By Deanna C. White
Criticism of "Obamacare" and promises to repeal the Patient Protection and Affordable Care Act (PPACA), a.k.a. the new health care reform law, President Obama's historic overhaul of the nation's health care system, were two of the hottest topics at the 2012 Republican National Convention.
But since the June 28 US Supreme Court decision to uphold the majority of provisions of the health care reform law, most small business owners, and the CPAs who serve them, have begun to scrutinize how the law will impact them when implemented in 2014.
The law contains several key provisions that will influence small businesses and the management of their companies' health insurance policies, including the opportunity for many small businesses to shop for lower cost group policies on state exchanges. In 2014 and 2015, that provision will apply to small businesses with fifty or fewer employers. The threshold will rise in the following years.
According to the official White House website on the health reform law, many small businesses will be able "to pool their buying power and reduce administrative costs" by purchasing insurance through state exchanges.
The law also provides a tax credit to help make purchasing through the exchanges more affordable. The tax credit is applicable to small businesses that employ fewer than twenty-five full-time equivalent employees (FTEs), whose average salary is below $50,000 if they're paying a portion of their worker's insurance.
Because of the individual mandate, the law requires everyone to purchase a health insurance plan by 2014, including independent entrepreneurs who also will be able to purchase insurance through a competitive exchange.
Companies with fifty or more FTEs must provide health insurance or pay fines.
According to Marcus Newman, vice president and registered health underwriter at GCG Financial of Bannockburn, Illinois, and the founder of the Small Business Research Group in Chicago, the tax penalties included in this law will create dramatic changes in the way CPAs deal with their small business clients.
"If I'm an accountant working with a small business client, they're going to expect me to get into why and how they offer health insurance to their employees. I'm going to have to help them consider whether it's more valuable for them to go to an exchange or a private insurer, and I'm going to have to help them calculate how many full-time equivalent employees they have", Newman said. "The CPA is going to be right there on the front line for all of this."
It's a role, Newman says, those CPAs need to begin preparing for. Immediately.
Newman says the main shift in the function of the CPA will be encompassed in two key factors embodied in the small business portion of the health care reform law: (1) the need to define the size of the business based on FTE's vs. annual revenue, and (2) the expectation of a CPA's clients to help them determine the amount of tax credit available and whether or not that outweighs the benefit of continuing to offer their employees the known commodity of private insurance.
Newman said CPAs will need to be aware of several critical issues raised by the health care reform law:
- The definition of small business in now defined by FTEs vs. annual revenue, the model accountants have traditionally used.
- CPAs will now likely be expected to calculate the number of FTEs a business employs. "It's not just defining a full-time employee as someone who works thirty hours or more, but combining the hours part-timers work", Newman said. "If the business has two part-time employees who each work fifteen hours, it will count as one employee. If the business has ninety part-time employees, you might be mandated to offer coverage, and if the business isn't in compliance, it could be fined up to $2,000 per employee.
- Newman also expects small businesses, those with fewer than twenty-five employees who aren't mandated to purchase group insurance, to look to their tax advisor to determine whether purchasing group insurance through the exchange is worth the benefit of the tax credit offered under health reform.
- Financial advisors also may be asked to help determine how continuing to offer private insurance vs. an exchange plan will help them to attract and retain high-quality employees.
Newman is quick to point out, however, that the health reform law could offer several boons to small businesses and their employees, mainly by placing everyone in the larger exchange insurance pool that provides more competitive, cost-controlled insurance rates than the current private market system and by offering owners and employees alike the benefit of guaranteed issue insurance.
"For all of us in small business, this should be a good thing", Newman said. "The overall claims experience of the high-risk/unhealthy employee group should improve, and this should have a demonstrative effect on cost control in the insurance market. The exchange argument should be good for everyone."