Monday, July 29, 2013

HHS: Small Business May Keep Current Health Plans in 2014, But Will Lose Tax Credit [TWS]

    When the Affordable Care Act passed in 2010, one provision that kicked in immediately was a Small Business Health Care Tax Credit.  The IRS explains how the fairly generous credit works:
For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities...
Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums – and if you qualify for a 15 percent credit, you save … $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000...
    The IRS notes that a change is coming in 2014:
An enhanced version of the credit will be effective beginning Jan. 1, 2014. Additional information about the enhanced version will be added to IRS.gov as it becomes available. In general, on Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively...
     While the "additional information about the enhanced version" of the tax credit is not yet available on the IRS website, the Health and Human Services (HHS) Healthcare.gov website does provide some new information, and it may prove an unpleasant surprise to those businesses and employees who were counting on President Obama's promise that if you like your plan, you can keep it (a promise he often paired with the guarantee about keeping your doctor.)  The tax credit will continue to be available and is even increasing, as the IRS website notes, but only for those businesses who purchase coverage through the government's Small Business Health Options Program (SHOP).  In bold print, the website says that: "The credit is available only if you get coverage through the SHOP Marketplace."  The following also appears under a section for further questions:

    And businesses who like their current plans?  They will be welcome to keep them... but not to keep the tax credit for which they have been eligible for the past four years.

    There is no indication on the HHS website that insurance companies will be required to offer plans to businesses on SHOP that are identical to plans businesses currently offer employees.  As the answer to the question above indicates, business must "take this into account" as they make "coverage plans for 2014."
    The president was asked about this "you can keep your plan" pledge back in 2009 in an ABC News interview with Diane Sawyer.  While the president said he lacked absolute power to force businesses to never change plans, he said no one would be "forced" to change plans [emphasis added]:
Continued the president, "So, those choices are being made by employers constantly, right?  I can't pass a law that says, 'I'm sorry, employers, you can never make changes to the health care plans that you provide your employees.' What I can say is that the government is not going to force you to, your employer or you to join a government plan, for example.  If you're happy with it, and your employer's happy with it, keep it."
    While the new rule regarding SHOP does not technically "force" companies to change plans, the loss of a tax credit potentially worth tens of thousands of dollars might be too big a pill for many small businesses and charities to swallow.  Consequently, the president's "guarantee" might ring a little more hollow than it already does.

Note: A version of this article appeared first at The Weekly Standard.

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