Democrats and Republicans agreed today that the Patient Protection and Affordable Care Act (PPACA) small business health insurance tax credit program has worked poorly.
Rep. Tim Huelskamp, R-Kan., the chairman of the House Small Business economic growth subcommittee described the program as an example of PPACA’s “over-promise and under-delivery.”
“The credit scheme is so cumbersome and poorly designed that it is largely ineffective,” Huelskamp said during a subcommittee hearing on the program.
Rep. Judy Chu, D-Calif., the highest ranking Democrat on the subcommittee, gave a similar assessment. ”The numbers are disappointing,” Chu said. “Among the greatest single factors was the lack of awareness of how the credit works.”
Drafters of PPACA created the tax credit in an effort to help small employers that are not big enough to have to comply with the PPACA “shared responsibility” coverage standards offer of group health benefits. The program provides a tax credit for employers with fewer than 25 full-time equivalent (FTE) employees, with average annual wages below a statutory cap, which use PPACA Small Business Health Options Program (SHOP) group health plans.
For 2016 SHOP plans, the average wage limit is $51,800, according to a PPACA small business tax credit report prepared by the U.S. Government Accountability Office (GAO).
An employer can get the maximum credit for 2016, which is equal to 50 percent of the cost of the premiums paid, if it has 10 or fewer FTE employees with an average wage of $25,900 or less. The value of the credit falls as the average wage approaches the cap. Employers that use the credit after 2013 can use it for only two consecutive years.
James McTigue Jr., a GAO director, testified on behalf of the agency that they believe only 181,004 employers used the tax credit in 2014, up from 173,492 in 2013.
Originally, tax credit advocates and other organizations estimated that 1.4 million to 4 million small employers would be eligible for the tax credit.
“The maximum amount of the credit does not appear to be a large enough incentive to get employers to offer or maintain insurance,” McTigue testified.
One sign of dwindling employer interest is that the number of times visitors used an Internal Revenue Service (IRS) small business tax credit estimator tool, which fell to fewer than 1,000 in February from 5,383 in March 2014, McTigue said.
Michael Ricco, a quality manager at AEEC, who testified on the U.S. Women’s Chamber of Commerce, said his Virginia-based information technology (IT) employer already provides gold-level health benefits and would like to be able to use the PPACA tax credit. But the company is not eligible, even though it thinks of itself as small, because it has more than 25 employees, Ricco said.
“We are an IT company, and, as such, our employees tend to earn higher salaries than many other employees working in small businesses,” Ricco said. The tax credit wage cap “punishes our company for paying our employees a higher wage,” Ricco said.
Harold Jackson, chairman of Buffalo Supply Inc., who testified on behalf of the U.S. Chamber of Commerce, said he looked into the possibility of getting SHOP coverage for 2015.
The online SHOP application system wanted a great deal of information that Jackson did not have, such as spouses’ Social Security numbers, dates of birth, and information whether the workers or their spouses smoked.
“It took me two or three days to gather up this information,” Jackson said. “I spent about 10 hours entering this information into the system, after which I couldn’t figure out how to review the plans available or get quotes.” An exchange SHOP representative told Jackson to call a broker.
Even though Jackson called the broker the SHOP rep had recommended, the broker refused to try to get Jackson a small-group quote from the exchange. The broker told Jackson going through the exchange was too much hassle.
The SHOP coverage requirement hurts use of the tax credit, given how difficult applying for SHOP coverage is, Jackson said.
Jackson said Congress could fix the tax credit by offering it to employers that buy coverage off-exchange, increasing the wage cap, making the tax credit available for more than two consecutive years, and simplifying the application requirements and application process.
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