Few businesses claiming health insurance tax credit: GAO

Depending on the estimate, 4% to 12% of small businesses eligible for health insurance tax credits claimed them in 2010, according to a new report.

The tax credit was included in the Patient Protection and Affordable Care Act to induce small businesses to offer health benefits but failed to do so, the Government Accountability Office said. “According to employer representatives, tax preparers and insurance brokers the GAO met with, the credit was not large enough to incentivize employers to begin offering insurance,” said the GAO. Employers also found the credit too complex, the GAO said. The credit was not enough of an incentive to make up for the time and cost required to apply, according to the report.

About 170,300 small businesses claimed the tax credit. Rough estimates projected that 1.4 million to 4 million employers met the eligibility criteria.

Businesses must employ fewer than 25 full-time equivalents to be eligible and the average annual wage must be less than $50,000 for full time equivalents. Also, an employer must uniformly pay 50% of the premium costs to qualify for the credit. Employers with 10 or fewer workers and average annual wages of $25,000 may receive the full credit; the rest qualify for partial credit.

The average credit was $2,700, the GAO said. The tax credit total cost for 2010 was $468 million.

About 83% did not qualify for full credit but received partial credit. The GAO also said that 30% saw their credit capped by rules that may apply the credit to the amount of the small group state average premium instead of an employer's own premiums.