Exchange Board Consultant & Members View of a “Meaningful” Tax Credit

At the CT Health Insurance Exchange meeting on Dec 15, both the consultant and some Board members stated that the current federal Tax Credit available to Small Businesses from 2010 through 2015 is not meaningful enough for employers to motivate employers to enter the Exchange in 2014 for the tax credit.  Simply explained, they are implying that an employer will not bother to purchase their employee benefits through the Exchange, because the tax credit isn’t worth their time.  This also assumes that small employers also have no interest in letting their low income employees get federal tax subsidies to offset their share of the premium payments.

Therefore, this author decided to run some scenarios using available online tax calculators.   I am not a tax advisor, so these examples are for reference.  In having attended a seminar by an IRS representative recently, it makes one question what assumptions the consultant made in their calculations.   Important items to note that were pointed out during the seminar; 1) owners and family members, including extended family, are not included in the tax credit calculation; and 2) the numbers are based of FTE’s, meaning part-time employee hours worked are combined to create full-time equivalent employees.   As any small business owner knows, excluding family; and including lower wage part-time employees in this type of calculation actually increases the ability to qualify for the tax credit and the amount of the tax credit.

The tax credit has been available since 2010 and allows a for-profit business the option of a five-year carryback, but the credit can only offset actual earnings.  For Non-Profits, the tax credit is reduced, but it is also refundable.  The tax credit is available to employers with up-to 25 FTE’s, so we are primarily discussing the small locally owned and operated business in our own communities.  The following examples assume full time employees with average employee wage of $15/hour, working 40 hours/week, 52 weeks/year and that the average cost of the health insurance premium to the employer is $8,000/employee.  The $8,000/employee is based on a 2/3 to 1/3 ratio of employee only plans to family coverage plans with annual premiums of $6,000 and $12,000, respectively; and that the employer pays 50% of the premium cost of the health insurance.  Based on many years of working with these size employers, these are very realistic numbers.

For a for-profit employer:

3 FT Employees; Estimated Annual Tax Credit 2010-2013 = $3,192, and for 2014/2015 = $4,560.

9 FT Employees; Estimated Annual Tax Credit 2010-2013 = $9,576 and for 2014/2015 = $13,680.

18 FT Employees; Estimated Annual Tax Credit 2010-2013 = $5,712, and for 2014/2015 = $8,160.

For a non-profit employer:

3 FT Employees; Estimated Annual Tax Credit 2010-2013 = $2,160, and for 2014/2015 = $3,024.

9 FT Employees; Estimated Annual Tax Credit 2010-2013 = $6,840, and for 2014/2015 = $9,576.

18 FT Employees; Estimated Annual Tax Credit 2010-2013 = $4,080, and for 2014/2015 = $5,712.

The above numbers are estimates and an accountant would have to verify the actual numbers on a case-by-case basis.  However, if you are a small employer, I am certain that you can relate to the above numbers.  Therefore, if reasonable health insurance plans, similar to today’s plans, are actually available on the Exchange; I believe all employers that qualify for the credit will try and purchase their benefits through the Exchange.  Simply put, I don’t know too many small business owners that have $1,000’s to burn!   It is absolute proof that the consultant and some board members are completely disconnected from the struggles of a small business owner!!!  Do they not understand that $500 to $1,000 per month, as estimated above, is the difference between making payroll or not; or, keeping the electricity on or not; or, paying this month’s rent or not!  Seriously, do they really understand small business?  And, can we trust them to do what’s in the best interest of small businesses???

Tony Pinto