American Health Care "Reform" And Really Small Businesses: Enough To Make You Sick
To help small business owners understand the new small business "Health Care Tax Credit," the IRS has released a new FAQ. For one-person companies, consultants working solo, or small businesses operated by only a few family members, the new tax credit offers nothing.
Reading the FAQ:
If an owner of a business also provides services to it, does the owner count as an employee?
Generally, no. A sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit. Thus, the wages or hours of these business owners and partners are not counted in determining either the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.
Do family members of a business owner who work for the business count as employees?
Generally, no. A family member of any of the business owners or partners listed in Q/A-14, or a member of such a business owner’s or partner’s household, is not considered an employee for purposes of the credit. Thus, neither their wages nor their hours are counted in determining the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.
In other words, no matter how little an entrepreneur earns, she will not receive the credit, if she operates a sole proprietorship, an S corporation, an LLC, or a partnership. In general, businesses with 25 or fewer employees and average annual wages of less than $50,000 may be eligible to receive a tax credit, if they pay health insurance premiums for their employees. So, for example, a computer consulting firm paying its full-time employees (FTEs) more than $50,000 each won't benefit from the new tax credit. But, a small restaurant owner paying employees $16,000 per year could receive a credit for health insurance provided to non-family employees.
Alas, for ultra-small businesses, rising health care costs are a huge issue, and it appears there is nothing on the horizon that will rein in these costs. For example, an entrepreneur earning $40,000 per year might well have health insurance premiums of $8,000 representing 20% of his income. And, many entrepreneurs have seen their health insurance rates increase upwards of 10% year after year.
According to a New York Times blog article, health care spending in 2009 represents a staggering 17.3% of the nation’s gross domestic product and grew by 1.1% over 2008. The blogger noted, "This represents the biggest one-year expansion of health care’s share of the economy since the federal government began keeping records in 1960."
While spending on health care as a percentage of GDP is up, surprisingly, according to a USA Today article: "Spending on doctors, hospitals, drugs and other medical care climbed at a 2.7% annual rate per person in the first half of 2010, the smallest increase since the Bureau of Economic Analysis began tracking medical care in 1959."
While America spends an average of $6,565 per person on health care, the USA Today article concluded that people are "forgoing medical care during the recession." Assuming those statistics are accurate, it seems Americans are paying more for less healthcare. And, when people are struggling financially, they don't see the doctor, even if they medically should.
In February 2010, Anthem Blue Cross announced that its 800,000 individual policy holders in California should brace for significant rate increases, as much as 39%. Thirty-nine percent? On a $6,000 policy that would be $2,340. Anthem Blue Cross argued it wasn't just being greedy—it had to increase premiums, because more people were dropping their plans. It's the harsh economy, you know. With fewer people able to afford healthcare, those who can still afford healthcare must pay more for it. Stated another way, as a country, we're paying a higher percentage of GDP for health care and seeing the doctor less.
Economist Paul Krugman wrote a piece for the New York Times, explaining Anthem Blue Cross's plight. He called it the insurance "death spiral." As more people drop coverage, or take less expensive, high-deductible plans, the costs for those still in the plan pool rises. Healthier people tend to be more likely to drop coverage and take their chances, while the seriously ill struggle to keep health insurance. This means health insurance costs rise for some, while others lack healthcare.
Another blurb I came across on the Internet announced that Liz Fowler, vice president of public policy at WellPoint, who helped to write the Federal Health Reform Bill, is joining the Obama Administration to help implement the new healthcare reform. WellPoint is the parent company of Anthem Blue Cross.
So, to sum up, it appears the so-called healthcare reform bill won't help ultra-small companies, nor will it do anything to reduce the increase in healthcare costs. The legislation was written by healthcare industry insiders to help private companies make more money by having the government pay for health insurance for the poor (who, I believe, should receive healthcare). For middle-class entrepreneurs, this reform offers little. It's enough to make you sick. Until America has single-payer healthcare, hardworking entrepreneurs with smaller businesses will always be at a disadvantage in acquiring quality, affordable healthcare.