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Health Care Tax Credit Receiving Lackluster Response from State Small Businesses



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(Sacramento, CA)
Tuesday, June 05, 2012
 
By Kelley Weiss
 
Even one of the measures of the new law that has already been implemented doesn't seem to be reaching its target audience.
 
The provision is a tax credit aimed at helping small businesses afford pricey health insurance. John Arensmeyer, CEO of the Small Business Majority says in fact 57 percent of all small businesses in California do not know about the tax credits.
 
According to recent estimates about 375,000 small businesses in California are eligible for the credit that Arensmeyer calls "essentially free money" with little downside. These businesses could receive about $1.8 billion dollars in credits for tax year 2011.
 
Arensmeyer says this could help many small businesses that just can't afford health insurance for their employees today. Only about half offer any coverage at all, and he says that number keeps dropping as health care costs continue to rise.
 
California's lackluster response to the provision reflects what's happening around the country. The government estimated that up to 4 million businesses would be eligible nationally. But a recent report from the U.S. Government Accountability Office found only about 170,300 actually claimed the credit . That's a little under 5 percent.
 
So is it just ignorance of the provision or are there other reasons businesses aren't clamoring for the credits?
 
Cheryl Cavagnaro offers several reasons. She and her husband have run Cavagnaro's Shoe Repair at Lincoln Center in Stockton for about 30 years.

To start with, Cavagnaro says she's a Republican and not a fan of what she calls "forced health care" under the Obama Plan.

Then she says there's the monumental task of figuring out the tax code to get the credit.

"I have heard about it, yes, and I have not looked into it," she says. "I think it's too complex."

Finally Cavagnaro says the tax credit is just not a big enough carrot. She doesn't provide health insurance to her two part-time employees now; she would like to hire a full-time worker, she says, but can't afford it. The tax credit, she says, wouldn't be enough to offset the new expenses of health care costs on top of payroll taxes and disability insurance for another employee.

"I certainly believe it would cost me more money," she says.
 
Cavagnaro's lack of enthusiasm makes sense to Sally Pipes, president and CEO of the right-leaning think tank, Pacific Research Institute . She says the government made the credits too complicated. 

Right now the credits target businesses with no more than 25 low-wage workers. That's why Pipes thinks few businesses signed up in the first year. On top of that, the provision could actually discourage growth as the business could lose the credit if it adds employees or increases wages, she says.

"The President has actually done a disservice to the entrepreneurial spirit by the Affordable Care Act and in particular all of these taxes, subsidies, regulations," Pipes says.

For another business owner in downtown Stockton, though, the credit was a godsend. Lili Williams is managing director of OSC 0605KW embedComputer Training. She already provides health insurance to her eight full-time employees but says it's been difficult to maintain that coverage.

"We have seen the costs of health care go up every year, anywhere between 10 and 15 percent," she says.

Williams says she has been struggling to survive the aftershocks of the recession and believes the tax credits will bring some relief -- saving thousands of dollars on her roughly $50,000 in annual health care expenses.

"I am thrilled about it because it does mean at least I get something back at the end of the year, that's money that I wasn't getting back," she says.

The government estimates so far under the program businesses have claimed an average tax credit of $2,700 per employee.

Of course the whole debate on this issue could change dramatically if the Supreme Court throws out the Affordable Care Act. And for some small businesses this uncertainty is reason enough to not apply for the credit, at least for now.

This story was produced in collaboration with the California HealthCare Foundation Center for Health Reporting. The center, a division of the USC Annenberg School for Communication & Journalism, does in-depth reporting on California health policy. It is funded by the nonpartisan California HealthCare Foundation
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