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White House Announces Small Business Tax Credit Provision for Worker Healthcare

Janice Simmons, for HealthLeaders Media, May 18, 2010

An estimated 4 million small businesses could be eligible for federal tax credits under the new healthcare reform law that would assist them in covering health insurance costs for their employees, administration officials announced Monday.

The tax credit, which has an effective date of Jan. 1, 2010, can cover up to 35% of the premiums a small business pays to cover its workers; by 2014, that rate will increase to 50%, and small business owners will have the chance to access plans through health insurance exchanges. Firms can claim credit for up to six years—2010 through 2013 and for any two years after that.

Qualifying firms must have less than the equivalent of 25 full time workers (e.g., a firm with fewer than 50 half time workers would be eligible), pay average annual wages below $50,000, and cover at least 50% of the cost of healthcare coverage for their workers.

The value of the credit will phase out as the number of employees and their salaries increase—with the full 35% credit available only to those businesses with fewer than 10 full time workers paying an average salary of less than $25,000. To avoid incentives for choosing a higher cost health plan, an employer’s eligible contribution is limited to the average cost of health insurance for small businesses in that state.

In announcing the credits, Small Business Administrator Karen Mills said that small businesses may receive both state healthcare tax credits and still qualify for the federal tax credit. In addition, dental and vision coverage will qualify for the credit as well.

The new healthcare rules also will prohibit in the future insurance companies from dramatically increasing premiums for a small business just because one worker gets sick, Mills said in a White House blog. Starting in 2014, "community rating" rules will prohibit insurers from charging more to cover small businesses with sicker workers or raising rates when someone gets sick.

But whether the small business community will embrace these provisions remain to be seen. On Friday, Dan Danner, president and CEO of the National Federation of IndependentBusiness, a large organization of American small businesses, issued a statement.

He said that NFIB has a "long history of working on and supporting healthcare reform." However, he added that small business owners were "concerned that the unconstitutional new mandates, countless rules, and new taxes in the healthcare law will devastate their business and their ability to create jobs."


Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.

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