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Few Small Businesses Take Advantage Of Obama Health Care Tax Credit

Suji Pyun |
October 31, 2011 | 9:35 p.m. PDT

Staff Reporter


President Obama signs health insurance legislation into law. (creative commons)
President Obama signs health insurance legislation into law. (creative commons)
President Barack Obama’s health care overhaul provides offers small businesses a tax credit if they purchase health insurance for their employees. However, studies indicate that few small businesses are taking advantage of this health care tax credit.

Unlike larger businesses that have the resources to receive advice and aid from various agencies regarding health care, small businesses often don’t have a means of learning of these benefits.

“Big businesses have a department of human resources who deal with issues of health care and health insurance,” USC health care policy expert Glenn Alan Melnick said. “Even some of the biggest companies get help when it comes to health care.”

According to the IRS, the small business health care tax credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees. Qualified businesses must have fewer than 25 employees and average annual wages of less than $50,000.

According to the 2011 Employer Health Benefits Survey conducted by Kaiser Family Foundation and Health Research and Educational Trust, only 13 percent of businesses with 3 to 24 workers offered family coverage to adults after the Affordable Care Act in 2011 as compared to 90 percent of businesses that had 5,000 or more employees.

“A lot of times, small businesses are focused really narrowly, they’re focused on trying to sell their product to buyers," USC Small Business Clinic director Michael A. Chasalow said.  

“They often don’t know a lot about the rules or requirements, let alone a tax incentive that will make it easier for them – businesses aren’t even sure of the rules let alone the potential benefits and that’s one of the challenges for the federal government in how to get the word out.”

Furthermore, only 29 percent of small businesses attempted to determine if they were eligible for the small business tax credits, 65 percent of small businesses didn’t bother to determine eligibility and 6 percent did not know about the benefits.

"I did not know much about this Affordable Care Act and didn't really have the time to find out the details of it," Kim from a dental lab in Irvine, who did not want to give her name, said. "I guess if it was easier to understand and access the information about it I would try and apply for eligibility."

The manager of an independent restaurant in West Los Angeles agreed with Kim, stating that learning about health care just makes everything more complicated. It requires extra time to see if the business is eligible and if the benefits from the law are worth the time investment.

According to Melnick, most small businesses are very small operations that are so busy just trying to survive that everything else is more difficult for them.

“Even when the government puts in a program designed to help the businesses, they have to take the time out from their work day to learn about health care and insurance,” Melnick said.  “Even learning about new programs and benefits cost them money, especially when it deals with health care which is particularly complicated.”

According to the Kaiser Family Foundation, tax-exempt small businesses that meet the requirements are eligible for tax credits of up to 25 percent of the employer’s contribution toward the employees health insurance program.

This new health reform law gives a tax credit to small businesses and is effective with tax year beginning in 2010. An enhanced version of the credit will be effective beginning in 2014. 

A major goal of the ACA is to put American consumers back in charge of their health care coverage and care. With insurance companies often leaving patients without coverage when they need it most, the ACA will crack down on the corrupt practices of the insurance industry and provide stability and flexibility for families and businesses, according to the U.S. Department of Health and Human Services.

“I think that a lot of employees and individuals will benefit from it and it’s been set up in a way which they will try and soften the burden to the smallest of businesses,” Chasalow said. “I think that anything that helps more people get more health care is probably a good thing.”

Reach reporter Suji Pyun here.

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