What health care reform means for your business

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. 

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Geithner promises mortgage fix

Geithner acknowledged that devising a new system to finance U.S. house purchases would be a "complicated, consequential" process. He emphasized that he hasn't "seen an ideal model" to replace the current arrangement, which is widely viewed as undesirable because of its role in inflating the housing bubble and the conflict between Fannie and Freddie's profit-seeking and public policy missions.

But with the Senate moving ahead on reform of bank regulation, "we're at a point to begin" the process of shaping housing-finance legislation, Geithner said. "I don't see why it should take years."

Republicans in Congress have accused the administration of dragging its feet on reforming the housing finance system. Fannie and Freddie have taken $127 billion in Treasury aid since their collapse in September 2008, and Geithner said Tuesday the government will eventually recognize "substantial losses" from running the companies.

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At the same time, Geithner said it would take time to create a plan that keeps mortgage credit widely available, protects consumers and ensures the financial system remains stable.

Fannie and Freddie have emerged as central to the administration's support for the nation's troubled housing markets. The Treasury's funding for the companies and the Federal Reserve's purchases of their debt have kept U.S. mortgage rates at historically low levels, making houses more affordable and offering some support to tattered bank balance sheets.

While some Republican plans would eventually remove the government from the mortgage business altogether, Geithner said he believes there is "a quite strong economic and public policy case" for federal mortgage guarantees of some sort. He cited the need for "a stable housing finance market."

Geithner said the administration will solicit comments starting next month from "a wide variety of constituents, market participants, academic experts, and consumer and community organizations." 

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Manufacturing (ISM)

Economists expected the index to fall slightly to 58.0, according to a consensus compiled by Briefing.com.

"It's obviously a weak report, but it follows a strong January report, which was the strongest we've seen in six years," said David Wyss, chief economist for Standard & Poor's. "We think a lot of this is weather-related."

In general, an index reading above 50.0 indicates manufacturing growth, while anything below 50 signals contraction. A reading above 42.0 generally implies expansion in the overall economy, making February the tenth consecutive month of economic growth.

The monthly report surveys ISM members, who are purchasing managers in the manufacturing industry.

Of the 18 manufacturing industries reporting, 11 posted growth including categories such as machinery, apparel, paper products, and computer & electronics. Five sectors reported contraction, including wood products, furniture & related products, and primary metals.

Employment: The employment index, a measure of growth in manufacturing jobs, also rose, reaching 56.1 from 53.3 in January. This is the third month of employment growth and the highest reading since January 2005.

"With these levels of activity, manufacturers are seemingly willing to hire where they have orders to support higher employment," said Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee in a press release.

While 10 of the 18 manufacturing industries posted job growth, four reported declines, including construction-related industries such as wood products and furniture & related products.

"Construction is the most weather-dominated industry," said Wyss. "It's clearly not turning around yet."

New orders and production: The ISM's new orders index and production index both fell to just below 60 in February.

The index of new orders for manufactured goods, a forecast of manufacturing activity in the near future, declined 6.4 percent to 59.5 in February. Still, this was the eighth consecutive month that the index was above 50.2, indicating growth in new orders. Wyss attributed the decline in new orders to stormy weather in February, which was in many places the worst on record.

The ISM's production index was 58.4, down from 66.2 in January, marking the ninth consecutive month the production index has been above 50.

"We think the first quarter will stay positive but not by much," said Wyss. "You always have to take these winter reports with a grain of highway salt." 

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The bottom line on Medicare tax hikes

But first, what's certain: The Medicare payroll tax is going up for individuals making more than $200,000 in wages, and couples making more than $250,000.

Currently, the Medicare payroll tax is 2.9% on all wages -- with the worker and his employer each paying 1.45%.

Under the new law, starting in 2013, high-income individuals will pay another 0.9 percentage points -- so their share will total 2.35% of their wages.

A single person making $250,000 would pay an additional $450 a year into Medicare relative to what he pays today, according to calculations by Deloitte.

If he made $1 million, he would pay an additional $7,200.

Couples making $500,000 in wages would pay an additional $2,250. If they made $1 million, they would pay an additional $6,750.

If the so-called reconciliation bill that the House passed on Sunday is eventually approved by the Senate, high-income households would also be subject to a new 3.8% Medicare tax on investment income starting in 2013.

What qualifies as investment income, also known as "unearned income"? Capital gains, dividends, interest, annuities, royalties and rents are some examples. Any investment income that had previously been characterized as "tax exempt" would not be subject to the new tax, however.

Here's how the new tax on investment income would work: It would hit those people whose gross income (roughly speaking, wages plus investment income) exceeds the $200,000 threshold for individuals or $250,000 for couples.

But because of how the proposal is structured, you might not owe the 3.8% tax on all your investment income. Here's why: the tax would apply to whichever is less -- your investment income or the amount that your modified adjusted gross income (AGI) exceeds the high-income threshold.

Say you have $50,000 more in modified AGI than the threshold. If your investment income exceeds that amount, you would only owe the 3.8% tax on $50,000.

So how might a high-income person's tax bill change overall if the Medicare wage tax is increased and a new Medicare tax on investment income is also imposed? A single taxpayer making $1 million in wages and $100,000 in capital gains income would pay an additional $11,000 into Medicare than he does today, according to Deloitte.

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Deloitte notes that it's possible that even if a person's total income exceeds the income threshold, he may only be subject to the Medicare investment tax but not the increase in the Medicare payroll tax.

Say a person makes $190,000 in wages and on top of that takes in $30,000 in investment income. That person would not be subject to the increased Medicare payroll tax because his wages fall below the threshold, but he would have to pay the new investment income tax because his total income exceeds the $200,000 threshold.

Raising the Medicare tax on wages would raise an estimated $87 billion over 10 years. But if it's combined with a new Medicare tax on investment income, the revenue collected would jump to $210 billion, making it the biggest single revenue raiser to help pay for health reform. 

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Retail Sales

February's increase showed that Americans were still making it to the stores despite the snow and cold weather last month and customers were splurging on electronics for the Super Bowl, said Chris Donnelly, a senior executive at consulting firm Accenture.

February retail sales jumped 3.9% compared to the same month in 2009.

"This is consistent with the trend we've been seeing," said Donnelly. "We've seen a gradual thaw in the consumer pocketbook, and there is pent up demand -- we are certainly in a more optimistic place in February 2010 than in February 2009."

Consumer spending accounts for two-thirds of U.S. economic activity, and related reports such as retail sales are used to gauge whether a recovery is underway.

The monthly rise in sales was led by a jump in electronics and appliance store sales, which rose 3.7% last month. Purchases of TVs and other electronics leading up to Super Bowl Sunday, which took place early in the month, was likely a large part of this increase, said Donnelly.

The reading was weighed down by auto sales, which fell 2% after dropping 1.5% in the previous month.

Sales excluding autos and auto parts rose 0.8% last month, also beating expectations. A consensus of economists had projected ex-auto sales to edge up 0.1% in February.

Earlier in the month, many of the nation's retail chains reported much stronger than expected February sales.

Sales tracker Thomson Reuters, which looks at monthly same-store sales for 30 chains including Costco and Target, said February sales rose 4% in February, beating analyst expectations.

Donnelly said retail sales are likely to pick up more in the next few months as the season changes and consumers shop for spring and summer clothing.

"In January, February and March as a three-month stretch, there's not a lot of excitement," he said. "But at the end of March and in April and May, you will see a lot more people spending on apparel as the spring comes out, and a pick up in apparel will be a very encouraging sign."

In a separate report last week, the Labor Department said fewer jobs were lost in February than expected, boosting optimism about a recovering labor market. 

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Fewer bank stickups despite recession

The FBI reported significant declines in all four categories of bank crimes: robberies fell 13%; burglaries were down 17%; larcenies declined 32% and extortions dropped 62%.

A spokeswoman at FBI headquarters in Washington said the agency does not normally comment on what causes bank crime statistics to go up or down because there are so many variables in the nationwide numbers.

"It's difficult to say why the numbers trend one way or the other," said Special Agent Richard Kolko, an FBI spokesman in New York. "But it's definitely a good thing when they go down."

James Fox, a professor of criminology at Northeastern University in Boston, said the drop in bank crimes is consistent with a decline in overall crime statistics.

He said improved surveillance technology and other "target hardening" advancements have contributed to the decline in bank crimes, particularly robberies and burglaries.

"It's a very high risk crime now and criminals know that," he said. "There are easier ways to reap rewards from a life of crime."

The decline in bank crimes came amid one of the worst economic recessions on record and a double-digit percentage spike in unemployment. But criminologists said joblessness or financial hardship are not usually the factors that cause law-abiding citizens to become criminals, as the statistics suggest.

"The idea that citizens turn to crime to make ends meet when the economy goes bad is common belief, but an incorrect one," Fox said.

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The FBI said loot was taken in 91% of the bank crimes committed last year. That's unchanged from 2008.

The total amount taken was valued at roughly $46 million, the bureau said. More than $8 million was recovered and returned to financial institutions.

The most common modus operandi, or method used, of bank robbers last year was the "oral demand," followed by the use of a "demand note," the FBI said. Firearms were the third most common MO and the use of a "weapon threatened" was the fourth.

Perpetrators used or threatened the use of explosives during one incident of bank extortion last year, while robbers made threats by telephone during two other incidents, the FBI said.

The FBI said acts of violence were committed during 269, or 4%, of the reported bank crimes, including 75 instances involving the discharge of firearms, and 47 instances of hostage situations.

Among those acts of violence, there were 21 that resulted in deaths, all of which were perpetrators. Additionally, there were 140 injuries, and 94 persons were taken hostage.

While nine officers were injured during the reported incidents, no law enforcement officers were killed responding to bank crimes in 2009, the FBI said.

The FBI said Friday was the most common day of the week for bank crimes, while the hours between 9 a.m. and 11 a.m. were the most common time of day. Most violations occurred in the South, with 2,048 reported incidents. 

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Gas prices expected to flatten

That's an increase of 8.6 cents since the last survey two weeks ago, and a total increase of 18.2 cents in the past month.

However, the rise is not expected to continue over the next few weeks, said publisher Trilby Lundberg -- mainly because there is a glut of crude oil and gasoline, while demand remains relatively flat and is forecast to remain so because of economic conditions.

"Supply, barring an emergency somewhere in the world, is not going to be tight," Lundberg said.

Worldwide, the demand for crude oil weakens in the summer months because warmer weather decreases the need for heating oil, she said.

While demand for gasoline typically increases in the summer months in the United States, the struggling economy and high unemployment rates probably will dampen that demand, she said.

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And Lundberg said she doesn't expect the Organization of the Petroleum Exporting Countries (OPEC) to stop overproducing -- "not at these prices." So while prices may rise a few more pennies, the increase is predicted to slow, she said.

The current average price is 86 cents above the price of a gallon of self-serve a year ago, Lundberg said. The survey tallies prices at thousands of gas stations nationwide.

The city with the lowest average price in the latest survey was Newark, New Jersey, at $2.60. The highest was Honolulu, Hawaii, at $3.38.

Here are average prices in other cities:

Houston, Texas - $2.65 Phoenix, Arizona - $2.77Detroit, Michigan - $2.81 Atlanta, Georgia - $2.73 Portland, Oregon - $2.86 Boise, Idaho - $2.87 Burlington, Vermont - $2.90 Sacramento, California - $3.03 Miami, Florida - $2.84  

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