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Health Care Reform Helps Small Businesses Offer Coverage: Report

By Steven Reinberg
HealthDay Reporter

THURSDAY, Sept. 2 (HealthDay News) -- As the provisions of the Affordable Care Act begin to be implemented, many small businesses in the United States will be able to take advantage of new tax credits, a new report shows.

During the first phase of the act, some businesses employing some 16.6 million workers will be eligible for these tax credits, according to the report released Thursday from the Commonwealth Fund.

"The new law is likely to have a significant impact on affordability and access to health care coverage for small business owners and employees," Commonwealth Fund president Karen Davis said during a press conference Wednesday.

Research has shown that small companies pay more than large companies for the same health care coverage, Davis said. "Small firms face higher premiums due to higher costs in the small business market related to administration, marketing, brokers' fees and other overhead," she explained.

Many small businesses find health insurance is not affordable so they do not offer coverage, Davis noted. But, provisions of the Affordable Care Act target small businesses, she said.

The tax credits designed to offset health insurance premiums and help small businesses afford health insurance will start this year, Davis said.

By 2013, as many as 3.4 million workers may work in companies that take advantage of the tax credit. These credits increase in 2014, from 35 percent of the employer's premium contribution to up to 50 percent, she noted.

According to the report, small businesses need help in being able to provide their workers with health insurance. Almost all (98 percent) of large companies cover their employees, compared with 46 percent of businesses with fewer than 10 employees.

Also, in companies with fewer than 50 employees, 52 percent of the workers are uninsured or under-insured.

Based on the provisions of the Affordable Care Act, the Congressional Budget Office estimates these tax credits could provide as much as $40 billion in support to small businesses over the next 10 years, reducing health insurance premiums by 8 percent to 11 percent by 2016, the report says.

More savings will be seen by 2020 through provisions that reduce administrative spending and increase competition among insurers participating in state and federal insurance exchanges, Davis said.

To qualify for the tax credits, eligible employers must pay at least 50 percent of their employees' health insurance premiums, according to the report. The credits are determined by the size and average wage paid by the company.

The tax credits will increase to 50 percent of the premium contributions in 2014, but they are limited to two years. Tax-exempt groups are also eligible for the tax credits, but at a lower rate, according to the report.

In addition to the tax credits, several other of the act's provisions going into effect this year will benefit small businesses and their employees:

  • Limits on administrative costs. Starting this year, health plans will have to report the amount of premiums not spent on health care. In 2011, plans insuring small businesses and individuals will have to limit spending on administrative costs to not more than 20 percent of premiums. Plans that spend more will have to give rebates to enrollees.
  • The act also requires state and federal governments to review any increase in premiums, which could also keep costs low.
  • In 2014, small businesses will be able to insure their employees through state health insurance exchanges, which pool members in programs to lower costs. All plans will limit out-of-pocket costs to $5,950 for a single person and $11,900 for a family. Deductibles for small businesses can be no larger than $2,000 for a single person or $4,000 for a family.
  • All plans sold in exchanges will have to provide a standard, comprehensive benefit package.
  • In 2014, plans cannot deny coverage or refuse insurance to those with existing medical conditions.
  • Those working for small businesses who aren't offered insurance by their employers can buy health insurance through the insurance exchanges.
  • People with families of four with incomes up to $88,000 will be eligible for subsidies to help them pay their premiums.

In addition, Medicaid is being expanded to include everyone earning up to 133 percent of the federal poverty level, which is $29,327 a year for a family of four, according to the report.

William Donelan, vice president for medical affairs at the University of Miami Miller School of Medicine, said that "this may be among the most important components of the overall bill."

"It really does target a population of Americans who work in small businesses and make relatively modest wages," he said. "This is a group of people who have rapidly joined the ranks of the uninsured, because their employer can't afford it and they can't afford it in the individual insurance marketplace."

Also released Thursday: A report from the Kaiser Family Foundation and the Health Research & Educational Trust says that employees are now paying almost $4,000 toward the cost of health insurance, which is an increase of 14 percent, or $482, above what they paid last year.

According to the report, the increase occurred even though the total premiums rose only 3 percent, to $13,770 this year.

Since 2005, employees' contributions to premiums have risen 47 percent, while overall premiums rose 27 percent, wages increased 18 percent, and inflation rose 12 percent, the researchers pointed out.

Many employers are also raising deductibles. Twenty-seven percent of workers now have annual deductibles of $1,000, up from 22 percent in 2009. Among small firms, 46 percent have such deductibles, the survey found.

"High out-of-pocket expenses and premiums affect health-care decisions for patients. If premiums and costs continue to be shifted to consumers, households will face difficult choices, like foregoing needed care, or reexamining how they can best care for their families," Maulik Joshi, president of the Health Research & Educational Trust and senior vice president for research at the American Hospital Association, said in a statement.

More information

For more information on affordable health care, visit the Commonwealth Fund.

SOURCES: William Donelan, vice president, medical affairs, University of Miami Miller School of Medicine, Fla.; Sept. 1, 2010, teleconference with: Karen Davis, president, The Commonwealth Fund; Sept. 2, 2010, report, Realizing the Potential of Health Reform: Small Businesses and the Affordable Care Act of 2010; Sept. 2, 2010, Kaiser Family Foundation and the Health Research & Educational Trust report, 2010 Employer Health Benefits Survey

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