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The Agenda: Why the Health Care Tax Credit Eludes Many Small Businesses

September 27, 2012 by Leave a Comment
The Agenda

How small-business issues are shaping politics and policy.

The Agenda has now profiled three small businesses that are struggling in different ways with providing health insurance to employees. The companies are very different — they trade in very different parts of the economy, and couldn’t be located much further apart geographically — but they do have one thing in common: Though all three have fewer than 25 employees, not one has qualified for the tax credit in the Affordable Care Act that was intended to help small businesses pay for health insurance. Indeed, the credit is one element of the controversial health law that has already fallen short of expectations.

Estimates of the number of businesses eligible to take the tax credit have ranged from 1.4 million to 4 million companies, but in May, the Government Accountability Office reported that only 170,300 firms actually claimed the credit in 2010. Of these, only a small fraction, 17 percent, were able to claim the whole credit.

For eligible companies, the credit effectively refunds 35 percent of health insurance expenses between 2010 and 2013.* After 2014, the credit increases to 50 percent and is available for any two consecutive years. The credit is fully available to companies with 10 or fewer full-time employees and average wages below $25,000. It phases out as the number of employees rises to 25 and wages grow to $50,000. In 2009, there were about 4.6 million companies with fewer than 10 employees, according to the Census Bureau, and 5.7 million with fewer than 100.

The credit was aimed squarely at the smallest companies, which rarely offer health insurance to employees. However, as we reported two weeks ago, it appears not to have persuaded very many to start offering insurance. The most recent study of employer health insurance from the Kaiser Family Foundation found that just half of all companies with fewer than 10 employees offered insurance, a share that has not moved much since 2005.

So why has the credit fallen short of expectations? The G.A.O. concluded that the credit was too small to sway business owners. Moreover, it said, claiming the credit is a task so complicated as to discourage many companies from trying. Companies have to determine the number of hours each employee worked in the year, as well as compile information about their insurance premiums. “Small-business owners generally do not want to spend the time or money to gather the necessary information to calculate the credit, given that the credit will likely be insubstantial,” the report said, citing conversations with tax preparers. “Tax preparers told us it could take their clients from two to eight hours or possibly longer to gather the necessary information to calculate the credit and that the tax preparers spent, in general, three to five hours calculating the credit.”

The G.A.O. report hints at the complexity with this delicious example:

On its Web site, I.R.S. tried to reduce the burden on taxpayers by offering “3 Simple Steps” as a screening tool to help taxpayers determine whether they might be eligible for the credit. However, to calculate the actual dollars that can be claimed, the three steps become 15 calculations, 11 of which are based on seven worksheets, some of which request multiple columns of information.

It may be tempting to hold the Internal Revenue Service responsible for whatever burden accompanies the tax credit, but in this case, the complexity is written directly into the law. It turns out that legislators wrote the provision in a way that makes it appear more generous than it really is. Many businesses with both fewer than 25 employees and average wages below $50,000 are in fact unable to claim the credit.

Under the law, once such a business has calculated its potential credit, it is required to reduce the credit first to account for any excess employees over 10 and then separately reduce the potential credit to account for any excess average wages paid over $25,000. For many companies, the two reductions exceed the potential credit itself — meaning the business gets no credit.

That’s what happened to Carrie Van Dyck, who along with her husband owns the Herbfarm Restaurant outside of Seattle. Excluding its owners, the Herbfarm, which we profiled in June, employed the equivalent of about 21 or 22 full-time staff members, who were paid an average wage of about $35,000 — a few thousand dollars over the credit’s threshold for 21 employees. The result surprised Ms. Van Dyck, she said recently by e-mail, because “it would seem that we are a pretty typical small, mom-and-pop type business that this should apply to.”

Of course, by making the credit less generous, the senators who wrote the law made it less expensive to the United States Treasury. Now it is apparent that credit will be even cheaper than planned: initially it was expected to cost the Treasury $2 billion in 2010; instead it cost the government only a quarter of that.

The law also excludes owners and owners’ families from counting toward the credit, which can cut both ways. On the one hand, owners don’t count as employees and their salaries are excluded from the annual wages, exclusions that could make some companies eligible for a bigger credit than they might otherwise have gotten. On the other hand, premiums paid for the owners’ and their families’ insurance aren’t eligible for the credit, which for some companies, as You’re The Boss commenter JAB recently noted, “greatly reduces the incentive to provide coverage for employees.”

The White House has said that the number of businesses claiming the credit for 2011 has grown to at least 360,000, but that is still well below even the smallest estimate of eligible businesses. Some advocates for the law say that more businesses will take advantage of the credit in 2014, when it grows to 50 percent, especially if the new insurance exchanges make it easier and cheaper for small companies to offer insurance.

The Obama administration has proposed making more businesses eligible for the credit, in part by starting phase-outs at higher thresholds, and also by changing the way it is calculated so that every business within the limits, such as the Herbfarm Restaurant, can take some amount of credit.

But judging from the comments of Representative Sam Graves, chairman of the House Small Business Committee, the initiative is unlikely to pass a Republican-controlled House anytime soon. “This tax credit has already largely failed to attract small-business owners, and expanding it will not make the president’s health care law affordable,” the Missouri Republican said in a statement. “For small employers that do not offer health insurance, tax incentives are unlikely to cause many of them to choose a massive new expense they just cannot afford in the first place.” It was Mr. Graves who sought the G.A.O. report.

Of course, a business denied a credit has not been made worse off by the 2010 health law. But the law surely has raised and dashed a lot of hopes, and these are the early days — the sweeping changes that are the law’s hallmark don’t come until 2014.

*There are, of course, many caveats here, but the main one is that the company has to pay at least half of the premium.

Article source: http://boss.blogs.nytimes.com/2012/09/25/why-the-health-care-tax-credit-eludes-many-small-businesses/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Health Spending Held Down by Recession

January 10, 2012 by Leave a Comment

The recession, which lasted from December 2007 to June 2009, reined in the growth of health spending as many people lost jobs, income and health insurance, the government said in a report, published in the journal Health Affairs.

Lingering effects of the recession throttled back the explosive growth of health spending, which totaled $2.6 trillion, or 17.9 percent of the economy, in 2010, according to the government’s annual snapshot of health trends.

Health spending normally grows much faster than the economy. But in 2010 growth rates were similar, so that health care accounted for the same share of total economic output in 2009 and 2010.

“U.S. health spending grew more slowly in 2009 and 2010” than at any other time in the 51 years the government has been collecting such data, said Anne B. Martin, an economist in the office of the actuary at the Department of Health and Human Services.

While the recession crimped spending by consumers, employers and state and local governments, the federal government picked up the slack.

Federal health spending shot up 40 percent in three years, to $743 billion in 2010, from $530 billion in 2007, the report said. Some of the growth resulted from an increase in Medicaid enrollment and a temporary increase in the federal share of Medicaid spending, authorized by the economic stimulus law of 2009.

Medicare spending, for older Americans and the disabled, grew in 2010 by 5 percent, the smallest rate of increase in more than a decade, the report said. The main reason was a slowdown in spending for the managed care program known as Medicare Advantage.

Although some provisions of President Obama’s health care overhaul took effect in 2010, government economists said they had had little impact on the overall level of health spending and, in some cases, simply shifted payments from one source to another.

One of the more remarkable findings in the report is that increases in the volume and intensity of health care services made only a tiny contribution to the growth of health spending in 2010. In the past, this factor, reflecting increases in the number and complexity of procedures, was often cited as a major reason for higher health spending.

In 2010, the study said, hospitals reported a decline in admissions and slower growth in emergency room visits and outpatient visits. Likewise, it said, doctor’s office visits declined, and spending for doctors’ services grew just 1.8 percent, to $416 billion in 2010. Total health spending averaged $8,402 a person, up 3.1 percent from 2009, the report said.

Doctors often prescribe drugs during office visits, and the decline in visits helped slow the growth of drug spending, as did the use of lower-cost generic medications. The number of prescriptions filled rose just 1.2 percent in 2010, and total retail spending on prescription drugs also grew 1.2 percent, to $259 billion, the slowest rate of growth in a half-century, the report said.

For the first time in seven years, total private health insurance premiums grew faster than insurers’ spending on health care benefits, the administration said. Premiums totaled $849 billion in 2010, while spending on benefits totaled $746 billion. The difference includes administrative costs and profits.

The White House said the gap showed that the new health care law was needed to “keep insurance companies in check.” Under the law, insurers must disclose and justify premium increases larger than 10 percent.

In 2010, Ms. Martin said, “total spending on private health insurance benefits grew at the slowest rate in the 51-year history of the national health expenditure accounts.” Private insurance spending slowed, she said, because fewer people had private insurance, insurers shifted some costs to subscribers, charging higher co-payments and deductibles, and some subscribers switched to health plans with lower premiums.

Article source: http://feeds.nytimes.com/click.phdo?i=3aaf5771c9ce9b72395a123710284f1d

Filed Under: Economy News Tagged With: , ,

Your Money: How to Make the Case for Higher Pay

November 26, 2011 by Leave a Comment

But you’ve been doing that for several years now. And in that time, the cost of your health insurance has gone up, along with college tuition, gasoline and a host of other things. Your pay, meanwhile, has been stagnant.

Asking for a raise is hard enough in normal economic times. But now, you can’t help wondering: does the mere act of asking for more money come with its own risks?

“If you are a good-performing employee who is contributing, I think it poses zero danger,” said Mike Zwell, a consultant and author of “Six-Figure Salary Negotiation” (Adams Media, 2008). “The worst that will happen is that they will say no, and give you some reason for it.”

There have been some encouraging signs on pay lately. Only about 9 percent of companies have put pay freezes in place over the last 18 months, a rate more in line with historical levels. That’s down from the nearly two-thirds of companies that had pay freezes in place in January 2010, according to research conducted by Buck Consultants.

“The reality is that most companies have responded very quickly and effectively to the changing economic conditions,” Mr. Zwell said. “So the feelings of scarcity are much greater than the actual scarcity for those who are employed.”

Still, compensation budgets remain tight, and the employees who are getting raises tend to be their company’s top-performing stars with unique skills — in other words, the employees who stand the highest risk of being poached by competitors.  

But even if you are one of the lucky ones and your request is granted, the rewards aren’t likely to be nearly as generous as you may have hoped. Most recently, the typical merit increase has been 1.9 to 2 percent on average, whereas the highest-performing employees are getting closer to 4 percent, according to Stephen Mork, principal of global compensation and benefits at Buck Consultants.

By contrast, in 2007, the average merit increase was about 3.8 percent for a midlevel manager, which was largely in line with raises across all employee levels. “Four percent was the good old days,” Mr. Mork said, noting that in 2006 and earlier, raises of 4 to 5 percent were not uncommon.

How can you set yourself apart? Much depends on how you are perceived and your overall approach when you pop the question. So before you walk into your boss’s office, several career gurus suggested considering the following:

ARE YOU DESERVING? Well before you ask about a raise, you need to get a sense of how you are perceived. Most workers have said their employers don’t provide enough feedback, according to Buck Consultants. And as much as that says about supervisors’ lack of communication, it also shows that employees aren’t doing enough either. “If you are not getting those measures, then you are not managing your career properly,” Mr. Mork said, “and that ties into your pay and asking for merit increases.”

So if your employer doesn’t have formal performance reviews in place, set up a time to ask your supervisor about how you’re doing.

THE PREPARATION Once you’ve decided that you are deserving, take the time to build your case. Ideally, your higher-ups already have an idea of how you’re doing, which means you’ll need to engage in a modest amount of self-promotion over the course of the year. “You need to have an internal and external P.R. strategy,” said Jeffrey Pfeffer, professor of organizational behavior at Stanford’s business school and author of “Power: Why Some People Have It — and Others Don’t” (HarperBusiness, 2010). “You need to build a reputation. You need to have people know who you are.”

You should also keep a file of the “attaboy and attagirl” letters from associates or clients, which will help justify your request. And keep track of any additional responsibilities you’ve taken on, perhaps because others were laid off or your role has simply evolved or expanded.

Meanwhile, try to frame your contributions in measurable ways, said Marty Martin, an associate professor of human resources at DePaul University and a financial psychologist at Aequus Wealth Management in Chicago. That is easier to do in some positions than others — like sales, for instance — so you may need to get creative.

Putting it all down on paper will help you organize your thoughts. On one side, make a column listing all of your responsibilities. In another column (which should be considerably longer), list what you’ve accomplished in order of importance, said Kate Wendleton, president of the Five O’Clock Club, a career coaching organization.

Going through this exercise will help you develop a strong case for your supervisors, many of whom don’t even control the company purse strings. So make their job easy. “To give you a raise, your boss must ask his or her superior, which is probably just as nerve-racking for your boss as it was for you,” Ms. Wendleton said.

Article source: http://feeds.nytimes.com/click.phdo?i=2b5023221ecc0c5f07e6ab77243fd75e

Filed Under: Your Money Tagged With: , ,

Bucks: 7 Steps in Appealing a Health Insurance Denial

July 12, 2011 by Leave a Comment

It’s unsettling to receive a letter from your insurance company telling you that your request for medical care, or for payment of care you’ve already received, has been denied. But there are some steps you can take to help boost the odds of filing a successful appeal.

Martin Rosen, a co-founder of Health Advocate, a business that helps people who get their insurance through their employer navigate dealings with their insurance company, says the key to avoiding a denial in the first place is knowing the details of your insurance policy before you seek treatment. (The company also offers advocacy services, for a fee, through Patient Advocate Foundation can provide guidance for free. Fee-based services like Health Proponent are also an option. The service has been experimenting with different fee structures and is joining with affinity groups, like alumni associations and the American Automobile Association, to broaden its membership.

Health Proponent charges $29.95 a year for individuals and their families to join and charges additional fees, depending on the type of service it provides. If you have a claim denied, for instance, it will research the problem for a flat fee of $99. (That means using the service for claims of less than that amount doesn’t make sense.)

If you have uncovered medical bills totaling at least $400, the company will attempt to negotiate a reduced bill (there’s no upfront charge for the service, beyond the annual membership fee). The service previously charged an hourly rate for this service, Mr. Rosen said, but has switched to a percentage fee. If the company can’t negotiate any savings, you pay nothing to Health Proponent; if it does get the bill reduced, you pay 25 percent of the savings as a fee. (Say you are billed $10,000 which is not covered by your insurance, and the company negotiates the amount down to $5,000 — half the total. You pay $5,000 to the provider, plus a fee of $1,250 to Health Proponent. So you pay a total of $6,250, a savings of about 38 percent.)

Have you appealed a denied health insurance claim, with or without paid assistance? What was the outcome?

Article source: http://feeds.nytimes.com/click.phdo?i=8e4c2f89a49b285d3cba5717555840fe

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Bucks: Friday Reading: Criminal Lawyers On Call for $4.95 A Month

June 17, 2011 by Leave a Comment

June 15

Cambridge, Mass., Equalizes Cost of Health Insurance for Gay Workers

While an increasing number of companies are equalize the cost of health coverage for gay families, the city of Cambridge, Mass., is the first municipality to adopt the policy.

Article source: http://feeds.nytimes.com/click.phdo?i=7a1fc7c62b77d5cc1583508b9785aa37

Filed Under: Your Money Tagged With: , ,

Bucks: Thursday Reading: Hotels Offer Free Gas Cards

June 16, 2011 by Leave a Comment

June 15

Cambridge, Mass., Equalizes Cost of Health Insurance for Gay Workers

While an increasing number of companies are equalize the cost of health coverage for gay families, the city of Cambridge, Mass., is the first municipality to adopt the policy.

Article source: http://feeds.nytimes.com/click.phdo?i=319f705ec1b2da2204f7e54d26590d58

Filed Under: Your Money Tagged With: , ,

Bucks: The Class Act and Your Long-Term Care Plans

April 30, 2011 by Leave a Comment

In this weekend’s Your Money column, I examined the Class Act, the public option that made it through Congress as part of last year’s health insurance overhaul. It would offer a type of long-term care insurance, but only if the federal government can find a way to create a program that will break even financially.

Now that you know a little bit about what’s going on behind the scenes, do you think the Class Act will ever see the light of day? And if it doesn’t, how do you plan to balance the need for long-term care planning with retirement savings and all of your other financial priorities?

Article source: http://feeds.nytimes.com/click.phdo?i=c8d7ee8b4fb4f7b3ee96475a3fcd6a28

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Bucks: A Health Care Option for the Rich

April 30, 2011 by Leave a Comment

In his Wealth Matters column this week, Paul Sullivan writes about the growth in personalized health care for the rich. Prices for these services range from $1,500 to $25,000 a year (on top of the cost of regular insurance policies). These concierge services generally promise exclusive medical care at any time of day and anywhere in the world.

Paul raises several questions in his column. For the wealthy, he asks whether the extra costs are worth it. And for those who are struggling just to get and pay for regular health insurance, he asks whether concierge care is contributing to the growing gulf between the wealthy and everyone else.

What do you think?

Article source: http://feeds.nytimes.com/click.phdo?i=429a0419659cf981f15e1437485bec60

Filed Under: Your Money Tagged With: , ,
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