Let’s take a time out from the political heat surrounding the health care reforms recently signed into law by President Barack Obama for a moment and instead take an objective look at one aspect of the real-world impact of the bill.
In particular, let’s focus on the bill’s Small Business Health Care Tax Credit. The intent of the tax credit is to provide incentives for small companies to help pay for their employees’ health insurance, rather than drop them into publicly subsidized pools. After all, from 2002 to 2008, the number of American companies with three to nine employees offering health insurance to their workers declined from 58 percent to 49 percent, according to the U.S. Department of Health & Human Services.
The tax credit is retroactive to Jan. 1, 2010. So, this year, small businesses will receive tax credits to cover up to 35 percent of the premiums they pay for employee health insurance. In 2014, the rate will increase to 50 percent.
The Congressional Budget Office estimates that the tax credit will save small businesses $40 billion by 2019.
Both small for-profit businesses and small not-for-profit organizations are eligible for the credit. Small businesses that initiate new coverage this year will get a tax cut as well.
The Council of Economic Advisors estimates that 4 million small businesses are eligible for the credit if they provide health care to their workers.
To qualify for the tax credit, a small business:
- Must have less than the equivalent of 25 full-time workers (e.g., a firm with fewer than 50 half-time workers would be eligible).
- Must pay average annual wages below $50,000.
- Must cover at least 50 percent of the cost of health care coverage for their workers.
Tax-exempt nonprofit organizations are eligible for a 25-percent tax credit in 2010. In 2014, that rate will increase to 35 percent.
The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
To avoid creating an incentive to choose a high-cost plan, an employer’s eligible contribution is limited to the average cost of health insurance in that state.
The impact of the bill on larger corporations is a bit more convoluted at this point.
According to a summary of the bill by the Reinhart Boerner Van Deuren S.C. law firm in Milwaukee, by 2014, larger employers (50 or more workers) that fail to provide reasonable coverage for employees will potentially pay penalties.
The bill has prompted at least 15 large corporations, including AT&T Inc., Verizon Communications Inc., Boeing Inc., Lockheed Martin Corp., Ingersoll-Rand PLC, Deere & Co., Caterpillar Inc., AK Steel Holding Corp. and Goodrich Corp., to warn investors they will absorb up to $2.8 billion in one-time charges for the health care plan because they will lose government subsidies through Medicare Part D.
However, in the long term, improvements in Medicare prescription coverage and the creation of private exchanges that would provide more affordable insurance to individuals could allow some of those larger companies to stop providing insurance to retirees altogether, saving millions in expenses.
Congress has called for a hearing on Wednesday, April 21, when the House Energy & Commerce Committee will ask the chief executive officers of the large corporations to testify about the impact of the reforms.
Steve Jagler is executive editor of BizTimes Milwaukee.
