Despite New Law’s Naysayers, Benefits Projected To Rise

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NOVEMBER 2, 2010

The number of small businesses offering health insurance to workers is projected to increase sharply this year, recent data show, a shift that researchers attribute to a tax credit in the health law. Many small businesses, however, remain opposed to the law.

Some small businesses are benefiting from portions of the law, which includes a tax credit beginning this year that covers as much as 35% of a company’s insurance premiums.

According to a report by Bernstein Research in New York, the percentage of employers with between three and nine workers and which are offering insurance has increased to 59% this year, up from 46% last year. The report relies on data from a September survey by the nonprofit Kaiser Family Foundation.

A full tax credit is available to employers with 10 or fewer full-time workers and average annual wages of less than $25,000. The credit phases out gradually and has a cap at employers with 25 workers and average annual wages of $50,000. The White House estimates that 4 million employers will qualify for the credit.

Small-business employers have been among the hardest-hit by double-digit premium increases, which health insurers blame in part on the cost of complying with new coverage mandates in the law, like allowing children to stay on a parent’s plan until their 26th birthday.

They also are facing extra tax paperwork under the law, and the National Federation of Independent Business has joined 20 states that have sued to overturn the law.

The opposition by small businesses to the health law is a frustrating development for Democrats who had hoped to translate their signature legislative achievement into gains in this week’s midterm elections.

Ken Weinstein, a Philadelphia owner of two eateries and a real-estate company, plans to begin offering health insurance to his five real-estate office workers—and possibly to his outside contractors—since he qualifies for the tax credit. Until now, Mr. Weinstein has subsidized individual insurance policies for his office workers but not the contractors.

While he said he was happy with that benefit, he was disappointed that his restaurant operation has too many employees to qualify for the credit, and said the health overhaul doesn’t do enough to contain sharply rising insurance premiums.

“Costs keep going up and I don’t think any parts of the legislation have yet addressed that,” said Mr. Weinstein, owner of the city’s Trolley Car Diner and Trolley Car Cafe.

Small business lobbyists say the Obama administration is overestimating the reach of the tax credit and failing to factor in a slate of new taxes in the health law that will fall on small business, such as a tax on insurers. NFIB, the small business lobby, estimates that fewer than two million employers will end up getting the credit.

“Most of them tell us they can’t qualify for the credit, or it’s just too low an incentive to be helpful,” said Brad Close, vice president of public policy for NFIB.

John Stein, co-owner of Harbour Coffee in Williamsburg, Va., decided to drop the health insurance plan that covers his wife and their 7-year-old child after his carrier notified him in September that his $450 monthly premium for a high-deductible plan was going to increase more than 20%. He switched this week to a cheaper plan with comparable coverage.

Mr. Stein has no plans to try to tap the tax credit for his coffee-roasting business. “The government in general doesn’t have the faintest idea what helps small businesses,” Mr. Stein said. “It costs a fortune just to get the plan going, and I get nothing out of it.”

Karen Mills, chief of the U.S. Small Business Administration, says insurers already were imposing premium increases before the law took effect. But factoring in the tax credit, she said “the cost of health-insurance to small businesses is going to be, overall, going down.”

The Obama administration also is considering making it easier for employers to retain their grandfathered status for health plans, an administration official said. That would exclude them for the time being from some new coverage mandates, such as the requirement to cover certain preventive care.

The move could make it easier for small companies to skirt premium increases, the official said. The administration is weighing whether to allow employers that rely on an outside carrier to absorb their risk and pay insurance claims to shop between carriers without losing grandfathered status.

Write to Janet Adamy at [email protected]

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