Businesswoman Merrill Gobetz didn’t provide health insurance to her 10 employees in 2009. In that sense, she was like about 40 percent of other small business operators in the U.S.
She would have liked to. After all, she said, the business model of her Kansas City company, Bistro Kids, is based on “doing the right thing.”
But 2010 was the first year that Gobetz’s firm could afford to provide health insurance.
Bistro Kids specializes in providing public school lunch programs with meals made using produce and meats supplied by local farmers.
Gobetz said her company was able to offer insurance this year because of a new tax credit for small businesses included as a provision of the federal health reform law, which Republicans in Congress are now trying to repeal.
Small business tax credit
“It’s a big deal,” to offer coverage, Gobetz said. “Based on how much people normally make in this industry and the hours they work, and how hard they work.”
Employers that pay at least half the health premium costs for qualifying employees can take up to 35 percent of the amount paid as a tax credit.
Small businesses can qualify if they have fewer than 25 full-time employees with average annual earnings under $50,000 a year.
The credit was intended to address the growing gap in coverage among small business employees until other coverage provisions and subsidies become effective in 2014.
In 2000, some 70 percent of small businesses offered health insurance to their employees, according to Blue Cross Blue Shield numbers. By 2009, just 58 percent were able to do so.
That startling trend is due to growth in premium costs that have fast outpaced growth in company earnings, particularly as the recession took hold in 2008, said Ron Rowe, director of small group sales for Blue Cross Blue Shield Kansas City.
“The small market has been — for the last four or five years — about affordability. Small employers (have been) dropping coverage because they couldn’t afford it,” he said.
“When we saw the tax credit in the bill we thought it was a big opportunity to tell these small employers who are current members that it just got less expensive for them. And for those employers out there that haven’t bought it because it hasn’t been affordable, maybe it’s affordable for them now,” he said.
Last week, U.S. Secretary of Health and Human Services Kathleen Sebelius cited Blue Cross’s success in boosting coverage in a national press conference called to tout the benefits of the Affordable Care Act. She was responding to the announcement by Republicans in the U.S. House that they would vote Wednesday to repeal the health reform law.
“One example of how well the (tax credit) is working is the actions taken by Blue Cross Blue Shield of Kansas City, who’s already enrolled more than 9,000 new members covered by 400 new employers — more than a third of whom didn’t previously have coverage,” Sebelius said.
“Repeal across the country would take tax credits away from almost 4 million small business owners. So what’s happening in Kansas we can see replicated across the country,” she said.
Blue Cross’s Rowe said the tax credit is, “the one thing in the health care bill that addresses affordability.”
Health reform law
“The original rationale for the health reform bill was ‘get more people covered.’ And in that regard it has worked,” Rowe said. “It doesn’t really address the rising cost of health care, but it did address trying to make health care more affordable for the small employer.”
Blue Cross Kansas City reported a 58 percent increase in small businesses purchasing coverage since the tax credit became available. A comprehensive number of participating businesses won’t be available until after tax returns are filed in April.
Not all small business representatives are impressed with the credit.
Ken Daniel of the Topeka Independent Business Association said the tax credit is so restrictive he doubts it will be used much.
“They’ve restricted it to really small businesses. And you can’t have anybody in your business making any decent money at all before you’re disqualified from this thing. And I just don’t know how many businesses are going to qualify that can even afford insurance,” he said. “I think it’s so paltry that they’re going to have a hard time attracting businesses.”
→ IRS form 8941 (PDF)
→ IRS notice 2010-82 (PDF)
Among those not eligible for the tax credit are businesses whose employees average more than $50,000 a year in pay. Rowe said this restriction tends to exclude companies with highly skilled and specialized employees, such as technology firms.
That describes Techni WaterJet in Lenexa, which designs and fabricates custom equipment that uses water to cut and shape steel and other materials. One machine can sell for several hundred thousand dollars.
Techni human relations manager Brad Hall said his 10 employees “easily” average more than $50,000, though not everyone makes that much.
He hadn’t heard about the tax credit yet, but was disappointed to learn his business wouldn’t qualify. Hall said he’s watched premiums rise for his small business by 30 percent in the last two years.
“At some point, if they keep going up 15 percent a year, it compounds and would eventually become untenable,” said Hall. “You want to provide (insurance) but at some point the cost becomes so high you just have to say ‘no more’.”
Incentive beyond 2014?
Small businesses can claim the tax credit from 2010 through 2013.
It is intended to serve as a bridge to the coming availability of coverage through health insurance exchanges, which are to be up and running by Jan. 1, 2014, assuming the health care reform law is not repealed or significantly modified.
The exchanges will be in-state clearinghouses where individuals can shop for government-certified health insurance. (Read the latest on Kansas’ exchange planning.)
Starting in 2014, small businesses that purchase health insurance for their employees through an exchange will be eligible for a tax credit of up to 50 percent of premiums paid. That credit is available for up to two consecutive years.
Whether the tax credit will be sufficient incentive for small businesses to continue to provide insurance to workers even after the exchanges are established is the “big unknown question,” said Linda Sheppard of the Kansas Insurance Department.
Form 8941 for claiming tax credit
Notice 10-82 explaining tax credit
“Particularly for small employers, there is no legal requirement for them to offer coverage to their employees. So there will be small employers that think it makes more sense to not offer coverage and just have your employees go buy individual coverage through the exchange. That is really the huge unknown,” she said.
The exchange’s benefit packages and premium cost will be fairly standardized and consistent with what an employer might be offering, Sheppard said.
“It’s just going to come down to a question of cost sharing between the individual and the company,” she said.
From what she’s heard from business representatives, Sheppard said many employers want to continue offering coverage beyond 2014 because they use it as a tool for recruiting and retention.
Doing the ‘right thing’
That’s the case with Bistro Kids.
Merrill Gobetz said she doesn’t know what to expect from the exchanges, but she knows she won’t feel any differently about wanting to offer her employees health insurance beyond 2014.
In the food industry, it’s rare for companies to offer health insurance, she said. So for her, doing so will help her retain top-notch employees and recruit new ones.
And it makes good business sense beyond that, she said.
“They’re the lifeblood of what we do,” Gobetz said of her workers. “We don’t have a whole lot of backup because we are such a small company. (Our chef) has to be here every day. The kids have to eat. So it’s important that they can get routine checkups and exams to make sure they’re staying on top of their health. And it all ties together with our philosophy of just doing the right thing.”