ACA Employer Tax Incentive – Not Interested

A recent GAO report looked into the employer tax incentive program that was in the ACA to motivate more small employers to offer health insurance. The performance of the program fell short of expectations. Several interesting questions on reading the report:

170k Signed Up Out Of?

When a piece of tax credit legislation is proposed, there has to be an estimate of eligible recipients in order to quantify the budgetary impact. When the employer tax incentive was put into the ACA the estimates of the number of business that this could potentially help was between 1.4m and 4m. We’ll pass over what the extraordinary imprecision of this measurement says about the people framing this program and move onto the actual performance. Depending on what part of the range of eligible you want to highlight is, the take up rate was between 4% to 12%. Why the low level of interest?

How Hard Can It Be, the IRS is Involved?

Part of the GAO report looks at the IRS form and information needed to claim the tax credit. Quoting from the report:

“Any credit that needs a form that takes 25 lines and seven work sheets to build those 25 lines is too complicated” attributed to a tax preparer

Other complaints had to do with how to calculate FTEs and insurance premiums associated with those FTEs. Remember this tax incentive program was focussed on small employers with low wages, traditionally a higher turnover population.

We Get How Much?

Another problem with the employer tax incentive program was the amount of the credit itself and the the extent that it is available. In order that the credit was not used to over buy health insurance, the IRS used a credit cap of the average health insurance premium in each state. Several participants in GAO surveys questioned whether the IRS caps were too low. And finally, the tax credit itself has a phaseout provision, which means that from a planning perspective the small business has to estimate whether it can continue to afford health insurance when the credit expires.

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The way that the employer tax incentive program in the ACA was written and operationalized once again points to the lack of understanding on the Federal level of the problems that small business faces in the health insurance market.