Senate Health Tax Credit Falls Short
Will the small business tax credit help small business owners provide insurance?
As part of H.R. 3590, the Patient Protection and Affordable Care Act, the Senate is considering a small business tax credit, which supporters claim will help small business owners to provide health insurance to their employees. But will this credit really help?
The Proposed Credit
The small business health tax credit included in H.R. 3590 would provide a tax credit for 50% of the employer’s health care costs. The credit is available for 2011, 2012, and 2013 and then two additional years if the employer purchases coverage in the health insurance exchange.
A business with 10 or fewer employees with a per employee compensation level of $20,000 or less is eligible for the full credit. The credit phases out in two ways:
- The number of employees from 11 to 25 and
- Compensation between over $20,000 up to $40,000.
Concerns about the credit’s effectiveness
The number one challenge facing small employers that provide health insurance is the rising cost. Small businesses tend to operate on a very thin profit margin, so any increase in the cost of doing business – such as annual, double-digit premium increases – presents a real challenge to small business owners.
A tax credit that provides a substantial financial incentive and is available for an extended period of time could help to reduce the cost of health care. A tax credit that does not meet these requirements will have a limited impact, if it has any impact at all.