverage to stay in place. For example, you might choose a $500,000 policy for a 20-year term.
If a need is temporary, such as covering college costs or a mortgage balance, term insurance is the way to go, says Carolyn McClanahan, a certified financial planner with Life Planning Partners in Jacksonville, Fla.
Bob and Suzanna Stein use term insurance for their young family, with kids ages 8 and 6. Bob Stein says term insurance is economical.
Term is also a good option for business owners with partners who may be retiring at a certain date in the future. For example, imagine Jim and Sara own a business together. They have an agreement that if either dies before a future retirement date, the other partner would buy the deceased's half of the business. They might each take out term policies, making the partner the beneficiary. So if Jim dies, Sara would receive a life insurance payout that she could use to buy Jim's half of the business from his heirs.
The downside to term is that it's only good for a specific length of time. If you and your partner plan to stay in business forever, but your term insurance is over after 20 years, you could be without coverage. As people get older, term insurance is more expensive. You may want to consider a permanent policy instead.
Permanent life insurance: These policies offer both insurance and an investment component, generally called "cash value." Part of your premiums pay for the insurance element of the policy and part goes to the investment part. This is unlike term insurance, which is insurance only. When you're done paying term insurance premiums and the term is over, you get nothing back. Permanent life insurance policies will always have the investment part, and even if you let the policy lapse, you can still walk away with your investment account.
The cost of permanent insurance is much more than term insurance, but as long as premiums are paid, the policy stays in force for your lifetime. These kinds of policies are attractive to those who want insurance that will stay in force for longer than a specific term, or for a lifetime.
Depending on the kind of permanent policy, you can choose different ways to invest your cash value -- the investment portion of the policy. You can also often borrow against the investment portion and use the funds as you wish, or you can direct the insurance company to use the money in the investment account to pay premiums.
When you die, your beneficiaries would receive both the death benefit and the investment part of the account.
A permanent insurance policy is what ophthalmologist Monique Barbour has on the life of a key employee for her business, Clear Vue Laser Eye Center in Lake Worth, Fla. The policy would pay three times the employee's annual salary.
"It gives the corporation about 50 percent coverage of the income generated per year by this individual,'' says Barbour.
Should that employee die unexpectedly, the payout would buy Barbour some time to replace that employee without worrying about the financial implications for the business.
Permanent insurance can also be used among partners to help the surviving partner buy out the part of the business owned by the deceased partner, but it's a lot more expensive than term.
Things to Consider
Deciding which kind of policy is best for you depends on your needs. You may decide both kinds of policies are appropriate.
Your family: First, consider your family. Life insurance will protect younger families from loss of income or to maintain a certain level of lifestyle in the event of an untimely death. Older couples may use insurance as a way to transfer wealth or a legacy to younger generations.
Some families choose both a term policy and a permanent one to satisfy different needs, says Vince Pallitto, a certified financial planner and certified public accountant with Summit Asset Management in Florham Park, N.J.
"A young couple with two young children and a $300,000 mortgage may need a $500,000 permanent policy that will be in place to age 100, and a $1 million 25- or 30-year term policy to protect the family while the mortgage balance is high and the kids are young," Pallitto says.
Barbour uses both kinds of policies for her husband and three children, 15, 13 and 6. She says she hopes the policies would pay current living expenses for the family, and more.
"I also hope that they would be able to attend college and continue to operate the businesses that I have started," Barbour says.
Your business: Business owners need insurance for similar reasons: income replacement and to protect the future of the company. If a partner, owner or key employee is suddenly gone, the business can deteriorate very quickly. With the right insurance in place, the surviving business partners will have enough capital to keep the business going while looking for a replacement for the deceased partner, or to buy out the heirs of the deceased partner.
"If a person plans on being active until death and the business really depends on that person, permanent insurance should probably be used, although it will be much more costly," McClanahan says.
Term insurance can work in the event key members of the business, who, for example, generate most of the income for the company, die. The time frame for the insurance could be linked to the key person's expected retirement date.
Life insurance is also commonly used to buy out partners or shareholders in a buy/sell agreement if there's an unexpected death of an owner. Or if a partner personally guaranteed leases or loans for the business, Pallitto says a term policy could be appropriate.
How much to buy?
How much insurance your family or business needs will depend on your expected income over your lifetime, debts and future expenses, and the general structure of your business. Try BankRate.com's life insurance calculator for more guidance.
How to Buy
Before you start shopping, make sure you go with a highly rated insurance company no matter what kind of policy you buy. You want to make sure that company will still be around decades in the future when your beneficiaries may need a payout. You can check out the health of insurance companies with ratings services such as A.M. Best, Standard & Poor's and Moody's.
If you need a simple term policy, you can shop online to compare policy prices and company ratings. Sites such as LifeQuote.com, IntelliQuote.com and QuickQuote.com will compare policies from dozens of different companies.
But most business owners should get professional advice before buying. A pro may point out needs you didn't realize you have, or give you the pros and cons of various policies as they relate to your particular situation.
Be aware of who is doing the selling. Many permanent insurance products earn high commissions for the salespeople.
Pallitto recommends working with a certified financial planner who can look at your insurance needs in relation to your complete financial plan and the needs of your business.
"Insurance salesmen tend to oversell insurance," Pallitto says.
On March 23, the face of health care in the United States changed dramatically when President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA) into law. The legislation makes sweeping changes in the nation's health-care system, including how health coverage is obtained and what it covers.
Before you worry too much about the changes, know that if your business has fewer than 50 employees, there are no penalties if you don't provide insurance, even after the law goes into full effect in 2014. But that leaves small to midsize businesses trying to make immediate sense of the changes that are coming and prepare for them as the bill's execution is finalized and implemented. Adding to the confusion is a rampant mix of misunderstanding and misinformation--not to mention that some elements just haven't been finalized yet. However, there are some important facts you need to know now, as well as some that are coming at various intervals over the next several years.
Immediate Provisions
The bill made some "immediate" provisions to insurance policies, which need to be met within one year of the date the law was signed. Beginning in September 2010, children cannot be excluded from coverage due to pre-existing conditions. (This provision applies to adults in 2014.) Also in September, insurance companies will be prohibited from dropping insured people after they get sick, and the provision bans limits on lifetime coverage limits, prohibits policies that provide insurance only to higher-wage employees, and allows dependent children to be insured on their parents' policies until their 27th birthdays. In all, the bill has 18 such short-term provisions affecting everything from coverage limits to Medicare.
Of course, these changes are just the start of reform. After all, the bill is approximately 2,600 pages of "broad strokes." It will be up to the government agencies that implement and oversee the new system--such as the Department of Health and Human Services, the Internal Revenue Service, state insurance commissions, and others--to figure out how the details will be carried out. That is happening now.
At the heart of the bill are state-based exchanges called the American Health Benefit Exchanges and the Small Business Health Options Program (SHOP) Exchanges. Administered in each state by the government or a nonprofit institution, these insurance marketplaces will offer qualified health insurance options for individuals and small businesses with up to 100 employees. They will be in place by 2014. In 2017, businesses with more than 100 employees will be able to purchase insurance through the SHOP exchanges.
Tax credits: Starting this year, businesses with 25 or fewer full-time equivalent employees and that pay an average annual wage per employee of less than $50,000 are eligible for tax credits for a portion of their premium contributions. These employers must contribute at least 50 percent of the premium cost. Through 2013, the tax credit will equal 35 percent of the employer's contribution. However, that maximum will only be available to businesses with 10 or fewer employees whose annual wages average $25,000 or less. As the number and employee wage average increases, the credit amount decreases. After tax year 2014, eligible businesses that purchase their insurance through a state exchange can receive tax credits of up to 50 percent of their contributions on the same sliding scale for two years.
"There should be about 4 million small businesses that can take advantage of this," says Hayley K. Matz, spokesperson for the Small Business Administration. Analysis by the Congressional Budget Office and Joint Tax Commission in November 2009 estimated that only about 12 percent of those with coverage in the small group market would benefit from the credits in 2016. The IRS has devoted a section of its website to information about the bill, including tax credits.
Help insuring early retirees: PPACA also provides $5 billion to fund the temporary Early Retiree Reinsurance Program, which will help businesses continue to provide health-care coverage for early retirees age 55 and older who are not yet eligible for Medicare. The program started June 1, and assistance is available by contacting the U.S. Department of Health & Human Services (HHS). The program will end on Jan. 1, 2014, when other options will be available through the bill's state-run exchanges.
The fund will reimburse employer plans up to 80 percent of claims costs for health benefits provided to retirees, as well as their covered spouses and dependents, totaling between $15,000 and $90,000. Expenses incurred prior to June 1 in the calendar year are credited toward the $15,000 threshold. Only medical expenses incurred after June 1 or after the threshold is met, whichever is later, are eligible for reimbursement. However, a study by the Employee Benefits Research Institute estimates that the $5 billion provision will only sustain the program for two years.
Grandfathered insurance plans: Starting in 2014, all employer-offered coverage will need to comply with some of the bill's basic provisions, such as pre-existing condition coverage and increased dependent minor coverage until age 27. However, the bill also "grandfathers" policies that were in place on March 23, 2010, when the bill was signed into law, as long as they don't make major changes to benefits coverage or employee contributions. "Some policies are changing to comply with the law now, before it's required. If it's a change the insurance industry is required to make to a grandfathered plan, it will not bump people out," says Amanda L. Austin, director of federal public policy for the National Association of Independent Business, a national business advocacy group with headquarters in Washington, D.C.
High-risk pools: Another immediate provision in the bill is an additional $5 billion in funding for high-risk pools, which offer health insurance to those who cannot obtain coverage due to pre-existing conditions. Some states have opted not to set up their own high-risk pools and instead have opted to let the federal government set up pools they can access, says John Arensmeyer, CEO of Small Business Majority, a small-business advocacy group with headquarters in Sausalito, Calif. "Twenty-eight percent of self-employed people don't have health insurance. They should immediately check with their state's high-risk pool to see if they might be eligible to buy insurance there when they perhaps haven't been able to buy it through traditional sources," he says. That would apply primarily to self-employed people with a pre-existing condition, he adds.
Compliance and fines: In navigating the health-care reform maze, size matters. Businesses that have 50 or more full-time employees and that have at least one employee who is assessed a premium tax credit--tax credits that will be available to individuals, based on income level, to offset premium costs--could face a fine of $2,000 per full-time employee beyond their first 30 full-time employees. If your company has more than 50 full-time employees, offers coverage, and has one or more employees receiving a tax credit, it will be assessed the lesser amount of $3,000 for each employee receiving a premium credit or $2,000 per employee beyond the first 30 employees.
What's Coming
In addition to these immediate aspects, small businesses also need to take a look at what's coming in the years ahead, Arensmeyer says. "You need to be aware of the changes that are coming and how they're being implemented."
And there are plenty more changes coming. National Federation of Independent Business analysis cites fewer deductible medical expenses, an increase in Medicare payroll taxes on wages, and self-employment income in excess of $200,000 ($250,000 joint) will increase to 2.35 percent and is not indexed to inflation, and flexible savings account contribution limits will be capped at $2,500 per year. In addition, if you offer more than "minimum essential coverage" under the law, your policy may face an additional tax to the insurance company, which will likely be passed along to you, says Arensmeyer. Employees may opt out of employer-offered plans and are then entitled to employer-sponsored vouchers that help them purchase individual policies in the exchanges.
There will also be changes at the individual level that may affect small-business owners and shareholders, including new taxes of 0.9 percent for individuals earning more than $200,000 individually ($250,000 for married couples) and a new 3.8 percent tax on unearned income, such as income from investments, real estate and business investments for high-income taxpayers. The Kaiser Family Foundation has published an excellent overview of the changes and when they take effect.
What You Need to Do Now
If you have or plan to have more than 50 employees by 2014, it's probably a good idea to sit down with an accountant or qualified financial advisor and take a look at which provisions apply to you to begin planning for them, says the National Association of Independent Business's Austin.
"There are several different phases of the bill, as far as implementation," she says. "It's important to know what is going to affect you and when it will affect you."
Arensmeyer agrees that it's critical for business owners to educate themselves and speak out through the channels available to them to help shape implementation. Various state and federal agencies are in the process of determining exactly how these changes will be implemented, so it's time to make your voice heard. He encourages business owners to voice their opinions directly to government entities, including their state insurance commissioners, which will be very involved in setting up the exchanges, as well as through organizations like Small Business Majority, Chambers of Commerce, trade groups, and other business-related organizations.
"This is going to be a constant process of providing input to the states and to the federal government, which is writing regulations," Arensmeyer says. "This is not the end of the game. This is a dynamic process and an interactive process going forward. It's not too early to start weighing in on these issues, even though they don't take effect until 2104."
Fact or Fiction?
Rumors are flying about health-care reform. Here are a few that we've heard, as well as the real deal on each.
Health-care coverage is now reported as income on W2 forms and taxed as such.
Real Deal: No. While the cost of health insurance and some other related expenses must now be reported on an employee's W2 form, it is for information purposes only and not considered taxable income. The total is not used in calculating the individual's tax liability.
Businesses need to start sending 1099 forms to Staples.
Real Deal: Maybe. Beginning in tax year 2012, if you spend $600 or more on business-related purchases with any supplier or vendor over the course of a year, you must gather that entity's tax identification number and issue a 1099 for the total purchased. However, several of the small-business advocates and agencies interviewed for this piece are awaiting further direction from the IRS on this matter, so keep an eye on the agency's website for updates.
Businesses that offer tanning services face a new tax.
Real Deal: Yes. As of July 1, 2010, there is a new 10 percent tax on indoor tanning services. Some medical devices will also be assessed new taxes. In 2013, certain medical devices will also face a new 2.3 percent tax.
Employees who belong to certain religious groups, such as Muslims, Christian Scientists and Amish citizens, are exempt from health-care reform requirements.
Real Deal: Unclear. At this point, it appears that the exemption primarily applies to Amish citizens. However, more guidance on this matter will likely be issued by the Department of Health and Human Services.
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