The Commonwealth Fund is estimating that about 3.4 million workers, employed by roughly 1 million small businesses, will take advantage of the new health care tax credit offered under the health care law by 2013. “Overall, 16.6 million employees of small businesses are eligible for the tax credit.”
How much would employees and employers save? The study breaks it down:
To illustrate how the tax credit might work in practice, a company with 10 or fewer workers and aver- age wages of $25,000 would be eligible for the full tax credit. Assuming that the company has a per-worker family premium of $9,435 and contributes 50 percent of the premium, it would be eligible for a tax credit of $1,651 per worker, or 35 percent of its premium contribution in the years 2010–2013, leaving it with a balance of $3,067. Beginning in 2014, the company would receive 50 percent of its premium contribution or $2,359, leaving it with a balance of $2,359. A tax-exempt organization in that year would receive a slightly lower credit (35% of its premium contribution) of $1,651 per worker.
This report will help give some context to the anecdotal accounts about small businesses applying for the credits and also lower expectations about how many firms will actually take advantage of the benefit. The study predicts a relatively modest pick up for two reasons 1) until 2014, small businesses will still face all of the barriers to entry that they do now and 2) companies that already provide coverage are more likely to apply for the credit. Conversely, encouraging small businesses to begin offering coverage will probably require a far more significant price incentive. The full credit may help small businesses begin offering insurance, but since the credit declines over time and as the size of the company decreases and the average wages of their employees goes up, many employers may be reluctant to hop into the insurance business until 2014.