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.