Leaving a steady job to start a company or work for a small business can be an exhilarating experience, but it can also be scary. Consistent pay, employer- sponsored training, and workplace sociality are all reasons that people hesitate to start or join new firms. Even more troublesome for most entrepreneurs, however, is the fear of losing health insurance. Traditionally, health insurance has been tied to employment and only the biggest firms could afford high-quality group plans.
Recently, however, that connection was broken with the passage of the Affordable Care Act. The 2010 law, sometimes referred to as Obamacare, greatly expanded the availability and affordability of private coverage through the establishment of exchanges. These exchanges facilitate the purchase of health insurance in each state. By allowing people to buy health insurance without the help of an employer, these Obamacare marketplaces provided a major boon to small businesses. Specifically, they benefit small business in the following ways:
Obamacare Marketplaces Eliminate Job Lock.
For decades, would-be entrepreneurs have been stuck in their old jobs, handcuffed by their own health benefits. This phenomenon has been termed “job lock” or “entrepreneur lock” by many economists.
Dane Stangler, vice president of research and policy at the Kauffman Foundation, explained Obamacare’s impact on this problem: "Entrepreneur lock has proven to be a significant barrier to potential entrepreneurs. To the extent the Affordable Care Act unlocks that job lock — that entrepreneur lock — one effect is to provide a boost to entrepreneurship overall.” Spangler has asserted that the Affordable Care Act will facilitate the creation of 25,000 new businesses each year.
Exchanges Make Small Businesses More Attractive Employers.
Obamacare may be motivating more people to start businesses, but not all of the benefits belong to the entrepreneurs. In the old days, large companies were more attractive employers because they had the ability to provide high-quality health insurance as part of their group plans. Because people can now purchase health insurance without relying on assistance from their employers, they have more choices when it comes to selecting a job and finding a career. Many people that prefer to work in small businesses now have the ability to leave behind large corporations without the fear of losing their health insurance.
Exchanges Allow Small Businesses to Offer Health Benefits.
The Affordable Care Act does more than allow people to purchase their own coverage. It also allows those same small businesses to reimburse premiums as a benefit to their employees. In order to stay compliant with current laws and regulations, companies must set up a formal Section 105 Medical Reimbursement Plan. Using these plans, companies are allowed to reimburse employees for qualified medical expenses, including health insurance premiums. Best of all, qualified reimbursements are not subject to income tax or payroll tax.
By offering health benefits packages, small businesses can compete with large corporations to attract and retain top-tier talent.
When it comes to starting a company or working for a small business, there are a lot of things to be nervous about. Thanks to the recent passage of the Affordable Care Act, however, buying quality health insurance doesn’t have to be one of them. The healthcare exchanges set up under Obamacare are here to stay and their presence is a great thing for small business in America. By eliminating job lock, making small businesses attractive employers, and allowing for tax-free premium reimbursement, these marketplaces will continue to level the playing field for small companies.
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