Obama Doubles Down on Health Care Reform

Only 360,000 small businesses benefited last year from a tax credit designed to make health insurance more affordable.

That’s partly because Congress limited the availability of this credit to hold down the cost of the $940 billion health care reform law. Only businesses with 25 or fewer employees, who made average wages of $50,000 or less, are eligible for the tax credit. The credit currently covers up to 35 percent of the employer’s contribution to health insurance premiums.

The White House wants Congress to spend another $14 billion on health care reform to expand the tax credit to businesses with up to 50 employees. It also wants to change the credit’s phase-out schedule so that all businesses under the maximum employee and wage thresholds actually can take advantage of it.

That’s not the way it works now. A small business with 18 employees and an average wage of $37,500, for example, doesn't get any tax credit, because the value of the credit is reduced by more than half based on the firm’s number of employees, and then an additional half based on the firm’s average wage.

Sound complicated? It is. While some advocates of the tax credit, including Small Business Majority CEO John Arensmeyer, blame lack of knowledge about it for the tax credit’s low take-up rate, there are plenty of examples of small businesses that looked into the credit and found it just didn’t work for them.

That’s a problem for the White House, since this tax credit, along with the new insurance exchanges that are scheduled to be up and running in 2014, were health care reform’s two biggest selling points for small businesses.

“Perhaps it was oversold,” said Kevin Kuhlman, manager of federal public policy for the National Federation of Independent Business, which opposed the health care reform law. “Now it’s kind of a double-down.”

In other words, the tax credit isn’t working like the White House hoped, so the solution is to make it more robust—and more costly to the government.

The Republican-controlled House, however, is not going to pass legislation that expands what critics call Obamacare, especially in a year when the future of health care reform will be one of the biggest issues in the presidential campaign.

Plus, Kuhlman thinks any benefit from expanding the small-business health insurance tax credit would be far outweighed by another provision in health care reform—a new tax that will be imposed on health insurance companies in 2014. Insurers will pass this new tax on to small businesses in the form of higher premiums, according to NFIB and other business groups that have formed the Stop the HIT Coalition. (HIT stands for "health insurance tax.")

That doesn’t mean that the White House will stop making the small-business case for health care reform. Today it held a press call featuring Small Business Administration chief Karen Mills, Arensmeyer, and a small-business owner, Mark Hodesh, owner of Downtown Home and Garden in Ann Arbor, Michigan. Hodesh got a health care tax credit of about $9,000 in 2010, which encouraged him to hire another employee.

“With this expansion, we will hear more stories like Mark’s,” Mills said.

Except the expansion isn’t going to happen. The stars were lined up for health care reform in 2009 and 2010, with Democrats controlling the White House and both chambers of Congress. Since then, the universe has changed.

Mills is right—health care remains a top concern for small businesses. But many small-business owners aren’t convinced that more government spending—particularly if it’s paid for by additional taxes—is the solution to the health care affordability problem.

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Kent Hoover is the Washington bureau chief for bizjournals.