A new law may finally give some small businesses the incentive to purchase at least some type of health insurance for their workers.
The legislation, signed by Gov. Jan Brewer, provides companies a dollar-for-dollar tax credit, up to $360 a year, toward the purchase of high-deductible coverage. And there’s another $360 credit for contributions made to each worker’s health savings account.
Rep. Steve Court, R-Mesa, said he hopes the credits, while small, will be just enough to convince small employers — those with between two and 50 workers — to provide at least some health insurance to their workers.
But that financial relief is only temporary, with companies able to claim the credits for only three years.
Court said, though, that may be all that is necessary. He pointed out that, unless changed or overturned, the new federal health care law is supposed to take effect in 2014.
The change has the support of the National Federation of Independent Business. Farrell Quinlan, the organization’s state director, said the bottom line for business owners is financial.
“As with any benefit, especially one that for small businesses is optional, costs are brought into play,” he said.
“A marginal impact on cost, to the benefit or the worst, will have an impact on that decision-making process,” Quinlan continued. “We believe these incentives will help provide probably one of the lowest-cost health care options.”
The starting point is the concept of a high-deductible policy. In essence, it provides coverage for catastrophic incidents above a certain cost, with individuals responsible both for day-to-day medical expenses as well as some initial costs of a hospital stay.
Quinlan said even these policies, which are much cheaper than standard group health insurance, are still unaffordable for many small companies. Providing a $360 state tax credit — essentially letting the company pay the money toward insurance instead of toward the state — might be just enough to convince firms to provide coverage.
But that is just part of the equation.
Employers also would need to set up health savings accounts for their workers.
What’s behind this is the idea that individuals decide at the beginning of each benefit year how much they want set aside for anticipated medical expenses. Aside from forcing workers to save, any dollars put into these accounts are exempt from federal and state income taxes.
Here, too, a tax credit would be available, up to $360, if the company provides some match of worker contributions.
Those credits, however, do reduce state revenues. A report prepared by legislative budget staffers pegged the price tag at $33 million.
Court acknowledged that essentially amounts to the state subsidizing companies to offer a benefit to their workers. But he said it makes sense, especially as there is no legal requirement for employers to provide health insurance at all.
Anyway, he said, there would be savings elsewhere.
“If somebody is not insured now and they’re showing up at the emergency room, it’s costing a lot more” than if they had simply gone to a doctor, costs Court said ultimately are borne by everyone.
He also pointed out that the new law is kicking in just as the state is scaling back eligibility for the Arizona Health Care Cost Containment System, the state’s Medicaid program.
The current program provides free care for everyone below the federal poverty level, about $18,500 a year for a family of three. The change, approved by lawmakers, will halt enrollment of all childless adults, regardless of income, and put a lower income limit on adults with children.
That cost to the state, however, presumes the incentives in the law will result in many businesses without health insurance deciding to start offering coverage. But the analysis by legislative budget staffers said that is a questionable assumption.
According to that report, the Kaiser Foundation finds that the average cost to employers of a high-deductible policy is $3,789 for single workers and $8,225 for families.
“A $360 credit seems unlikely to induce many businesses to make an investment of this size,” the report states.
The other issue is that three-year limit on being able to claim the credit. Court acknowledged nothing in the law requires employers to keep providing coverage once the state subsidy runs out.
“It’s something designed to get them off the dime and get some coverage,” he said. Anyway, Court said, it may provide at least a bridge until the federal health care law kicks in with its own mandates on insurance coverage.