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Under health care reform bill, 80% of California's small businesses eligible for federal tax credits

by Adrienne Verrilli, published

Garnering little to no press attention when released in July, a report undertaken by Families USA and the Small Business Majority found that 80 percent of California’s small businesses with 25 or fewer employees will qualify for federal tax credits under the Patient Protection and Affordable Care Act starting this year. This means that of the state’s 571,200 small businesses, 465,500 are eligible for the tax credits in 2010. Of those, 30 percent – or 135,900 – qualify for the maximum tax credit amount. 

Unable to negotiate with the health insurance companies like larger companies can, small businesses that are able to offer health insurance to their employees pay a steep price. In 2008, small businesses with fewer than 10 employees paid on average $350 dollars more per employee than companies that employ more than 50 people. Often, these health care plans were less comprehensive even though small businesses were paying higher prices. As such, 72 percent of businesses with 10 to 24 employees currently offer health insurance and just 46 percent of businesses with three to nine employees. On the other hand, among large companies with 50 or more employees, 95 percent provide health insurance. 

Starting in the 2010 tax year, employers who employ up to 25 people that offer health care coverage are eligible for a tax credit up to 35 percent of the average cost of a small group plan in the state. In 2014, when the health insurance exchanges are in place, the tax credit will increase to a maximum of 50 percent. And, unlike under today’s health insurance system, part-time workers (employees that work less than 30 hours per week) will be eligible for employer-based health coverage as well. To qualify for the tax credits, businesses must pay at least 50 percent of the employees’ health insurance premiums. 

This report puts to rest the speculation surrounding how many small businesses would be eligible for the tax credits. It also demonstrates that there is a real opportunity for more people to be covered, more quickly, as it puts small businesses in a stronger financial position to offer health insurance to employees.

Hailing the findings of the report was Democratic Congresswoman Lois Capps of Santa Barbara. Representative Capps was quoted in the San Luis Obispo Tribune as stating that the new tax credits “will help business owners who have wanted to provide coverage for their employees, but previously couldn’t afford it.” 

While the federal health reform law will not be fully in effect until 2014, the small business tax credit is one of many provisions that will increase the number of insured Californians long before then. Also, when the legislation was signed into law by President Obama, health insurance companies could no longer deny coverage to people with what the health insurance companies determined was a pre-existing condition. In addition, younger adults can be covered by their parents’ health insurance plan up to 27 years of age. 

For more information on the report, go here or here.

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