The small business tax credit provided by the federal health reform law is not large enough to incentivize employers to begin offering health benefits, according to a Government Accountability Office report released Monday, The Hill's "Healthwatch" reports (Baker, "Healthwatch," The Hill, 5/21).
Background
Under the overhaul, the credit is available to businesses with fewer than 25 full-time workers whose annual incomes average less than $50,000. The credit pays 35% of insurance premium costs for an eligible applicant, and the company must pay at least 50% of premium costs. Not-for-profits are eligible for up to 25% off of their premium costs.
The credit was developed to help small businesses through 2014, when they will be able to purchase insurance through state-based exchanges. The credits will phase out two years after the exchanges open, according to the law (California Healthline, 5/10).
GAO Report
Initial estimates from the Congressional Budget Office were that the credits would total $2 billion in 2010. However, the GAO report found that small businesses have claimed just $468 million ("Healthwatch," The Hill, 5/21). In addition, the report found the credit was claimed by 170,300 employers in 2010, far short of the 1.4 million to four million businesses that were estimated to be eligible.
GAO interviews with small-business owners and insurance brokers indicated that many eligible businesses felt the application process was too complex and the potential benefit did not offset the time and cost required to apply (Evans, Modern Healthcare, 5/21).
Many employers did not have data on employee hours and average annual wages readily available. Tax preparers said it could take between two and eight hours for employers to gather the necessary information, and three to five hours for tax preparers to calculate it.
Report Begets Republican Criticism
Sens. Sam Graves (R-Mo.) and Olympia Snowe (R-Maine), who requested the report, said it shows that the credit "has been grossly ineffective" (Bristol, CQ HealthBeat, 5/21).
Meanwhile, Sen. Orrin Hatch (R-Utah) said it was "no surprise" that small businesses felt the credit was too complex to claim. Hatch said in a statement, "The failure of these small business tax credits goes to the heart of what's wrong with ObamaCare: it's confusing, expensive, and burdensome for the families and businesses that have to comply with it" ("Healthwatch," The Hill, 5/21).