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The Effects of Health Care Reform on Small Businesses

An analysis of the effects of the recent legislation for reforming the health care system on small businesses, including an overview of the legislation and the laws dealing specifically with the new responsibilities for small businesses.
by

Daniel Sarfati

on 26 April 2010

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Transcript of The Effects of Health Care Reform on Small Businesses

Health Care Reform and Small Businesses An analysis of the recent legislation for reforming the health care system and its effects on small businesses, including an overview of the legislation and the laws dealing specifically with the new responsibilities for small businesses. The purpose of this report is to inform small business owners about:
what changes to anticipate,
how they can benefit from the new system,
and how they could possibly suffer from it. Small businesses play an important role in the US economy.
The vast majority of firms in the United States are small, and these firms account for a substantial share of private sector employment.
Firms with fewer than 20 employees accounted for 25 percent of net employment growth from 1992 to 2005, which was 40 percent greater than the corresponding rate for all other firms.
The vast majority of new firms, which are a critical source of innovation and growth in our economy, begin as small businesses. On average, small businesses pay up to 18 percent more than large firms for the same health insurance policy. There are three primary reasons for this difference:
Small businesses generally pay high broker fees for their policies; these fees typically range from 2 to 8 percent of premiums.
The fixed costs to a private insurer can be spread over many more employees in large firms.
Small firms pay an additional amount per covered individual because of “adverse selection.”
Largely due to the higher costs they face, small businesses are far less likely than large businesses to provide health insurance for their workers. By slowing the growth rate of costs and expanding coverage, health care reform will attempt to:
raise living standards
spur economic growth
help tame the budget deficit
improve the efficiency of the labor market
These effects should be felt throughout the economy and could help all businesses grow and thrive. Purpose Conclusion Current State of Health Care tax increases the cost of the plan The new legislation includes $494 billion in new taxes, fees, and penalties on individuals and businesses. "affordability" of coverage The CBO estimates premiums for individuals without employer-sponsored health insurance will increase 10-13%. Only an estimated 19 million people will receive subsidies to help pay for their coverage. This means that approximately 14 million people will be required to purchase health insurance that is more expensive than under current law. The CBO also concludes that the new legislation will do little to control increases in health insurance costs for small and large businesses alike. Premiums for small businesses could increase by 1% or be reduced by up to 2%. Premiums for large employers could remain unchanged or decline up to 3%. The bill would create a tax on employers with more than 50 full time workers if their employees receive a subsidy through the exchange.

The mandate will increase taxes on employers by $28 billion.

Even with this penalty, CBO estimates that five million Americans would lose their employer coverage under the bill.

CBO also has confirmed that these new taxes will ultimately be paid by workers—particularly low-income workers—through reduced wages and lost jobs. The Congressional Budget Office (CBO) estimates that the coverage provisions in the bill will cost $848 billion over 10 years (fiscal years 2010-2019) Most of the provisions don't take effect until 2014; this implies that
10 years of revenue is paying for 6 years of coverage. Instead, the real cost of 10 years of coverage (2014-2023) is about $2.5 trillion. The Effects of the Current Health System The Overall Economic Effects of Reform The Importance of Small Businesses Small Businesses and the US Economy Benefits of Reform for Small Businesses Criticism of Health Care Reform Small Businesses and the US Economy Benefits of Reform for Small Businesses Introduction Criticism of Health Care Reform Introduction Proposed Solution legislation for small businesses goals of reform overview The Overall Economic Effects of Reform The Effects of the Current Health System The Importance of Small Businesses Employer-provided health insurance for employees of small businesses is not federally mandated, but is widely done and considered the norm. According to a study by the NFIB, the number one concern of small business owners is the cost of providing health care for their employees. the rising cost the norm the concern "Free rider"mandate Stunts entrepreneurship The new legistlation seeks to benefit small businesses in the following ways
Establishing tax credits
Ending price discrimination
Increasing health care security
Reducing premiums
Creating health insurance exchanges The problems facing the new legislation include:
Significant increases in taxes
The actual cost of the plan
The affordability of coverage As a small business owner, you should anticipate receiving government funding in the form of tax credits and you should familiarize yourself with your state's insurance exchange policy.

Overall, you will likely see immediate and direct benefit from the new legislation.

However, it is important to realize that the 'collateral effects' of reform might come to outweigh those initial benefits down the line. Questions?
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