Impact of healthcare reform on small business


Business Matter

By Manish Shah

According to SCORE, the organization that provides free counseling to small businesses, there are an estimated 29.6 million small businesses in the United States. Small businesses account for 99.7 percent  of  all US  firms and employ just over half of the country’s  private sector workforce. These statistics prove that small businesses are the lifeblood of the US economy.

Small businesses have always gotten a raw deal on health insurance. As someone, who owned and operated a small company, I can personally attest to the steep increases in health insurance premiums year over year. The healthcare reform is the administration’s attempt to level the playing field for small businesses.

The implications of this reform will vary based on the number of full-time employees at a small business. If you’re self-employed with no employees, you will be able to shop in the health care exchanges for insurance. You may also qualify for tax credits that apply to individuals and families, but you will not be treated as a small business.

Small businesses with 1-24 employees will qualify for tax credits if the average wage of their employees is less than $50,000 a year and if they contribute at least 50 percent towards the employees’ premiums. These businesses will be able to claim up to 35 percent in tax credits beginning this year.  Starting in 2014, they will be able to claim up to 50 percent in tax credits provided they buy coverage through the new exchanges.

Small businesses with 25-49 employees are not eligible for the new tax credits. However, beginning in 2014 they will be able to buy coverage through the health care exchanges. If the small businesses are content with their existing coverage it will be “grandfathered” and they will be able to keep it. They will also have the option of choosing plans which are sold outside the exchange.

Small business with 50-100 employees are not eligible for the new small business tax credits but will be offered coverage through the new exchanges. These firms will be subject to penalties for not insuring their employees.  The penalty will be $2,000 per employee with an exemption for the first 30 workers.

While it appears on paper that the reform will benefit small businesses, its success hinges on how well it is implemented. As Yogi Berra has said, “In theory there is no difference between theory and practice. In practice there is.”

Manish Shah is the former president of Midwest Law Printing in Chicago. He also worked at Intel, PwC and Motorola. He has an MBA from Kellogg Graduate School of Management, and a MS in Computer Science from Illinois Institute of Technology. He can be reached at

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