To view Mr. Kabateck’s PowerPoint presentation on the new health law and its impact on small business, click here.
NORTH BAY – Health care costs are the No. 1 concern for small businesses, and the new federal law passed early this year is injecting more uncertainty into the picture, said John Kabateck, executive director for California for the National Federation of Independent Business.
“It is the biggest concern from small businesses, and there is nothing in the health care law to keep costs down,” he told attendees at the Nov. 18 health care issues conference put on by the Business Journal.
According to a study by the Kaiser Family Foundation, policy premiums have risen 74 percent for small businesses in the last eight years.
Now comes health care reform, which will raise a number of questions for small business owners starting now, Mr. Kabateck said.
Among the rules:
Small Business Healthcare Tax Credit. “A small segment of the small business population will see some relief,” said Mr. Kabateck.
From 2010 to 2013, the credit to employers is 35 percent of their health care costs, and starting in 2014, it is a 50 percent credit for two years if the business purchases insurance through the exchanges.
The longest a business owner can claim this credit is four years outside the exchange and two additional years within the exchange.
A business qualifies if it offers health insurance, pays 50 percent of premiums, employs fewer than 25 people and pays an annual average wage of less than $50,000.
There are limitations for businesses that do qualify. Family members as employees are excluded from the employment count, including the owner. Family is broadly defined to include immediate family as well as aunts, uncles, nieces and nephews. Also, the self employed are exempt.
Grandfathered plans. For grandfathered plans, which are those that were in place on March 23 when the new law passed, businesses have three choices, Mr. Kabateck said. They can keep the old policy at a new cost, buy a new plan or drop coverage altogether and pay a fine.
There are new regulations on how to keep the plans, and if the business owner decides to buy a new plan he or she will be exposed to new requirements as well as new rating and benefit packages in 2014.
A federal study found 80 percent of small businesses will not be able to maintain their grandfathered plan, Mr. Kabateck said.
1099 reporting. For 1099 reporting, beginning in 2012 the new health care law requires businesses to send form 1099 for every business-to-business transaction of $600 or more cumulatively, for property and services and incorporated and unincorporated transactions.
“The 1099 provision is a sham,” said Mr. Kabateck. “It has nothing to do with health care reform; it has everything to do with funding this program."
He said he thinks it will be repealed.
He said the rule as it stands will force the average small business to file two forms per transaction.
“So once you do business with the vendor you have to submit a form to the vendor and one to the IRS for almost every single business-to-business relationship,” he said.
Though all businesses will be affected, small businesses are seen as being particularly hard hit because they lack the legal and accounting acumen needed to comply and deal with the added paperwork.
The IRS says about 85 million 1099s are filed each year. The National Small Business Association predicts that an average business will have to file 95 forms a year under the new rules, compared to the current average of fewer than 20.
According to the Office of the Taxpayer Advocate, “the new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance.”
Mr. Kabateck said the new requirement in the health care law was forecast to raise $17 billion over the course of 10 years.
Also affecting small business is the individual mandate.
Starting in 2014, all U.S. citizens and legal residents must have qualifying health coverage or pay penalties. Mr. Kabateck said many businesses his group represents don’t believe small business owners should be required by the U.S. Constitution to obtain health insurance.
In addition, there is a tax on small business health insurance plans. Businesses will have to pay an annual fee in the fully-insured small group and individual market. Self-insured and unions plans are exempt.
Mr. Kabateck encouraged small business owners to consult with their accountant and attorney to determine exactly where they stand under the law.
