New tax credit opens health coverage to small-firm employees
GLADSTONE, Mo. — Major insurers around the country are reporting that a growing number of small businesses are signing up to give their workers medical benefits, a sign of potential progress for the nation’s battered health-care system.
The increase, although not universal, has brought new security to thousands of workers, many of whom did not have insurance or were at risk of losing it.
An important selling point has been a tax credit for companies with fewer than 25 employees and moderate-to-low pay scales that is part of the nation’s new health-care law. It is one of the few provisions to kick in early; much of the law rolls out over the next few years.
“We certainly did not expect to see this in this economy,” said Gary Claxton, who oversees an annual survey of employer health plans for the nonprofit Kaiser Family Foundation.
For insurers, the market presents a big opportunity. Nationally, three-quarters of businesses with 10 to 24 workers offer benefits. About half of those with nine or fewer employees provide a health plan. By comparison, 99 percent of firms with more than 200 employees offer benefits.
Some insurers are reporting significant jumps in coverage.
In the six months after the law was signed in March, UnitedHealth Group Inc., the country’s largest insurer, added 75,000 customers from companies with fewer than 50 employees. It called the increase notable but declined to reveal further details.
Coventry Health Care Inc., an insurer in Maryland that focuses on small businesses, signed new contracts to cover 115,000 workers , an 8 percent jump, in the first nine months of its fiscal year.
In California, Warner Pacific Insurance Services, a major servicer of insurance brokers, experienced business growth of more than 10 percent in the past year, a company executive said.
And Blue Cross Blue Shield of Kansas City, the largest insurer in the Kansas City, Mo., area, is reporting a 58 percent jump in the number of small businesses buying insurance since April, the first full month after the legislation was signed into law.
The independent, nonprofit insurer has been particularly aggressive in marketing the new tax credit, which can mean a discount of as much as 35 percent for very small companies with low payrolls.
For Bistro Kids, a small business in the Kansas City suburb of Gladstone that serves school meals made from locally grown, organic produce, the deal was too good to pass up. Founder Kiersten Firquain had been keeping a file of health insurance quotes. But every year, the prices seemed to get more out of reach.
Now, she is offering her 10 chefs a standard individual preferred provider organization plan with a $1,000 deductible and $30 co-pays. The employees pay $67 to $212 a month, depending on age and gender.
The company’s share, including the tax credit, is $434 a month per employee, which may rise as more chefs opt for the health plan. So far, four have signed up.
It’s unclear how many businesses around the country are taking advantage of the breaks. National figures will not be available until after 2010 tax returns are analyzed.
Many small businesses don’t qualify for the tax break, which is available to employers that have fewer than 25 full-time positions and pay an average salary of less than $50,000 a year. And only those with fewer than 10 employees and an average salary of less than $25,000 a year can claim the full 35 percent credit. Employers with more employees and higher salaries can get smaller credits.
For many businesses, even the tax break may not make insurance affordable at a time when the average premium for an individual health plan is more than $5,000 a year and many insurers are hitting businesses with rate increases of at least 10 percent. That has prompted some critics of the health insurance overhaul, including the conservative National Federation of Independent Business, to dismiss the tax credit.
Were I still in business, this tax credit would have allowed to me continue coverage for my employees. Just at the time we sold, we were handed a 13% premium increase for our upcoming renewal. There was just no way our small businesses could have absorbed that rate increase on top of the previous two years increases. Our total rate increase for the last three years totaled 27%. I'm not sure the tax credit is the absolute answer. The ridiculous, injustifed increases in the cost of health care services has to be addressed.
I would much prefer to see the tax credit and the business expense deduction for health care costs eliminated all together. Let the business expense it as wages and have the employee pay taxes on the benefit. Then there will be an incentive for folks to look at value for money. Only that will put pressure on insurers, service providers and drug companies to stop the runaway health care costs.