More than 85.7 percent of Ohio small businesses with fewer than 25 employees will be eligible this year for tax credits to help pay the cost of employee health coverage, according to a new report issued by Families USA and Small Business Majority.
The tax credit program, a part of the Patient Protection and Affordable Care Act, targets small employers with up to 25 workers. In Ohio, this means 127,800 small businesses out of a total of 149,100 small businesses will qualify. Nationally, more than 4 million small businesses – 83.7 percent – are eligible in 2010 for the credit.
The report, “A Helping Hand for Small Businesses: Health Insurance Tax Credits,” also notes that 38,900 Ohio small businesses will qualify for the maximum tax credit of 35 percent. These are businesses that employ 10 or fewer workers who earn an average wage of less than $25,000, and traditionally have the most difficult time affording insurance. The credit is completely phased out for employers with more than 25 full time workers or with average wages of more than $50,000. In both cases, businesses must cover at least 50 percent of each employee’s health insurance premiums.
“Many small businesses – like the local diner, the hardware store down the street, or the neighborhood repair shop – face special challenges in providing health coverage for their small number of employees,” said Families USA Deputy Executive Director Kathleen Stoll, in a teleconference with media on Wednesday. “They will now receive substantial help.
“For example, in 2008, employers with fewer than 10 workers had to pay, on average, nearly $350 more for each employee’s health insurance than firms with 50 or more workers,” Stoll said. “It’s no surprise, therefore, that less than half of these smallest businesses offered coverage to their employees. This new tax credit should certainly help to improve that record.”
Small businesses are financially less able to provide health coverage for their workers than larger businesses. Nationally, 72 percent of small businesses with 10 to 25 workers offer health coverage, while more than 95 percent of businesses with 50 or more workers offer coverage, said Cathy Levine, co-chair of Ohio Consumers for Health Coverage.
The new law aims to redress that imbalance with tax credits, offering the maximum credit of 35 percent to the smallest companies. Nonprofit employers also benefit, with a maximum credit of 25 percent. As the number of employees and their average wages rise, the tax credit is reduced on a sliding scale.
To further provide assistance, the law allows employers to count two half-time workers as one full-time worker, meaning that an employer with mainly part-time workers will be able to qualify for the tax credit.
“Employers have been willing to provide health coverage for their employees, but economies of scale have made this almost impossible for many small businesses,” Levine said. “Starting this year, they will have access to a new tax credit to help provide this essential benefit, enabling them to hire and keep good workers who want and need health coverage.”
“There’s been a lot of speculation about how many small businesses will qualify for tax credits, and this report clears up a lot of those questions,” said John Arensmeyer, founder and CEO of Small Business Majority. “We now have real numbers that show the vast majority of small businesses in Ohio will qualify for tax credits under the new law. That’s huge.”
The report notes that the health reform law has additional provisions to aid small businesses now and in coming years. Among those provisions:
– Starting this month, small business owners are able to view all existing health coverage options in their state on a user-friendly website.
– Starting in 2014, small employers will be able to purchase quality coverage with strong consumer protections through state-based health coverage marketplaces called “exchanges.”
– Starting in 2014, small employers will be eligible for tax credits up to 50 percent, or 35 percent for nonprofits, to cover their workers with policies obtained through the state exchanges.
– Starting in 2014, insurers will be prohibited from charging small employers higher premiums based on their workers’ pre-existing conditions.
– In addition, the act addresses “medical loss ratio” by requiring health plans for small businesses “to spend at least 80 percent of the premium dollars that they receive on providing medical care and improving health care quality for enrollees, instead of on administration, marketing and profits.”
The study was done for Families USA and the Small Business Majority by The Lewin Group.
On the other side, the NFIB maintains that “the tax credit is not a panacea for small businesses.”
Bill Rys, NFIB’s tax counsel, maintained in a release that while, “[s]upporters claim 4 million small businesses are eligible for the credit … less than 2 million small businesses will receive it. And those that do receive a credit aren’t guaranteed a large check. Words and data are funny things – the use of ‘eligible’ versus ‘would receive’ certainly changes the meaning. And if you only look at part of the equation you miss some important numbers.
“For example, the latest research shows how many small businesses will be eligible, but it doesn’t take into account whether the firms even offer health insurance. Of the four required criteria to receive a credit – they only looked at two pieces (firm size, average wage). They leave out whether the business offers insurance and pays for half (both are required to receive a credit). The truth is about one-third of firms under 25 employees offer insurance. And, the lower the average wage of a firm, the less likely they are to offer insurance.”
The organization goes on to maintain on its website that, “Very few small businesses will actually qualify for the tax credit … early estimates by CBO [Congressional Budget Office] cite that just 12 percent of the small business population would benefit in any way.
“The credit is very restrictive and puts small business owners through a series of complicated ‘tests’ to determine the actual amount of the credit. Three conditions must be met for small businesses to qualify for any portion of the credit: 1. Business size – Very few small firms will receive the full credit (only firms with 10 employees or less). For firms with 11-25 employees, the credit is reduced per employee. Firms with more than 25 employees get NO credit. 2. Average employee wages – The credit is tied to the average wage of workers. Only firms who pay their workers $25,000 or less are eligible for the full credit. The credit is reduced as the average wage goes up, stopping at $50,000. (Note: Average wage for a firm with 10 or fewer employees is approximately $27,000.) 3. Employer contribution – Only firms covering 50 percent or more of insurance costs will be eligible.
“The credit is only available for a maximum of six years, but health care costs will continue to increase well after those six years.”