Small business clients have been hard-hit by increased healthcare expenditures over the past 10 years, so it's not surprising that the healthcare reform bill has many of them anxious and confused. The Obama administration intended for the bill to extend coverage to more workers without causing harm to small businesses. But at a daunting 2,000 pages, the new law is complex, and many business owners are anxiously trying to sort out whether they will be helped or harmed by the new mandates.

In part, it's too early to tell. A February study by RAND Health projects that overall medical spending will increase by 2% as more individuals become insured and use more healthcare. While other reports by health providers also find that costs will increase, a Congressional Budget Office report, by contrast, indicates that costs will remain about the same. Small businesses currently pay more than large corporations for coverage, and provisions in the bill, like the new state-based health insurance exchanges, are predicted to cut costs for small firms by 20% to 30% over time. "There are a bunch of studies out there, but the results are not consistent, so it's unknown whether costs for business owners are going to go up," says Daniel Sulton, a healthcare attorney with Ford and Harrison in Spartanburg, S.C.

Even if the bill's provisions succeed in lowering overall premiums in the employer-sponsored market by 2019, as experts hope, it may be a bumpy ride for individual small business clients. Will they be able to survive and grow if they are on the hook for thousands of dollars each month to provide benefits for employees? Once the new mandates kick in, will they be able to compete effectively for workers? Should they try to keep grandfather status on the plan they have currently?

IMMEDIATE CHANGES

Financial advisors need to help small business clients devise a strategy for healthcare, both for now and for the coming years. Small business owners who qualify for the new tax credits also need guidance about how to take advantage of them and how to determine whether the credits will be enough to allow them to offer insurance coverage to their employees. "The message to get out is that the sky is not falling; the changes between now and 2014 are very important, but are not going to be earth-shattering. The key is to take it year by year," says Carlos Castresana, principal of EDIFY, a Fort Lauderdale, Fla.-based health benefits consulting firm.

Some provisions of the new legislation go into effect immediately-such as the tax credit giving back 35% of a firm's premium contributions. Some will kick in over the next few years, such as the provision creating state-based health insurance exchanges, which will enable small businesses to pool together to purchase insurance.

The concern is, especially for the smaller clients, that some stipulations could increase costs in the short term. "Initially, in the window between now and 2012, there may be a cost increase for small companies. Certain provisions will make health insurance more expensive, such as allowing for adult child coverage and doing away with caps," Sulton says.

Effective six months after enactment of the bill, dependent children of employees will be able to stay on their parents' health plans until the age of 26, even if they are married. Practically speaking, for some clients the increased cost may be immediate, rather than a few months farther away.

"Most small employers have a fully insured health plan, and most of the major health providers-like Blue Cross, Cigna and United-have said they would adopt this provision [by early this year], and allow current dependents to remain covered even if they would otherwise have aged out of the plan," Sulton says. This development could be less than welcome news for small employers who were expecting to be relieved of their duty to provide coverage for the grown children of employees.

Clients will also face some increased reporting requirements, which come with their own costs. For example, starting in January 2011, employers must disclose on W-2 forms the dollar value of health insurance coverage provided to their employees. "This sets you up so in that 2014, when a number of mandates will kick in, the government can see whether the employer is contributing," Sulton says.

Advisors may find it helpful to share with clients a timeline showing the main provisions of the legislation and the years they become effective. A good one is available on the website of the Commonwealth Fund at www.commonwealthfund.org/Content/Publications/Other/2010/Timeline-for-Health-Care-Reform-Implementation.aspx.