SOURCE: National Association for the Self-Employed

National Association for the Self-Employed

August 11, 2009 09:03 ET

It's (Big) Business as Usual in Washington, D.C., Says NASE

Current Health Care Reform Proposals Leave Self-Employed to Foot the Bill

WASHINGTON, DC--(Marketwire - August 11, 2009) - The NASE recently spoke out on current health care reform legislation, which is notably missing two items that would have a substantial effect on the affordability of coverage for the self-employed. The NASE has been vocal in its support for allowing the self-employed to deduct their health care costs as a business expense. The Association has also advocated for improving Health Reimbursement Arrangements (HRAs) to allow the self-employed business owner to participate in the plan along with their employees. Unfortunately, neither provision has been included, nor offered as an amendment, in the current larger health reform bills.

"With close to 23 million Americans taking care of their families and creating jobs through self-employment, Congress would be wise to pay attention to the needs of this growing demographic," said NASE executive director Kristie Arslan. "Unfortunately, this has not been the case with health reform."

Earlier this year, legislation was introduced in the House (H.R. 1470) and Senate (S.725) to allow small firms to deduct health costs as a business expense. The tax code currently permits corporations to both deduct health insurance premiums and to forgo payroll taxes on these expenses. In addition, the employees of these corporations can pay for health coverage with pre-tax dollars. Unfortunately, the same tax benefits are not extended to sole proprietors. As a result, these business owners must pay 15.3% in self-employment taxes -- their payroll taxes. For example, a business owner paying $6,000 per year for health insurance must also pay $918.00 in additional self-employment taxes because of this inequality in the tax code.

Another cost-saving proposal before Congress is to open eligibility for HRAs to small business owners. An HRA is a flexible benefit option allows small business owners to reimburse employees tax-free for out-of-pocket medical costs, including health insurance premiums. A key benefit of an HRA is that they do not require the business owner to purchase a group health plan; therefore, setting up an HRA can offer some financial assistance to employees of micro-businesses who are unable to afford group health insurance.

"Regrettably, expansion of Health Reimbursement Arrangements is not on the radar screen of policymakers on the Hill," Arslan remarked. "In fact, we have heard rumblings that Senate Finance Committee may actually want to take away their tax deductibility in order to help finance their health reform proposal."

Read more about health reform and other legislative priorities of the NASE at http://www.nase.org/Advocacy/TopFedIssues.aspx.

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