TOPEKA, Kan. – Backers and critics of a tax credit designed to help small businesses provide health coverage for their employees are debating its effectiveness after the release of a new report.
Consumer health organization Families USA and small business advocacy group Small Business Majority say a large portion of small businesses in Kansas would benefit from the health tax credit next year under the Patient Protection and Affordable Care Act, signed into law by President Obama in March.
According to their new report, about 90 percent of small businesses in Kansas will be eligible for the tax credit, which will reimburse health care costs up to 35 percent, according to a new report issued by the.
But a lobbyist organization for small businesses—National Federation of Independent Businesses (NFIB)—says the tax credit is not the saving grace for small businesses the Families USA report claims.
NFIB said the Families USA report only takes in two of the four criteria mandated by law to receive the credit. The Affordable Care Act requires the small business employ less than 25 people, with an average wage of less than $50,000. The small business must also offer health insurance in the first place and pay for at least half of the costs, two criteria that NFIB points out was left off in the report research.
The maximum credit this tax year is 35 percent. That percentage could go up to 50 percent in 2014, but only if the business owners buy into insurance exchanges through state-based health marketplaces.
Meanwhile, only the smallest firms with the lowest average wages will receive the maximum credit. As the firm size goes above 10 workers, or when average pay is more than $25,000, the tax credit percentage goes down, sometimes dramatically.
Stephanie Cathcart, with the NFIB said because the two variables—number of employees and average salary—decrease the size of the credit independently of each other, the amount small business owners get back can drop very quickly.
“It decreases by both variables at the same time,” Cathcart said.
Bill Rys, tax counsel at the NFIB cited an example he figured using a credit calculator tool on their website.
“Take a firm with 17 employees and an average wage of $38,000, unfortunately they will get no credit,” Rys said.
That’s because in that hypothetical example, there are a fair number of employees with a relatively high average income, according to the plan’s guidelines.
In addition, if one variable is really high, for example if a firm has 24 people, the average income in that firm would have to be less than $25,000 to qualify for a 2 percent tax credit.
“It’s not that were against a tax credit for our businesses. What we are is trying to be very careful with the kind of information that’s been put out there,” Cathcart said. “I hope that many businesses can take advantage of the credit, but the overall cost of this bill I think is going to far outweigh any benefits they see.”
But according to the Families USA report, 45,800 small businesses in Kansas will qualify for some amount of the credit. Of that number, 13,100 will qualify for the maximum tax credit of 35 percent.
“I’ve never met somebody who didn’t want to offer coverage to their workers, so this will offer help to do what they want to do,” said Kathleen Stoll, with Families USA.
One part of the tax credit Families USA said is beneficial to small businesses, is that two part-time employees can count as one, which would benefit businesses that employ mainly part time-workers.
“I think many people recognize it’s a struggle for small businesses so I think for us, we were very excited to see this help for small business owners,” Stoll said. “About half of uninsured in this country are employees or owners of small businesses. When you help small business you reach a lot of uninsured people.”
But the NFIB said there are better ways to encourage small business owners to provide health coverage. Among other ideas, the organization said pooling small businesses across state lines into group coverage would lower costs because the businesses could shop for the best health insurance prices.
“That way, they’ll be able to leverage the weight of all small businesses together,” Cathcart said. “It’s a problem that there isn’t a lot of competition in the small group market.”
But Families USA said the tax credit is a good solution to help the small businesses.
“This is really a concrete significant help to small businesses that are really just our local neighborhood businesses. If I look down the main street I see a small diner, small childcare, a small hardware store… all of those businesses are very likely to qualify,” Stoll said. “They’re really the ones who are struggling to do what they want to do, which is provide health security to their workers.”