Tuesday, May 22, 2012

qotd: GAO on the Small Employer Health Insurance Tax Credit

GAO (Government Accountability Office)
May 14, 2012
Small Employer Health Tax Credit
Factors Contributing to Low Use and Complexity

Fewer small employers claimed the Small Employer Health Insurance Tax Credit in tax year 2010 than were estimated to be eligible. While 170,300 small employers claimed it, estimates of the eligible pool by government agencies and small business advocacy groups ranged from 1.4 million to 4 million. The cost of credits claimed was $468 million. Most claims were limited to partial rather than full percentage credits (35 percent for small businesses) because of the average wage or full-time equivalent (FTE) requirements. 28,100 employers claimed the full credit percentage. In addition, 30 percent of claims had the base premium limited by the state premium average.

One factor limiting the credit's use is that most very small employers, 83 percent by one estimate, do not offer health insurance. According to employer representatives, tax preparers, and insurance brokers that GAO met with, the credit was not large enough to incentivize employers to begin offering insurance. Complex rules on FTEs and average wages also limited use. In addition, tax preparer groups GAO met with generally said the time needed to calculate the credit deterred claims. Options to address these factors, such as expanded eligibility requirements, have trade-offs, including less precise targeting of employers and higher costs to the Federal government.

Comment:  One of the benefits of the Affordable Care Act is the tax credits offered to small businesses to help them obtain health insurance coverage for their employees. This evaluation by the GAO shows that, in 2010, 83 percent of small businesses eligible for the full credit did not even offer health insurance.

According to the report, "small employers do not likely view the credit as a big enough incentive to begin offering health insurance and to make a credit claim, according to employer representatives, tax preparers, and insurance brokers we met with."

Though the complexity of the rules and the modest amount of the credits are cited as causes for the low participation rates, the fundamental flaw is that this program was designed to comply with our fragmented, dysfunctional system of financing health care - a model that will always fall short of reform goals.

Instead of trying to patch our fragmented program of private plans and pubic programs, we need to replace it with a single payer national health program - an improved Medicare for all.

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