AVMA Answers: Small business and health care reform
Does the federal health care legislation provide tax credits for small businesses?
Dr. Mark T. Lutschaunig, director of the AVMA Governmental Relations Division, responds:
The legislation provides for up to six years of tax credits to help offset the cost of offering health insurance at small businesses. Tax credits are available for businesses employing fewer than 25 full-time equivalents with average annual wages of less than $50,000. For part-time employees, employers can calculate FTEs by dividing the total hours of part-time employees for the month by 120.
From 2010 to 2013, the federal government will provide qualifying small businesses with tax credits of up to 35 percent of the employer's contribution to employees' health insurance premiums, if the employer pays at least half the total premium cost or a benchmark premium cost. The full tax credit goes to businesses with no more than 10 FTEs and average wages of no more than $25,000.
The legislation calls for states to create health insurance exchanges by 2014 for individuals and small businesses with up to 100 employees. Before 2016, states may limit participation to businesses with no more than 50 employees. Businesses with under 25 FTEs and average wages under $50,000 that purchase insurance through a state exchange will be eligible for federal tax credits, for two years, of up to half the employer's contribution to premiums, if the employer pays at least half the total premium cost.
Does the legislation require businesses to offer health insurance?
Businesses with no more than 50 FTEs do not have to offer health insurance. Starting in 2014, the federal government will assess fees on businesses with more than 50 FTEs that have at least one full-time employee who receives a tax credit toward the cost of premiums for insurance through a state exchange.
The premium tax credits will be available to many people who do not qualify for Medicaid but earn up to four times the federal poverty level. Employees whose employer offers a health insurance plan are eligible for these tax credits only if the employee's portion of premiums for the plan exceeds 9.5 percent of income or if the plan pays for less than 60 percent of covered medical expenses.
Businesses with more than 50 FTEs that do not offer health insurance and have employees receiving premium tax credits will have to pay a penalty of $2,000 per full-time employee, excluding the first 30 full-time employees. Businesses with more than 50 FTEs that offer insurance but still have employees receiving premium tax credits will have to pay a penalty of $3,000 for each employee receiving a credit or $2,000 for each full-time employee after the first 30.
The legislation also includes a provision applicable to businesses with more than 50 FTEs that offer health insurance but have employees who are earning up to four times the poverty level and whose share of premiums is between 8 percent and 9.5 percent of their income. To avoid penalties, employers must offer vouchers that would allow such employees to purchase insurance through a state exchange.