The credits are best suited for companies employing middle to low-wage workers. Say you are paid $25,000 a year in salary and your employer pays $6,000 a year in premiums. Your employer’s credit would be worth $2,100 for a net cost of $3,900 for insurance. For an employee making $45,000 with the same premium, the credit would only be worth $400.
The success of the credit in encouraging business owners to provide insurance will largely depend on the growth in premiums.
Should insurers pass along higher operating costs to employers as medical costs rise, then the increased expenses may negate the value of the credits. Keep in mind that the health care reform act did nothing to directly police the cost of insurance.
Benefit will increase
While the tax breaks are carrots to get small businesses to pay for insurance, the major benefits of the reform law won’t kick in until 2014. Starting that year, not only does the small-employer tax credit jump to 50 percent, but small business owners and their employees will have new coverage options through the state-based insurance exchanges that are scheduled to be in place then.
The exchanges will offer policies for workers who either are self-employed or work for businesses that don’t offer coverage. Businesses with fewer than 100 workers will also be able to buy insurance for their employees through an exchange.
Ideally, these exchanges will provide lower-cost plans to a wider segment of the population, although there is nothing in the law that will require lower premium pricing. There is no guarantee that they will be less expensive than individual plans are today if the exchanges prove unpopular.
The theory behind the exchanges is that they will pool larger numbers of (healthy) people to reduce overall costs.
The exchange-offered plans will carry a set of mandated benefits in four different tiers ranging from high-deductible policies to ones that cover 90 percent of all costs. Subsidies will be available for people with incomes below a certain level.
It will be a long slog for government bureaucrats in the interim. They have to write the regulations for business coverage, determine how to administer the various provisions and tax credits, and police the industry. Until then, small employers will be on their own to find affordable policies for their workers, despite the tax break.
John F. Wasik, author of His Audacity of Help: Obama’s Economic Plan and the Remarking of America, covers health care for magazines, online sites and newspapers.