Maryland has a well- functioning small group market which offers the same prices as those that will be offered through the small group exchange, known as the SHOP. The Board approved a plan to open the SHOP on April 1, 2014, which will allow more time for testing and coordination over the next several months.Although the press release says that Maryland's small group market offers the same prices as SHOP plans, it does not mention that beginning in 2014, the health insurance tax credits available to businesses are only available to plans purchased via the SHOP exchanges, as noted at Healthcare.gov, and as we reported back in July. Coverage for small businesses through Maryland's SHOP was previously able to start as early as March 1, 2014, but now that the opening of the marketplace has been delayed until April 1, the earliest date coverage can begin is unclear. A business that desires to take advantage of the tax credits would either have to delay coverage until SHOP plans are available, or buy a plan through the conventional insurance system, and then reapply through SHOP once the exchange opens. In either case, the tax credit would only be available for the portion of the year that SHOP coverage is in effect.
The Maryland Health Connection website itself is also still promoting the tax credits. It does not indicate what effect the delay will have on the ability of businesses to qualify, though it also notes that "[t]he health care tax credits and deductions are available only if you get coverage through the SHOP."
Since only premiums paid on coverage obtained through SHOP qualify for the tax credit, the calculator provided on the site to come up with a business's estimated annual tax credit is not accurate for coverage obtained during 2014 because it does not take the partial year into account.
Although the Maryland Health Connection website does not address the effects of the delay, a presentation prepared for a Maryland Health Benefit Exchange Board Meeting on Friday, November 8, asserts that "Tax credits will not be lost – available for 2 years from first receipt." This is an apparent reference to the fact that the tax credit is limited to two consecutive years, beginning the year coverage starts. However, according to proposed rules by the IRS published in the federal register, the two-year limit is being interpreted as two tax years, not a 24-month period that may overlap into three different years [emphasis added]:
[T]his credit is available to any eligible small employer only twice (because the credit can be claimed by a small employer only for two consecutive taxable years beginning after December 31, 2013, beginning with the taxable year for which the small employer first claims the credit). Accordingly, no small employer will calculate the credit amount or complete the process for claiming the credit under this regulation more than two times.This means that an employer who obtains SHOP coverage sometime in 2014 after the exchange opens could either file for a partial-year credit for 2014 and a full-year credit in 2015, or skip filing for any credit in 2014 and then file for full-year credits in 2015 and 2016. Since the only apparent advantage of purchasing coverage via SHOP versus the conventional insurance market is the availability of the credits, the delay in the opening of SHOP seems to amount to a de facto delay to January 1, 2015, at least for businesses intent on obtaining the maximum benefit from the tax credits.
Unless the Maryland Health Connection can reconcile the SHOP delay with the proposed IRS rules, small businesses will be getting something less than is being promised. An email to the Maryland Health Benefit Exchange requesting clarification on the effect of the delay on tax credits has not yet been returned.
Note: A version of this article first appeared at The Weekly Standard.