If you own a small business and are struggling to pay for employees' health insurance, the new health-care law could provide quick financial help. The smallest businesses could get temporary tax credits that effectively pay for up to 35 percent of their premium contributions. Slightly larger businesses could get smaller credits.
But the tax credit comes with several strings, and not everyone thinks it will do enough.
Blake Anderson, owner of a small construction company in Durham, N.C., is one of the optimists. When he started Innovative Renovation three years ago, he explored buying coverage for himself, his business partner and the seven workers he had at the time. But when a broker told Anderson that his heart condition, which will require a valve replacement at some point, would make the insurance prohibitively expensive, "the conversation ended there," he says. Now he's taking another look.
Here's what he'll see: Starting this year, businesses with 10 or fewer employees (or equivalent part-time workers) and average annual wages of less than $25,000 will be eligible for the full 35 percent credit. (The owner's salary is not included.) Above those thresholds, the credit gradually decreases until it's completely phased out for companies with at least 25 full-time workers and average wages of $50,000 or more.
Between 1.8 million and 4 million businesses are estimated to be eligible for the credit. Companies have to pay at least 50 percent of the premiums for their employees' health insurance to qualify. Nonprofit enterprises are eligible for tax credits of up to 25 percent.
To figure out how big a tax credit your company might qualify for, use the calculator at the website of the Small Business Majority, an advocacy group that supports the new law. You claim the tax credit on your federal income tax return.
That's the system you'll use until 2014, when the state-based insurance exchanges, or marketplaces, will begin to sell coverage. From then on, the credit will be available only to small businesses that buy insurance on the exchanges. But it will also increase - to a maximum of 50 percent for small private companies and 35 percent for nonprofits. Because the new law is supposed to make insurance generally more accessible by this time, the benefit will be time-limited: Each small business will be able to take the credit for only two years.
Marsha Geist hopes to take advantage of the credit. Geist and her husband own a landscaping business in Dayton, Md. Two of their eight employees get health insurance through the company, and the Geists pay 100 percent of the premiums, or about $9,300 annually.
Critics say the credit is too complicated and doesn't solve the underlying problem for small business owners: the rising cost of insurance. "As long as costs keep going up, the credit is going to become less valuable," says Bill Rys, tax counsel for the National Federation of Independent Business.
Alan Sayler, who owns a water-treatment equipment business in Florida, views the tax credit as just a way to "buy off small businesses like me so we won't complain about the shortcomings of this bill." That said, Sayler figures he'll qualify for a $1,700 credit against the roughly $7,000 he pays annually to insure two of his employees. "I'd be foolish not to take it," he says.
John Arensmeyer, founder and chief executive of the Small Business Majority, calls the tax credit a huge step, and Jonathan Gruber, an MIT economics professor who has been a technical consultant for the Department of Health and Human Services, agrees. If a 35 or 50 percent discount doesn't make insurance affordable, "I don't know what you could do besides provide it for free," Gruber says. "That's a really big discount."
And if the insurance is still too expensive for some small businesses, even with the tax credit, they don't have to offer it. Employers with 50 or fewer employees are exempt from penalties for not offering coverage. Once the exchanges open in 2014, employees will be able to start buying coverage there if their employer doesn't provide it. "Employer health insurance will always be important, but we're moving into a world where there will be other options," Gruber says.
This is a weekly column covering consumer questions about the new health law. If you have questions or ideas for future topics, please email us: