What Does the Ryan Healthcare Plan Mean for Small Business Owners?
The Obamacare repeal and replacement bill proposed by Paul Ryan last year has been named the American Health Care Act and is working its way through Congress. Regardless of how you feel about the bill, it’s increasingly certain that it will pass so it’s time for small business owners to start planning for it. Here are the provisions that will have the biggest impact.
Elimination of the Employer Mandate
The bill entirely eliminates the employer mandate. Employers will no longer be penalized for failing to provide health insurance to employees regardless of the size of the business.
Employers will be free to choose whether to offer health insurance as a benefit.
Change From Income-Based Subsidies to Tax Credits
Obamacare’s income-based subsidies will turn into fixed-dollar tax credits based on age. The credits will range from $2,000 for those under 30 to $4,000 to those over 50.
This will impact the ability of sole proprietors to lower their health insurance costs. Under Obamacare, sole proprietors could offset their income using business losses or deductible retirement plan contributions to receive a higher subsidy. This option is no longer available with the flat-rate credits.
Repeal of Cadillac Tax and Medicare Tax Increase
The Cadillac tax on high-cost health insurance plans will be delayed until 2025, and Republicans intend to eliminate it entirely before that date.
The 0.9 percent Medicare tax on high-income taxpayers is also set for elimination. This tax currently applies to both employment income and business profits from pass-through entities such as sole proprietorships and partnerships. The 2.9 percent base Medicare tax will remain in place.
Repeal of Small Business Health Insurance Tax Credit
The small business health insurance tax credit will be repealed. This credit is currently available to businesses with less than 25 full-time-equivalent employees making an average of less than $50,000 per year. The credit covers up to half of the employer’s health insurance premium contributions for its employees during its first two years of offering health coverage.
Employer health insurance contributions will remain a deductible business expense.
What to Do
Business owners should immediately prepare a budget under the revised system to determine the financial impact of the changes. Business owners who plan to reduce or eliminate health insurance benefits once the mandate is repealed should begin working with their employees to ensure a smooth transition and negotiate appropriate adjustments to the total compensation package.
While the law will likely change before the final vote, the general framework is in place and forecasting for the worst-case financial scenario will leave you in a secure position regardless of the final outcome.