Don C. Brunell: Small Business Passing on Obamacare Tax Credits

It was shocking to read that a scant number of small businesses are taking advantage of federal tax credits designed to make health insurance more affordable.

According to the Business Journals Washington (D.C.) bureau, only 181,000 small businesses claimed the Small Employer Health Insurance Tax Credit in 2014 based on Government Accountability Office (GAO) data. That’s only a fraction of the 1.4 million to 4 million small businesses that were estimated to be eligible.

In 2010, that credit was a key selling point for President Obama, Senate Majority Leader Harry Reid (D-NV) and House Speaker Nancy Pelosi (D-CA) in persuading Congress to pass the Affordable Care Act (ACA), i.e., Obamacare.

But the incentive is too complicated, time consuming and insufficient for small business.

Only companies with fewer than 10 employees and average wages of $25,900 or less are eligible for the full amount, which is worth up to 50 percent of premiums paid by the employer. It phases down as a company’s size and wages go up.

GAO believes the SHOP enrollments are low because employers must spend from two to eight hours collecting employee’s data and tax preparers devote an additional three to five hours calculating the credit.

The kicker is beginning in 2014, a small business had to buy health insurance through a government-operated Small Business Health Options Program (SHOP) exchange in order to qualify.

These SHOP exchanges, set up under Obamacare or independently by states such as Washington, were supposed to give small businesses a better deal on insurance by increasing competition in the small group market.

It hasn’t worked out that way.

Last August, Dr. Roger Stark, MD, health policy analyst for the Washington Policy Center (WPC) reported only two health insurers offered insurance through our state’s exchange. Moda and Kaiser Permanente only covered 115 employers employing 600 people.

Stark argues government-run health exchanges duplicate the private insurance market, but limit the options available to small business. Collectively, they cost us billions to operate and money would be better spent for schools, roads and training workers.

He also argues the tax credit puts added burden on taxpayers who don’t receive the credit, yet subsidize it through their taxes.

Association Health Plans (AHP), authorized by the Washington State Legislature with the blessing of former Gov. Mike Lowry (D), have been very popular in our state and provide reasonably-priced health insurance for small business.

They grew to the point where there were 60 association plans covering 500,000 Washingtonians when Obamacare was signed into law. Interestingly, nearly half of those now covered were uninsured.

AHPs are working.

For example, the Fremont Brewing Co. in Seattle, which began operations in 2009, wanted to cover its 70 people with good health insurance, so owner Matt Lincecum investigated a number of AHP proposals.

In Kennewick, Carbintex, a start-up which manufactures a flexible carbon fiber used in shoes and luggage, employed an insurance broker. CEO Junus Khan settled on HealthChoice, an AHP which has been in place for 20 years.

Both companies wanted the best possible coverage for the lowest price. Just as thousands of employers across America, they found health insurance in a competitive private market, not a government-run exchange.

Stark believes Congress should amend Obamacare to allow small employers and their workers to make greater use of the benefits of association health plans.

“If SHOP exchanges continue, they should be transparent and information-based where individuals and small business could select the plan most appropriate to their needs,” Stark concluded. “The exchange should be easy to use and should promote decreased health care costs, not complexity and confusion.”

(Don C. Brunell is a business analyst, writer and columnist. He retired as president of the Association of Washington Business and now lives in Vancouver. He can be contacted at [email protected].)