New Report: Tax Credits Could Help More Than 375,000 CA Small Businesses Provide Health Coverage for 2.4 Million Workers

David Chase

Original statement issued May 9, 2012:

More than 2.4 million California workers are employed by the more than 375,000 small businesses in the state eligible for $1.8 billion in tax credits in the federal healthcare reform, according to a new report released today. The tax credit helps small businesses pay for health coverage for their employees. A major obstacle to coverage, the report notes, is that many small business owners are unaware of these tax credits because of the noisy—and often misleading—debate over healthcare reform.

The tax credit program is outlined in a report released today by Small Business Majority and the consumer group Families USA. The report contains detailed information on the number of eligible employers and employees in California whom the program could benefit. It also includes the total dollar amount of tax credits that could be provided to small businesses in the state.

In general, businesses with fewer than 25 full-time middle-class workers are now eligible to receive a tax credit of up to 35 percent of the cost of the health insurance they provide for their workers. In 2014, the size of the credit will increase to cover up to half of the cost of health insurance provided to workers.

The tax credit was included in the Affordable Care Act to help the smallest businesses offer coverage—those who traditionally have the most difficult time doing so. Nationally, in 2011, only 71 percent of small businesses with 10 to 24 workers offered coverage to their workers; among small businesses with fewer than 10 workers, only 48 percent offered coverage. By contrast, 99 percent of businesses with 200 or more workers offered coverage.

The following are among the key findings of the report, titled “Good Business Sense.”

• More than 375,000 small businesses in California (70.1 percent of California businesses with fewer than 25 workers) are eligible for tax credits to help with the cost of health coverage for their workers for the 2011 tax year
• More than 158,000 small businesses are eligible for the maximum tax credit when they file their 2011 taxes
• More than two in five (42.2 percent of) small businesses that are eligible for this tax credit are eligible for the maximum tax credit when they file their 2011 taxes

The following are key report findings about California workers.

• More than 2.4 million Californians are employed by a small business that is eligible for a tax credit for the 2011 tax year
• Of these workers, more than 759,000 are employed by a small business that is eligible for the maximum credit
• The total value of the tax credits that are available to eligible small businesses for 2011 is more than $1.8 billion, an average of $752 per worker
• The total value of the tax credits that are available to small businesses eligible for the maximum credit is more than $759.1 million, an average of $1,000 per worker

The report also contains data by race and ethnicity on the number of workers who can benefit from the tax credits. As the report makes clear, however, workers and employers can only begin to benefit when they become aware of the tax credit program.

Among small businesses with low-wage workers, the likelihood of offering coverage is even lower. As a result, lower-wage workers employed by small businesses are much more likely to be uninsured than other working Californians.

“We know from our opinion polling that small businesses in our state want to offer their employees coverage but many of them can’t afford it. The tax credits will make it easier for small businesses to offer coverage, which makes their businesses more competitive and boosts their ability to create jobs and drive economic growth,” said John Arensmeyer, CEO of Small Business Majority.

“Small businesses seeking to provide health coverage for their employees have traditionally faced health insurance premiums that are significantly higher than those for large businesses,” said Ron Pollack, executive director of Families USA. These high premiums are due to higher administrative costs and premiums per employee in the small group insurance market, he said.

“The tax credit program, a provision of the Affordable Care Act, now makes it possible for small business to compete with large employers,” Pollack said. “This is great news for these small companies, who can now offer health benefits when competing for talent in the job market. Just as importantly, it’s great for workers and their families who will now have access to affordable health care.”

“We also know from our polling that the majority of small businesses don’t know these credits exist to help them,” Arensmeyer said. “The best way to serve small business owners in California is to educate them about this provision so they can participate in and benefit from it.”

Families USA and Small Business Majority contracted with The Lewin Group to develop the estimates used in the report. The full report, “Good Business Sense: The New Small Business Health Care Tax Credit in California is available at http://www.smallbusinessmajority.org/small-business-research/healthcare/.