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Affordable Health Care and Taxes

(October 2012) posted on Wed Nov 07, 2012

What every print service provider needs to know: the employer mandate, the individual mandate, the exchanges, and much more.

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By Mark E. Battersby

Already in effect, the Small Employer Health Insurance Tax Credit appears to be under-utilized. The Government Accountability Office (GAO) recently reported that only 176,300 of the 1.4 to 4 million small businesses eligible actually claimed the credit in 2010. One reason, according to the GAO: the perceived complexity of computing the tax credit.

The individual mandate
The impact for sole proprietors and others with no employees will be much like the impact on individuals. For people in this group, the crux of the 2014 rollout is the individual mandate, which requires all US citizens and legal residents to have health coverage or pay a penalty.

There are some exemptions, however, such as those from certain religious backgrounds and those who are eligible for the so-called “hardship exemption” if the cost of the annual premium exceeds 8 percent of household income.

Penalties have been established to ensure compliance. Once fully phased in, the top penalty for individuals for not having insurance is $695 or 2.5 percent of income – whichever is greater.

Minimal qualified insurance
Regardless of size, no print shop can purchase just any insurance to avoid the penalties. The operation must provide “minimum essential” and “affordable” coverage.

“Minimum essential” coverage means covering 60 percent of the actuarial value of the cost of the benefits. And “affordable” means the premium for the coverage of the individual employee cannot exceed 9.5 percent of the employee’s household income.

If the coverage offered by a large employer is unaffordable, qualifying employees can obtain subsidized coverage through the state exchanges (which I address later). In these cases, the employer will have to pay the lesser of $3000 per subsidized fulltime employee, or the $2000-per-employee penalty after the first 30 fulltime employees.

So the mandate is adding an expense for sole proprietors and owners of small businesses – especially those with no employees – who must now buy health insurance for themselves or pay a fine. But sole proprietors and small-business owners also get the new option to buy insurance on state exchanges, which are intended to lower costs for everyone by expanding the pool of insured and spreading out risk.

The exchanges
The ACA requires each state to establish both an American Health Benefit Exchange and a Small Business Health Options Program (SHOP Exchange), to provide qualified individuals and qualified small-business employers access to health plans.