Small Businesses To Benefit This Year from Health Care Act

(Courtesy, NIH)

A new report from the Commonwealth Fund in New York, N.Y. says that small businesses will be eligible for tax credits under the 2010 health care reform bill (Affordable Care Act or ACA) beginning in 2010. The credits are designed to offset health insurance premium costs and help small businesses afford and maintain health insurance for their employees.

Many entrepreneurial enterprises created to bring science or engineering discoveries to the marketplace would likely qualify for these credits that cover up to 35 percent of employers’ premium contributions. The credits increase in 2014 to 50 percent of contributions.

The Commonwealth Fund’s report notes that many more small businesses have reduced or eliminated their health coverage compared to larger companies. Nearly all firms (98 percent) with 200 or more employees offer health benefits compared to less than half (46%) with fewer than 10 employees. Also, 52 percent of workers in firms with fewer than 50 employees are uninsured or underinsured.

The report says eligible employers can begin claiming these credits  on their tax returns starting with the 2010 tax year. To qualify, employers must pay at least 50 percent of their employees’ health insurance premiums. The tax credits are determined by a formula based on the business’ size and average wage.

For example, a firm with 10 or fewer full-time employees and average wages of $25,000 or less would qualify for the maximum 35 percent credit. The credit phases out as average wage and business size increase; firms with work forces of 10 to 25 employees or average wages between $25,000 and $50,000 receive smaller credits. Rules for how to apply for and receive the credit are available at the Internal Revenue Service Web site.

Another provision of ACA that takes effect in 2010 calls for mandatory reports by health plans on the proportion of premiums spent on costs other than medical care, which can let employers know the value of their coverage for employees. Beginning in 2011, health plans for small businesses and individuals cannot spend more than 20 percent on administrative costs; those plans that exceed the 20 percent limit will be required to give rebates.