Will New Health Care Law Really Help Small Businesses?

April 1, 2010— -- President Obama today touted the small business tax credit in the health care law, even as company owners remain uncertain about what the sweeping changes really mean for them.

In Portland, Maine, an energized Obama sold his health care law as "pro-jobs" and "pro-business," and one that would start to help small firms this year.

"Starting now, small business owners that provide health care to their workers can sit down at the end of the week, look at their expenses, and begin calculating how much money they're going to save," the president said. "For small business owners who don't currently provide health insurance, they'll be able to factor in this new benefit in deciding whether to do so. And with that savings, employers may be able to cover an additional worker or hire that extra employee they've needed."

The tax credit that the president was promoting will take effect in 2010, but other benefits don't kick in until 2014.

Small businesses would get up to a 35 percent tax credit on the premiums they pay for their employees' health coverage. Businesses, including non-profit organizations, will be eligible for the tax credit if they have fewer than 25 full-time employees, pay an average salary of $50,000 or less per year, and cover at least 50 percent of their workers' health costs. Small businesses, however, won't technically see returns until next year when they file their 2010 tax return.

By 2014, the tax credit will be upped to 50 percent, and the White House estimates that 4 million businesses will benefit from it.

The tax credit is estimated to save small businesses $2 billion this year and $40 billion over the next years, costs that the federal government will bear, according to the Congressional Budget Office.

Some economists say the savings and the number of uninsured who will get coverage because of the tax credit are only a drop in the bucket.

"I think that there are going to be some firms that are on the edge and they'll look at this and say, 'given the fact that our employees will need to purchase health insurance... it might make sense to do this,'" said Gus Faucher, director of macroeconomics for Moody's Economy.com, but "in terms of increasing coverage, [this] is a small piece of the puzzle. ... This is not going to be like the [individual] mandates or the individual subsidies" that will be implemented by 2014.

Some small business organizations say the tax credit will help in the short term, but once it is phased out, firms will have to bear the full costs.

"When it comes to the tax credit, it's not going to hurt. The challenge is the tax credit is temporary. When it runs out small businesses will be left paying out the full amount," said Molly Brogan, vice president of public affairs for The National Small Business Association, an advocay group that opposed the health care law. "And the bigger challenge that we have raised... is we don't think it is sufficient in containing the costs of health care."

For Gene Marks, who owns a 10-employee company that sells business software products and related services, the tax credit will certainly help, but he is skeptical about the long-term cost benefits.

"How can a small business owner not like what he [Obama] is offering right now," said Marks, who frequently writes for Business Week and Forbes.

Small businesses can also see some upside in the next four years. Barring insurance companies from rejecting people based on preexisting conditions opens up a bigger pool of employees for small businesses, and the insurance exchange that will be offered by 2014 puts small firms on equal footing with their larger counterparts.

Yet small businesses are nervous at best about the long-term impact of the health care law.

"We do have this nagging thing about how it will be paid for," Marks said. "When things seem to be too good to be true, they often are too good to be true."

How the sweeping overhaul will be paid for is one of the chief concerns about small business owners, Marks said. Additionally, small business owners may get tax breaks and save on health costs for their companies, but if they have to end up paying more taxes in their individual filings, then ultimately they won't benefit at all.

Under the health care law, individuals who make $200,000 and couples who make in the upwards of $250,000 will see their income taxes go up.

"We're saving it on the business but now we're getting taxed more on our income," Marks said. It's just "being taken out of somewhere else."

It's a sentiment that's being echoed by small business owners across the country.

The health care overhaul law "certainly addresses a lot of access side of the equation but it doesn't address costs," Brogan said.