Small employers in Washington will now have a shot at a tax break that could cut their health insurance costs in half.
Until an announcement made Tuesday it appeared that businesses in Washington would miss out on the health insurance subsidies beginning next year. The Affordable Care Act created the deal for small businesses that met certain size and income requirements and that bought their coverage through a new insurance exchange.
But nearly all of Washington won’t have this insurance exchange, which is called the Small Business Health Options Program, or SHOP. Under the original rules, that would have excluded approximately 100,000 small businesses here from the deal.
Sen. Patty Murray, D-Wash., announced an agreement with the U.S. Treasury Department to make tax credits available to Washington businesses buying insurance outside of SHOP. The announcement followed a Sunday story in The Seattle Times highlighting the exclusion of local employers from the program.
“Washington state has been a national leader in implementing the Affordable Care Act, and today’s announcement ensures that small businesses and their employees will have the same access to quality, affordable health plans as those on the individual market,” said Murray in an email statement.
Since 2010, small businesses that paid at least half the cost of their workers’ health insurance premiums, and who employed fewer than 25 people earning on average $50,000 a year, were eligible for tax credits to offset insurance costs. Businesses could recoup up to 35 percent of the amount and nonprofits could claim up to 25 percent. Those amounts increase next year to 50 percent for businesses and 35 percent for nonprofits. But the law now also requires employers to purchase that insurance through SHOP.
In Washington, SHOP insurance will be available from only one insurance company, Kaiser Permanente, and only in two counties, Clark and Cowlitz. Kaiser is also selling small business insurance on the Oregon SHOP, and there is significant economic crossover between Oregon and the two border counties.
The ability to get tax credits outside of SHOP will apply throughout Washington, except for the two counties with the exchange. The tax credits also will also apply in the four of Wisconsin’s 72 counties where SHOP is likewise not available.
To get the tax credits, the plans must meet the Affordable Care Act’s new coverage requirements, which include paying for 10 essential benefits, including preventive care and prescription drugs, and capping deductibles and out-of-pocket expenses.
“This transitional policy will ensure that small businesses in parts of Washington state and Wisconsin can take advantage of tax credits available under the Affordable Care Act, one of many parts of the act that removes key barriers that smaller employers have traditionally faced when offering health insurance to their employees,” Mark Mazur, the Treasury’s assistant secretary for tax policy, said in an email statement.
The lack of a SHOP insurance marketplace frustrated some Washington business owners who were eager to secure the tax benefits. That included John Lockwood, owner of Port Townsend’s Pygmy Boats, a company that sells kits for building wooden kayaks, canoes and row boats. In 2011 and 2012, Lockwood qualified for tax credits that covered 21 percent of his six employees’ insurance premiums. He was upset that there wasn’t a SHOP option in his county.
“I haven’t heard any rational reason why Washington state isn’t in it,” Lockwood said. “None of the explanations make the slightest bit of sense and don’t sound truthful. Why are my employees higher risk than other individuals?”
Insurance company officials explained that it took a lot of work in a short time to create plans for individual policies to be sold on the state’s insurance exchange. They also had to update plans currently available to individuals and small businesses being sold outside of the exchange.
Additionally, perhaps more than any other state, the Washington small business health insurance market has been dominated by plans sold through associations and trade groups. These groups offered insurance at cheaper prices because the insurance companies were allowed to boost rates for companies should one of their employees fall ill. That ability to raise premiums for individual businesses goes away under Obamacare. That and other rule changes have left uncertain the fate of these groups.
Insurance companies are unsure how many businesses will move from association and trade group plans to the policies available through SHOP. There was a risk that only businesses with sicker, older employees would move to SHOP, driving up the costs for insurers. (For a clear explanation of how Washington’s small business insurance market works now and in the future, see this earlier post on HealthCare Checkup.)
While more than 100,000 Washington employers could be eligible for some amount of tax credit, it’s unclear how many will take advantage of it. Between 1.4 and 4 million U.S. small employers qualified for the benefit when the program started in 2010, but only 107,300 applied for it that first year, according to a federal report released last year.
The policy allowing Washington employers to get tax benefits outside of SHOP is a short-term solution until the state has a more robust small business exchange — presumably by 2015.
Over the past month, insurance companies or carriers have met with Catherine Bailey, Washington’s SHOP manager, to talk about their plans for the future.
“We have been hearing some positive responses from a few of the carriers,” she said. She believes that at least one will offer plans that cover the entire state beginning in 2015. “We are encouraged.”