by David Lerman and Liz Smith, Businessweek.com -- Sales are off by 20 percent this year at Image Computer, which repairs printers in suburban Detroit. So President Steve Olis is worried about whether he can continue paying the $71,000 a year it costs him to provide health insurance for his employees.
The Obama Administration's answer for Olis and other small-business owners: a tax credit of as much as 35 percent of the insurance premiums they pay for employee medical coverage, a signature part of the health-care reform bill signed into law in March. Image Computer, however, doesn't qualify for the credit because Olis pays his 15 employees an average of $55,600 annually, and companies with average salaries above $50,000 aren't eligible. "At some point I can't do this any longer," Olis says of his rising health-care premiums.
Eager to promote the new small-business tax credit, the government this spring mailed 4 million eligible companies postcards with highlights of the program. The response has been tepid, according to insurance brokers who sell small-group policies. The reason, they argue, is that the credit starts to phase out for companies that pay average annual wages of more than $25,000 or employ more than 25 workers. The value of the benefit declines quickly, so many business owners in high-cost states get no tax break, and those elsewhere often say the credit is too small to make much of a difference. Sales of health plans have gotten "very little traction so far," says James Stenger, director of business development for BenefitMall, which sells small-group plans in New Jersey.
Stenger says most of his clients pay their workers more than $25,000 a year, so the average tax credit he's seeing for the few who qualify is about 10 percent of the cost of the policy. That's less than $200 per worker—not enough to spur many business owners to start providing coverage. Brokers across the country report a similar response. JLBG Health in Warrenville, Ill., contacted 460 small businesses about the tax credit. Roughly 40 percent were eligible, though only seven of those companies qualified for the full benefit. Not one of the 400 New England employers served by Hampstead (N.H.)-based Landmark Benefits is eligible, the broker says. The legislation "is just not doing what we had hoped," says Steven Selinsky, the incoming president of the National Association of Health Underwriters.
U.S. Small Business Administration chief Karen Mills says complaints about the tax credit are premature. "This is all still in anecdote land," Mills said in an interview. She maintains that the income cap was needed to keep a lid on the cost of the tax credit and that the people with the greatest need—low-paid workers at the smallest companies—will be able to get coverage. Companies "want to provide health insurance [because] they're losing good employees when they don't," Mills says. "The math says [the program] is likely to be positive."
One company that has had success selling policies under the program is Blue Cross and Blue Shield of Kansas City, which launched a marketing push to promote the tax credit when the law was enacted. Although less than a quarter of small businesses in the Kansas City area qualify for the credit, the ad campaign paid off. Blue Cross has sold 227 plans to small businesses in the past three months—80 percent more than in a typical three-month period, says Tom Bowser, chief executive officer. Now, Blue Cross affiliates in other states are hoping to replicate the Kansas City marketing strategy—a combination of print ads, radio spots, and direct mail explaining the program's advantages. The success "is tangible evidence that this legislation is having some effect," Bowser says, "and we're cashing in on it."
The bottom line: Many small businesses can't take advantage of a tax credit designed to reduce the cost of providing health insurance.
Lerman is a reporter for Bloomberg News. Smith is a reporter for Bloomberg News.
Saturday, August 28, 2010
Small Businesses Skip the Health-Care Tax Credit
Friday, August 6, 2010
Health coverage doesn’t alter tax status
The Record -- Last spring's overhaul of health care coverage has spurred recent tax-related questions. Here with answers is IRS tax specialist Jesse Weller.
Q. Under the new health care reform plan, I was told you will be able to cover your dependents up to age 26. Will I now be able to claim "Head of Household" on my federal income taxes for my dependents up to age 26? Currently, I can only claim them up to age 23.
As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee's children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.
The Affordable Care Act also requires health plans that provide dependent coverage of children to continue making the coverage available for an adult child until age 26. The extended coverage must be provided for health plan years beginning on or after Sept. 23, 2010. Please see IRS news release IR-2010-053 (Tax-Free Employer-Provided Health Coverage Now Available for Children under Age 27) at www.irs.gov/newsroom.
This provision of the Affordable Care Act does not amend the tests used to determine dependency or tax filing status. For more information, see IRS Publication 501 (Exemptions, Standard Deduction and Filing Information). It's available from the IRS website (www.irs.gov) or can be ordered by mail by calling 1-800-TAX-FORM (829-3676).
Q. I have been told by my accountant that there will be a new W-2 form next year. The change will add the cost of your employer-provided health care to your gross income. Therefore, we will now be taxed on a higher gross income.
Since this is not earned income, how can this be true?
Please clarify the reality of this happening.
The IRS has not yet published details regarding the 2011 Form W-2.
You may wish to refer to information on the White House blog: www.whitehouse.gov/blog.
Editor's note — On May 25, the White House blog noted that e-mail rumors were circulating that since health benefits will be reported on W-2 forms, federal taxes will go up.
"This claim is simply false," according to the blog post by White House special projects assistant Stephanie Cutter.
"Here are the facts: Next year, your W-2 form will ... show the value of the health-care benefits that you have received, so you can know more about your benefits and [be] an empowered consumer."
But, Cutter added, "you will absolutely not pay taxes on these benefits."
How to Choose an HMO or PPO plan
Bizjournals.com -- The quality of a company's health insurance plan can be a key factor in retaining employees, but providing medical coverage is a significant expense - especially for companies with 50 or fewer employees.
A survey by America's Health Insurance Plans, an industry trade group in Washington, D.C., found small-group coverage in 2006 averaged $312 per month for single coverage and $814 per month for family coverage.
Helen Darling, president of the National Business Group on Health in Washington, D.C., said that when evaluating plan options, employers should consider the quality of care provided to its members and not just the premium prices.
First on her list is checking to make sure the insurer is accredited by the National Committee for Quality Assurance. Next would be reading through the plans' HEDIS (Health Plan Employer Data and Information Set) scores, which the NCQA accumulates to track plans on various performance measures.
"You can find out things like what percentage of their members receive a beta-blocker after suffering a heart attack," Darling said. "I'd also make sure the physicians in the plan are, with very few exceptions, board certified. And I'd want to see that the plan has a 'centers of excellence' program for certain procedures such as organ transplants and cardiovascular care."
When evaluating premiums, Darling suggested businesses ask for a breakdown of all prices to determine whether it might be cheaper to outsource certain part of the plan, such as prescription pharmacy benefits.
Among the various types of employer-sponsored health insurance plans, managed-care options dominate the landscape.
In its national survey of employee-sponsored health plans, the consulting firm Mercer Human Resource Consulting found that preferred provider organizations (PPOs) were the most popular option in 2006, at 61 percent, followed by health maintenance organizations (HMOs) at 24 percent.
Both HMOs and PPOs have contracts with networks of physicians, hospitals and other health-care networks. Members pay less for services provided "in-network," but typically have the options of paying higher "out-of-network" fees to going to providers not in the network.
HMOs are more restrictive by having members select a primary-care physician who must approve visits to specialists. PPOs typically carry slightly higher deductibles and co-payments, but no restrictions on visits to specialists - making the option generally more favorable to members.
In order to hold down premiums, managed care plans are increasingly offering customers a tie red pricing plan for pharmaceuticals. Members pay the least for generic drugs, slightly more for brand-name products in the plan's formulary of approved drugs, and the most for brand names drug not on the formulary list.
Traditional indemnity coverage, which accounted for about 50 percent of employer-sponsored plans in the early 1990s, has steadily plunged during the past decade and hit just 3 percent last year according to the Mercer survey.
The newest option is consumer-directed or consumer-driven health plans, abbreviated as Chaps, which feature high deductibles along with health savings accounts or health reimbursement accounts. With such plans, employees and employers can make a pre-tax contribution to a health savings account, which is used to pay for routine medical care. Any funds left in the account at the end of the year can be used in subsequent years. If the fund is depleted, the employee's coverage converts to a high-deductible managed-care plan.
Proponents of Chaps say they help people become better health-care consumers because their own money is involved. Critics fear people will put off necessary treatment to avoid emptying their accounts.
"They are not the right choice for every employer or every employee, but they can help both employers and employees save money," said Jessica Waltman, vice president of policy and state affairs for the National Association of Health Underwriters in Arlington, Va.
Waltman said some younger, childless employees decide to opt out of an employer's plan because they typically don't get sick or even go to a doctor's office.
"A consumer-directed plan is a way to entice younger workers to go into the company health insurance plan," she said, noting the feature that allows people to rollover unused funds for future health-care services.
"There really are a wide array of health plans out there, but most people (in employer-sponsored plans) end up with a PPO product because of pricing," Waltman said.
Waltman also said employees are attracted to PPOs because they allow members the ability to go to any doctor in the plan's network without a referral.
"Employers will gravitate to what employees like," she said.
