Small Business

Health-Care Proposals: The Impact on Small Business


Here's a look how reform proposals from the House and a Senate committee would affect both the self-employed and small business owners

How do the health care reform proposals stack up for entrepreneurs? After months of discussion, Congress finally released detailed plans that will have broad consequences for small business owners. The House's proposal was released July 14, and the plan from the Senate Health, Education, Labor, & Pensions Committee on July 15. A third proposal, from the Senate Finance Committee, is forthcoming. Any health reform plan Congress passes will be stitched together from the framework established by these three bills.

Here's a look at how the proposals from the House and the Senate Health, Education, Labor, & Pensions Committee will affect three categories of entrepreneurs: individuals who work for themselves but have no employees; small employers that are exempt from some of bills' requirements; and larger employers subject to new mandates.

The House Version

For the self-employed:

All individuals would be required to buy health insurance or face a fee. Self-employed workers could buy insurance through a new national health insurance exchange (or smaller state and regional exchanges), including a public plan option. Insurers could not restrict coverage for people with pre-existing conditions. Government subsidies would be available on a sliding scale to prevent people from paying more than 11% (less for lower-income workers) of their income on insurance. Individuals who don't buy insurance would face a tax penalty of 2.5% of the difference between their adjusted gross income and the tax filing threshold (about $9,000 for single filers in 2008).

For small employers:

The House plan requires all employers to provide coverage if they have at least $250,000 in payroll. Companies would have to contribute 72.5% of their workers' premiums (or 65% for family coverage). Those that don't would face a payroll tax, starting at 2% for companies with a payroll of $250,000 and increasing on a sliding scale to 8% for those with more than $400,000. The House plan would offer small employers with low-wage workers a tax credit toward premium costs that would phase out for companies with higher wages and more workers. Some employers could let their workers buy insurance through the exchange.

For larger employers:

Companies with payroll above $400,000 would have to contribute at least 72.5% to workers' premiums or face the 8% penalty. They would be required to automatically enroll workers in coverage. Tax credits would not be available for companies employing more than 25 people or who have workers with average salaries above $80,000.

For more, see the House summary

The Senate Health, Education, Labor, & Pensions Version

For the self-employed:

Individuals are required to buy insurance. Those who don't would face fees of up to $750 per year. Individual insurance, including the public plan, could be purchased through "gateways" similar to the exchanges in the House bill. Insurers would be banned from restricting coverage based on pre-existing conditions or claims history. Subsidies would be available for individuals with incomes within four times the poverty level ($88,000 for a family of four).

For small employers:

Companies with fewer than 25 employees are exempt from so-called pay or play requirements. Employers with 50 or fewer full-time workers that pay 60% or more of their premiums will get tax credits for up to three years to offset the cost of coverage. Small businesses (as well as self-employed workers) could join in statewide buying pools to reduce premiums.

For larger employers:

Companies with more than 25 employees that pay for less than 60% of premiums face $750 annual penalties for each full-time worker ($375 for part-time) beyond the first 25.

For more, see the committee's summary.

Tozzi covers small business for BusinessWeek.com.

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