The Affordable Care Act contains a provision to provide a tax credit to small businesses that offer health insurance. The purpose is to provide an incentive to add or maintain insurance.
A new report from the GAO shows there is not much interest in the credit.
What GAO Found
Fewer small employers claimed the Small Employer Health Insurance Tax Credit in tax year 2010 than were estimated to be eligible. While 170,300 small employers claimed it, estimates of the eligible pool by government agencies and small business advocacy groups ranged from 1.4 million to 4 million. The cost of credits claimed was $468 million. Most claims were limited to partial rather than full percentage credits (35 percent for small businesses) because of the average wage or full-time equivalent (FTE) requirements. 100 employers claimed the full credit percentage. In addition, 30 percent of claims had the base premium limited by the state premium average.
One factor limiting the credit’s use is that most very small employers, 83 percent by one estimate, do not offer health insurance. According to employer representatives, tax preparers, and insurance brokers that GAO met with, the credit was not large enough to incentivize employers to begin offering insurance. Complex rules on FTEs and average wages also limited use. In addition, tax preparer groups GAO met with generally said the time needed to calculate the credit deterred claims. Options to address these factors, such as expanded eligibility requirements, have trade-offs, including less precise targeting of employers and higher costs to the Federal government.
In other words, it’s not worth the effort and additional cost to claim the credit. Estimates for 2011 show more use but still in the 1-2% range. Imagine that, government planners and politicians missed the mark. What sounds good and looks good on paper often fails to consider the real world and human nature. This applies to much of the Affordable Care Act (and other laws for that matter like mortgage fixing). The difference in this case is that the policy failure saved the government money, but never fear, the IRS and others are trying to stimulate use of the credit … have I got a deal for you!
Just in case you run a small business and want to see how easy it is to get, here is a link to the IRS Q&As on the process. Good luck!
Related articles
- Obama’s health care aid to small firms disappoints (miamiherald.com)
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