The Affordable Care Act added a provision to the Health Care Bill designed to help small businesses offer health insurance to their employees. Although a wonderful concept, the design was made by people who had no small business experience and implemented with Regulations from an agency notorious for ignoring small business tax issues.
The credit of 35% is available to small businesses, in theory, with less than 25 full time employees earning on average less than $50,000 annually. These thresholds are mere window dressing because the credit is actually best available when employment is 10 or fewer employees earning $25,000 or les annually. When the number of employees or the wage amounts exceed the lower limits the credit is rapidly reduced to zero through a complex layer of calculations.
The wizards at the Congressional Budget Office originally estimated that 1.4-4 million businesses would use the credit without actually talking to real small businesses or their advisors. Their advisors, by the way, are not national accounting firms – they are local firms. We local firms laugh out loud when some national office or pundit quotes a Big 4 firm on small business issues! According to the May, 2012 report from the US Government Accounting Office the actual small business health care credits used in 2010 were 170,300. This represents less than 4% of the high CBO estimate and 13% of the low CBO estimate, illustrating the small business health care credit as a miserable failure in either event. The sad news was it did not have to be this way, read on.
The GAO identified a number of reasons for the miserable failure-but any attendee at our seminars in 2010 knew right away why the credit would not work.
Bob Jennings CPA explains the complex rules in this video
The reasons were simple and threefold:
1. The credit was not available to owners of businesses or their family members;
2. The idiots who wrote the Regulations apparently assumed that small businesses have dozens of bookkeepers working to accumulate the barrels full of information needed to get the credit. By the way their bookkeeper is the business owner who also has to work 50 hours weekly, sell their product or services 24 hours a day, take care of a family and then try to accumulate the information for this Federally mandated record-keeping Armageddon; and worst of all,
3. The IRS regulations are so incredibly complex that the cost of paying an outside accountant to accumulate the information needed to obtain the credit is far greater than the credit!
Now we are reading all the business news about the small business health care credit increasing to 50% in 2014. Even the tax advice magazines (BNA Weekly Report 9/9/2013) are talking about it and interviewing people that once again clearly do not have a clue about actually preparing tax returns for small business owners. Here is a news flash from a CPA who deals exclusively with small businesses and small business accountants: The 2014 health care credit’s failure will pale in comparison to the previous 4% participation rate and will be one of the most heavily marketed failures since New Coke in 2005 or Vanilla Ice! And for one simple reason-the rules are written by people who do not actually talk to the people affected. This credit could work if Congress and the Federal agencies involved would even bother to find out what is really going on and if “experts” were actually doing the things about which they were supposed experts. Please excuse any misspellings because my blood pressure is boiling when I read the drivel being written about this credit.
Oh my gosh – did I really say it would be a failure? No I said it would be a bigger, more miserable failure than before, and here is why:
Take the first 3 mistakes made in the first application of the law and add in:
4. To obtain the 50% credit for 2014, the small business provider must cancel their existing insurance and go sign up as a provider on the SHOP insurance exchange;
5. After going to the SHOP, the employer will find that the ability of the small business to provide their employees with competitive insurance on the Exchange was removed by the Administration on April 2nd with the announcement that Shop participants would be limited to one provider;
6. The small business going to the Exchange will also find that they will be turned away from the Shop by a different US Department of Health and Human Services rule requiring 70% employee participation. The employer cannot even sign up except during a limited one-month window without 70% employee participation. Did anyone at HHS even consider that some employees might be covered by their spouse, or that owners of businesses don’t qualify for the credit and may not be participating in their own plan? (And how does this rule help implementation of a law to promote health insurance?);
7. And then, if somehow the small business employer still wants to provide insurance and get the credit, the employer is responsible under a wonderful DOL ruling to provide a 5 page Summary of Benefits and Coverage (SOB) form to all employees or face a $1,000 per employee fine plus $100 daily. Oh, and that is after the employer asks every employee about their county of residence and looks up, on an employee-by-employee basis in the US Census website to see if English is not able to be read by more than 10% of the residents of the county. If that is the case the disclosure must be made in all of those foreign languages or the employer will face the same penalty!
In summary, even for a small business employer like myself, who believes there is a moral obligation for the employer to provide health insurance, who pays for full family coverage for employees and who is a believer in many of the concepts of the Affordable Care Act, the small business health care credit is more than a mess, it should awaken small businesses to the fact that they need to stop offering insurance at all when faced with onerous record keeping, red tape beyond all previous experience, and bankruptcy inducing penalties.
My name is Bob Jennings, CPA and I approve this message. I am not running for office because I do not like lizards, snakes or the other reptiles and amphibians that still occupy the Washington DC swamps.