Print Friendly and PDFPrinter Friendly Version

Blog
Thursday, July 22, 2010

Millions of small businesses win big

Kate Blocher

Staff Writer

Small businesses are a vital component of the American economy: They drive both innovation and job creation. With nearly 4.8 million businesses across the country, you’re likely to know someone employed by one, someone who runs one, or be a part of one yourself.

It is clear that many small businesses are less financially able to provide health coverage for their workers than larger businesses. More than half of the uninsured in our nation are small business owners, employees, or their families.

Particularly for the smallest businesses, the cost of providing health insurance can be very expensive. Businesses with fewer than 10 workers paid on average $350 more per worker than firms with more than 50 workers—and the coverage they get for the extra $350 is often much less comprehensive and has higher out-of-pocket costs for the workers.

Small businesses pay more because they don’t have the economies of scale, or they aren’t large enough, to leverage better prices as large businesses can. Further, in a small business, if just one worker is sick, rates can go sky-high.

The result of these higher costs is that the smaller the business, the less likely it is to be able to offer coverage to its workers. For businesses with three to nine workers, less than half (46 percent) offer coverage to their workers. Among businesses with 10 to 24 workers, only 72 percent offer coverage. In comparison, 95 percent of businesses with 50 or more workers offer their employees health coverage.

Knowing this, legislators included many provisions within the new health care law to help small employers and their workers obtain high-quality, affordable coverage. One of these important provisions is a program that will provide tax credits to small employers that will help them purchase health insurance for their workers.

The new small business tax credit is targeted at businesses with fewer than 25 workers and average wages of less than $50,000. It covers up to 35 percent of the cost of providing coverage to workers now, and in 2014, the tax credit will increase to cover up to 50 percent of the cost. The tax credit amount is calculated on a sliding scale. The highest level of credit is targeted to the small businesses that need the most help – businesses with 10 or fewer workers and lower average wages (less than $25,000) get the full tax credit.

Families USA and Small Business Majority released a report, A Helping Hand for Small Businesses, which quantifies both the number of employers who will be eligible to receive help from this provision, as well as the number of employers who will be eligible for the maximum tax credit. The report also includes state-by-state data.

The report finds that:

More than 4 million small businesses will be eligible to receive a tax credit for the purchase of employee health insurance in 2010.

Approximately 1,198,700 American small businesses will be eligible to receive the maximum tax credit in 2010.

The small business tax credit, along with many other important provisions in the Affordable Health Care Act will finally make the health care system more affordable and accessible to small business owners and their employees. Small businesses are essential to our country; it’s time we helped them.