Few aspects of our health care system provided a greater impetus for reform than the degree to which the status quo created disincentives, barriers and obstacles for responsible behavior. Take, for example, the case of small businesses that want to provide health care for their workers.
Recently, someone I know who runs a very small company that provides health care to its workers recounted to me his decision to hire a well-qualified job applicant who had undergone surgery for a serious condition. The moral choice was clear to him, but he told me that he knew from past experience that a single serious illness of an employee could drive premiums so high he might be forced to cut back health benefits to his 13 existing employees. These are the cruel choices that our current health care system imposes on those small business owners who want to do right by their workers.
Small business owners trying to do the right thing by providing health care to their workers face not a smooth road, but a difficult obstacle course. Compared to large businesses that have bargaining power and the ability to pool risk, the owners of millions of very small businesses face premiums that are 18% higher and administrative costs three times greater. Earlier this year, many small businesses reported rate increases ranging from 20% to 40%. And that does not even capture the constant uncertainty: the knowledge that they are always just one single worker’s serious illness away from being forced to choose between the health security of their workers and the economic health of their business.
With the fundamental insurance reforms and new health exchanges that are at the heart of the recently signed health reform bill, any small businesses or non-profit with 100 employees or less will be able to enter the new health exchanges and, for the first time, benefit from the same negotiating muscle and choices that their larger competitors enjoy today.
But as President Obama will highlight today, the beginning of change will not have to wait for full implementation of all aspects of health reform. Starting this year – indeed starting retroactively to January 1, 2010 – a new small business health care tax credit will be in effect that will provide a 35% tax credit on health premiums, with the credit rising to 50% in 2014. A similar tax credit will even be available to non-profits. This type of small business tax relief – long championed by Senator Durbin and many other members of Congress from both parties – is targeted to where the barriers and lack of coverage are the greatest. The $40 billion in tax credits over ten years will be aimed at many of the four million small businesses with under 25 employees (just 53 percent of firms this size provide coverage), and will be most generous for the firms with 3 to 9 workers, whose rate of offering health insurance has fallen from 58 percent in 2002 to just 46 percent in 2009.
A small business with 12 full-time employees that fully paid for health care could see tax relief of over $25,000 in 2010 – and over $40,000 in 2014. That’s not a lot for Wal-Mart perhaps, but it could be enough to help support a new hire, a critical new investment, or health coverage for part-time workers at hundreds of thousands of small businesses across the country.
Yet the benefits of such newly-passed provisions like the small business health care tax credit cannot be measured only in dollars and cents: their value also lies in the importance of ensuring that our health policies put wind at the back – not sand in the face – of those employers who want to do the responsible thing for their workers and their families.
Gene Sperling is Counselor to the Secretary of the Treasury