Health care reform (4): Tax credits for small business

This is the fourth in an ongoing series of posts looking at the impact of the new federal health care reform law on Oklahoma and Oklahomans. Our previous posts have explored the “cliff effect” , the  impact on state budgets and the Temporary High Risk Pool. For full information on health care reform, the Henry J. Kaiser Family Foundation website is excellent. If you have thoughts on health care reform, we encourage you to contribute a comment or a guest blog.

Most people who have been following the Affordable Care Act, the new health care law passed earlier this year, know that the law will strengthen the individual market for health insurance coverage, by offering subsidized coverage on the new health insurance exchanges, and expand access to public coverage for low-income families through Medicaid. What is less well known and understand is that the Affordable Care Act also includes several important mechanisms for strengthening the beleagured employer-based system of health insurance coverage, especially for small businesses that currently face the greatest challenges in offering coverage to their workers and where the rates of the uninsured are currently the highest.

A recent report from Families USA looks at one of the most important provisions of the new law, tax credits for small businesses that will provide significant help with the cost of coverage. Beginning this year, businesses with fewer than 25 workers and average wages of less than $50,000 will be eligible to receive a tax credit for the health insurance premiums they provide to their employees.  The smallest firms with the lowest wages will be eligible for the maximum credit, which is 35 percent of the cost of coverage, or 25 percent for non-profits. The credit will phase down for businesses with more employees and higher average wages. Businesses that are already offering coverage, as well as those opting to cover the workers for the first time, will be eligible for the credits. After 2014, when the new health insurance exchanges will be operating, credits will increase to 50 percent of the cost of coverage, or 35 percent for non-profits.

According to estimates provided in the Families USA study, 50,300 Oklahoma small businesses – or six out of every seven businesses with 25 or fewer employees – will be eligible for a premium tax credit in 2010. Of these, some 18,200 are estimated to be eligible for the maximum 35 percent credit.

Oklahoma in recent years had already made a priority of assisting small businesses with the cost of health insurance  through the creation of Insure Oklahoma. Under this program, the cost of insurance premiums for low-income workers and their spouses is shared between employers (25 percent), employees (15 percent) and the state and federal governments (60 percent). Just over 18,000 employees of small businesses and their spouses were covered under Insure Oklahoma in August 2010. The new federal tax credits should complement and enhance the state’s efforts with Insure Oklahoma: according to Families USA, “small employers are eligible for the [new federal] tax credit even if they already receive assistance from their state to help them buy coverage from their workers.”

The new law includes other measures to help small businesses and their employees in the coming years. Right now, a new government website, healthcare.gov, provides a list of all companies offering small business plans in a given zipcode; by October the website will provide standardized information on plan benefits and costs to allow for better and easier comparisons. In 2014, the new health insurance exchanges for small businesses and individuals will be operating under a strict set of rules regarding benefits and industry practices aimed to promote access to quality coverage and competitive cost.

Even with eligibility for tax credits of up to 35 percent – or 50 percent beginning in 2014 – some small business owners will undoubtedly still decide they cannot afford or simply do not wish to offer health insurance to their employees (Unlike businesses with over 50 employees, small businesses will not face any potential penalty for choosing not to provide coverage). But for many small businesses here in Oklahoma and around the nation, the tax credits and market reforms included as an integral part of the new health care law can be expected to make the difference in creating access to quality, affordable care.