About 16.6 million small business employees work in firms that will be eligible for tax credits designed to offset health insurance premium costs, according to the Commonwealth Fund.
The credits, available under the Affordable Care Act, will help small businesses afford and maintain health insurance and are available in taxable years beginning in 2010.
Researchers estimate that by 2013, 3.4 million workers may work in firms that take advantage of the tax credit. The value of the credits is expected to increase in 2014, from up to 35 percent of the employer's premium contribution to up to 50 percent.
The Commonwealth Fund report, "Realizing the Potential of Health Reform: Small Businesses and the Affordable Care Act of 2010," finds that relief for small businesses is greatly needed, as most of the erosion in employer health coverage over the last decade has taken place in small firms.
According to the report, 98 percent of firms with 200 or more employees offer health benefits, compared to only 46 percent of firms with fewer than 10 employees. Also, 52 percent of workers in firms with fewer than 50 employees are uninsured or underinsured.
The Congressional Budget Office estimates that the tax credits could provide up to $40 billion in support to small businesses over the next 10 years and reduce their health insurance premiums by 8 percent to 11 percent by 2016. Additional savings will be realized by 2020 through provisions that reduce administrative spending and increase competition among insurers participating in insurance exchanges.
"The Affordable Care Act is a big step forward for small businesses and their employees," said Commonwealth Fund President Karen Davis. "Not only will business owners see immediate benefits from the tax credits, but owners and employees alike will be protected from steep premium increases and high out-of-pocket costs, ensuring they will have access to the stable, secure health insurance they deserve."
To qualify for the tax credits, which eligible employers can claim on their tax returns starting with taxable year 2010, employers must pay at least 50 percent of their employees' health insurance premiums. The tax credits are determined by the business' size and average wage.
The tax credits increase to 50 percent of the premium contribution in 2014, but are limited to two years. Tax-exempt organizations are also eligible for the tax credits, but at a lower rate: 25 percent in 2010 and 35 percent in 2014.
"When it comes to purchasing health insurance, small businesses have long been at a disadvantage compared to larger firms. Because of high costs, many of them stopped offering health insurance or asked employees to pay larger percentages of premiums," said lead author and Commonwealth Fund Vice President Sara Collins. "This new, regulated health insurance marketplace evens the playing field and gives small businesses comprehensive, affordable options for covering their workers."