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The old health care bill bait and switch

By RICARDO ALONSO-ZALDIVAR
May 20, 2010

Zach Hoffman: A feeling of being had (AP)

Zach Hoffman was confident his small business would qualify for a new tax cut in President Barack Obama’s health care overhaul law.

But when he ran the numbers, Hoffman discovered that his office furniture company wouldn’t get any assistance with the $79,200 it pays annually in premiums for its 24 employees. “It leaves you with this feeling of a bait-and-switch,” he said.

When the administration unveiled the small business tax credit earlier this week, officials touted its “broad eligibility” for companies with fewer than 25 workers and average annual wages under $50,000 that provide health coverage. Hoffman’s workers earn an average of $35,000 a year, which makes it all the more difficult to understand why his company didn’t qualify.

Lost in the fine print: The credit drops off sharply once a company gets above 10 workers and $25,000 average annual wages.

It’s an example of how the early provisions of the health care law can create winners and losers among groups lawmakers intended to help — people with health problems, families with young adult children and small businesses. Because of the law’s complexity, not everyone in a broadly similar situation will benefit.

Consider small businesses: “The idea here is to target the credits to a relatively low number of firms, those who are low-wage and really quite small,” said economist Linda Blumberg of the Urban Institute public policy center.

On paper, the credit seems to be available to companies with fewer than 25 workers and average wages of $50,000. But in practice, a complicated formula that combines the two numbers works against companies that have more than 10 workers and $25,000 in average wages, Blumberg said.

“You can get zero even if you are not hitting the max on both pieces,” Blumberg said.

Hoffman used an online calculator to figure his company’s eligibility. At least three are available: from the House Energy and Commerce Committee, which helped write the legislation; from the progressive Center for American Progress; and from the National Federation of Independent Business, which is seeking to overturn the law in federal court. All produced the same result.

“I think (the administration’s) intentions are good, but the numbers and applications don’t come out to what they intend,” said Hoffman, part owner of Wiley Office Furniture, a third-generation family business in Springfield, Ill.

The Treasury Department, which administers the new credit, did not dispute the calculations.

“The small-business tax credit was designed to provide the greatest benefit to employers that currently have the hardest time providing health insurance for their workers — small, low-wage firms,” said Michael Mundaca, assistant secretary for tax policy. “Small employers face higher premiums and higher administrative costs than large firms and in many cases cannot afford to provide coverage.”

Small business owners are a pivotal constituency in the fall congressional elections, and Democrats are battling to win them over. Major benefits of the health care law — competitive insurance markets, more stable premiums and a ban on denying coverage to those in poor health — don’t take effect until 2014. But the health care credit is available starting this year.

It can be a boon for smaller companies paying lower wages. Betsy Burton, owner of The King’s English Bookshop in Salt Lake City, estimates that she will get a credit of roughly $21,000 against premiums of about $67,800. She has 11 full-time equivalent employees averaging $26,100.

“What it means is that I can afford to carry this insurance and insure people’s families,” said Burton. “I was afraid that we were fast approaching a time when I would have to choose between insuring my employees and closing my doors.”

Burton believes offering health insurance is the right thing for an employer to do — and also makes good business sense because it helps her retain valued employees. Except at the beginning, she has provided coverage for most of the 33 years the bookstore has been in business.

Slightly more than a third of companies with fewer than 10 employees offered coverage in 2008, down about 10 percent since the start of the decade, according to an Urban Institute analysis.

Hoffman, the furniture store owner whose business missed out on the credit, says he understands that lawmakers writing the health care legislation had a limited amount of money to work with. But his company’s premiums rose 15 percent this year, and it’s a struggle to keep paying.

To get the most out of the new federal credit, Hoffman said he’d have to cut his work force to 10 employees and slash their wages.

“That seems like a strange outcome, given we’ve got 10 percent unemployment,” he said.

___

Online:

House Energy and Commerce calculator: http://tinyurl.com/2ewbsju

Copyright © 2010 The Associated Press

5 Responses to The old health care bill bait and switch

  1. woody188

    May 20, 2010 at 2:38 pm

    The flim flam sham man strikes again and again and again!

    Obama is quickly becoming the Alfred E. Neuman of politics. He doesn’t seem worried about a thing. Maybe the fix is already in, or maybe one term is enough for him?

  2. Wellescent Health Topics

    May 20, 2010 at 3:04 pm

    That few small businesses qualify is expected simply from the standpoint of the overall tax reductions that the government can withstand. The unfortunate part is that the formulas were not made available early enough for people to be able decide whether or not they would benefit from the health reform changes.

  3. griff

    May 20, 2010 at 3:05 pm

    Indeed Mr. Hoffman, you’ve been had.

  4. hologram5

    May 21, 2010 at 11:12 am

    It really sucks that this is going to happen nationally. The game is on. And this is why the people are going to vote against all incumbents this November.

  5. woody188

    May 26, 2010 at 12:29 am

    Look what else was lurking in the mandatory health care insurance law:

    Stealth IRS changes mean millions of new tax forms

    Since no one is willing to take credit for it’s addition, then certainly it should be removed no?