A new study by the Small Business Administration shows the health insurance tax credit, effective starting in the 2010 tax year, may not be enough incentive for small businesses to offer their employees health care. Only about two-thirds -- 2.6 million of the 4 million eligible small businesses -- will benefit from the health insurance tax credit included in the Patient Protection and Affordable Care Act of 2010, according to the study.
In general, companies are eligible for the credit if they have fewer than 25 full-time employees with annual average wages below $50,000 and pay at least 50 percent of their employees' health insurance premiums -- meaning an estimated 83.7 percent of all small businesses are eligible. The top tax credit is worth up to 35 percent of a small business' premium costs in 2010, or 25 percent for tax-exempt employers. On Jan. 1, 2014, that credit increases to 50 percent for small businesses and 35 percent for tax-exempt employers.
The economy seems to have played a significant role in the lagging coverage -- the study concluded the recession "may have masked any positive effects of tax credits on employer health insurance offer rates." From 2007 through 2009, employees of small businesses faced a significantly larger decline in employment-based insurance than those in firms with 100 or more employees.
Lack of awareness may be another factor. According to research by advocacy group Small Business Majority, only 43 percent of the small businesses it surveyed are familiar with the tax credits.
Health insurance offer rates varied greatly by state as well as by size. In 2009, the health insurance offer rate was over 50 percent for businesses with fewer than 10 employees in Hawaii, New Jersey and Washington, DC, but only between 20 to 29 percent in Alaska, Arkansas, Indiana, Louisiana, Mississippi and Wyoming. Meanwhile, only 10 states and Washington, DC, had adopted state tax incentives for small businesses to offer health insurance to their employees as of 2009.