Association Benefits Corporation

NEW YORK (CNNMoney.com) -- The sweeping health-care bill passed by the House of Representatives Sunday, and now headed for President Obama's desk, promises a sea change in the way that small business owners purchase and provide health insurance for themselves and their employees.

But many of the provisions won't kick in until 2014 -- and the final rules could still be changed by amendments that will now be considered by the Senate.

Thanks to the political maneuvering that followed the Democrats' loss of a filibuster-proof majority in the Senate, the House passed two separate health care bills. The first was an exact duplicate of the one passed by the Senate in December, enabling the president to sign it into law as soon as this week.

The second, a package of diverse amendments addressing elements of the Senate bill that the House wanted changed, will now be voted on in the Senate under "reconciliation" rules that require only a simple majority.

For small businesses, the effects of the now-passed health reform law include:

·         By no later than 2014, states will have to set up Small Business Health Options Programs, or "SHOP Exchanges," where small businesses will be able to pool together to buy insurance. ("Small businesses" are defined as those with no more than 100 employees, though states have the option of limiting pools to companies with 50 or fewer employees through 2016; companies that grow beyond the size limit will also be grandfathered in.)  The Congressional Budget Office has estimated that the exchanges would ease small business insurance costs, albeit only marginally: premiums in the small-group market are forecast to fall between 1% and 4% under the exchanges, while the amount of coverage would rise by up to 3%.

·          For the next four years, until the SHOP Exchanges are set up, businesses with 10 or fewer full-time-equivalent employees earning less than $25,000 a year on average will be eligible for a tax credit of 35% of health insurance costs. (Companies with between 11 and 25 workers and an average wage of up to $50,000 are eligible for partial credits.The tax credit will remain in place, increasing to 50% of costs, for the first two years a company buys insurance through its state exchange. The Congressional Budget Office predicts that the tax credit will affect about 12% of individuals covered via the small-group insurance market, lowering their cost of insurance by between 8% and 11%.

·         Insurers will no longer be able to set rates or exclude coverage based on pre-existing conditions, and can vary premiums only by geographic location, age, and tobacco use. These restrictions, however, would not kick in until 2014. Going into effect immediately: a ban on lifetime limits on coverage, and on "rescission" (canceling policies already issued) except in cases of fraud.

·         Starting in 2014, businesses with more than 50 employees will be required to either offer healthcare coverage or pay a penalty of $750 a year per full-time worker. The coverage offered will also have to meet minimum benefits -- covering both a specific set of services and 60% of employee health costs overall -- or else employers will face additional penalties.

·         So-called "Cadillac" plans costing more than $10,200 a year for individuals or $27,500 for family coverage (not counting dental and vision plans) will be subject to a 40% tax on the portion of the cost that exceeds the limit. Though the tax would actually be paid by insurers, it's expected that it would be passed along to plan holders in the form of higher premiums.  Furthermore, if the House amendments approved Sunday pass the Senate intact under the reconciliation process, some other small business provisions will change:

·          Part-time employees would be counted toward the 50-employee minimum on pro-rated basis based on hours worked, bringing more small businesses into the group required to provide coverage.

·         The $750-per-employee penalty for not providing insurance would rise to $2,000.

·         The Cadillac tax would be delayed until 2018 and apply only to the most expensive plans, making it more of a "Maserati" tax, in the words of Kaiser Health News.

·          Individuals earning more than $200,000 a year, or couples earning $250,000 or more, would be hit with a 3.8% surcharge on investment income to help pay for the bill.

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What's next: For the immediate future, all eyes will likely be on the SHOP Exchanges, which can receive federal aid as soon as next year, though most states probably won't implement them until closer to the 2014 deadline.

"The departments of insurance and the governors' offices and the legislatures will all start thinking about that stuff," said New America Foundation director of health policy Len Nichols in a January interview. "It'll take a while."

Meanwhile, says Nichols, a small business owner "is going to be buying tomorrow in the same market they are today," because the new markets aren't going to be set up until 2014. 

As health care costs rise, we recognize that employers are reviewing alternative options that allow them to continue providing affordable health care benefits to employees and their dependents.

Most insurance carriers offer product choices for individuals and families.  However, these products are not filed with the Washington Insurance Commissioner’s Office as group plans, and as such, the products are not designed to meet state and federal guidelines for group coverage, including ERISA regulations.

If any employers are considering individual plans in place of group coverage, it is critical that they are fully aware of all legal and tax implications.  We strongly advise that they consult their legal and tax advisors before making a final coverage decision.