[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
LIP SERVICE BUT LITTLE ELSE: FAILURE OF THE SMALL BUSINESS HEALTH
INSURANCE TAX CREDIT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 22, 2016
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-051
Available via the GPO Website: www.fdsys.gov
______
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99-544 WASHINGTON : 2016
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
MIKE BOST, Illinois
CRESENT HARDY, Nevada
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Emily Murphy, Deputy Staff Director for Policy
Jan Oliver, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Tim Huelskamp............................................... 1
Hon. Judy Chu.................................................... 2
WITNESSES
Mr. James R. McTigue, Jr., Director, Strategic Issues, United
States Government Accountability Office, Washington, DC........ 3
Mr. Harold Jackson, Executive Chairman, Buffalo Supply, Inc.,
Lafayette, CO, testifying on behalf of the U.S. Chamber of
Commerce....................................................... 5
Ms. Holly Wade, Director, Research & Policy Analysis, NFIB
Research Foundation, Washington, DC............................ 6
Mr. Michael Ricco, Quality Manager, AEEC, LLC, Reston, VA,
testifying on behalf of the U.S. Women's Chamber of Commerce... 8
APPENDIX
Prepared Statements:
Mr. James R. McTigue, Jr., Director, Strategic Issues, United
States Government Accountability Office, Washington, DC.... 17
Mr. Harold Jackson, Executive Chairman, Buffalo Supply, Inc.,
Lafayette, CO, testifying on behalf of the U.S. Chamber of
Commerce................................................... 38
Ms. Holly Wade, Director, Research & Policy Analysis, NFIB
Research Foundation, Washington, DC........................ 46
Mr. Michael Ricco, Quality Manager, AEEC, LLC, Reston, VA,
testifying on behalf of the U.S. Women's Chamber of
Commerce................................................... 50
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
LIP SERVICE BUT LITTLE ELSE: FAILURE OF THE SMALL BUSINESS HEALTH
INSURANCE TAX CREDIT
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TUESDAY, MARCH 22, 2016
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Tim Huelskamp
[Chairman of the Subcommittee] presiding.
Present: Representatives Huelskamp, Hanna, Kelly, and Chu.
Chairman HUELSKAMP. Good morning. Thank you all for being
with us today. I call this hearing to order.
Six years ago tomorrow, the Patient Protection and
Affordable Care Act of 2010, otherwise known as ``Obamacare,''
was enacted. It imposed a host of new obligations and taxes on
insurance companies, individuals, and employers, including
small businesses. These new burdens included an individual
mandate, which requires that most individuals have health
insurance and an employer mandate, requiring that most
employers provide health insurance for their employees. In both
cases, noncompliance results in significant penalties.
Fortunately, employers with fewer than 50 employees were
exempted from the employer mandate. However, their employees
are still subject to the individual mandate and must have
insurance. As we all know, many businesses with more than 50
employees can hardly be termed large, yet those businesses are
ineligible for the exemption.
In order to provide an incentive for the smallest of the
small, those employers with fewer than 25 employees, to provide
employee health insurance, a small business health insurance
tax credit was included to offset the cost to the employer.
Like so many other parts of Obamacare, this was another case of
over-promise and under deliver. Multiple assessments, both
during initial implementation and now today, years down the
road, have made it abundantly clear the credit scheme is so
cumbersome and poorly designed that it is largely ineffective.
As the credit's useful life comes to a close, today's hearing
will reevaluate its efficacy from several different
perspectives.
I would like to thank our witnesses for coming today, and I
look forward to your testimony. I now yield to Ranking Member
Chu for her opening remarks.
Ms. CHU. Thank you, Mr. Chair.
Before the Affordable Care Act was enacted, the rising cost
of health care was one of the biggest worries for small
companies and their employees. The ACA introduced many
substantial changes to the insurance market with the hopes of
making quality health care affordable for small employers.
One way in which the ACA helped make health insurance more
accessible to small companies was through the Small Business
Health Care Tax Credit. The ACA provided $40 billion in tax
assistance through the Small Business Health Care Tax Credit
and was made available immediately upon its enactment. This
credit aimed to make healthcare coverage attainable for the
smallest of businesses. Research has shown that the fewer
employees a company has, the less likely it is that the
business offers health insurance. For example, businesses with
between 3 and 9 employees only offer rates of 46 percent. This
is a stark contrast from their larger counterparts with more
than 50 employees that offers a rate of over 95 percent.
The tax credit was designed for businesses that are small.
However, while the credit was originally estimated to support
between 1.4 million to 4 million small employers, the use of
the credit by small employers was much lower than projected.
While final data on the use of the credit is still being
collected and analyzed, the most current information shows its
use to be low among eligible businesses.
Although there are some conflicting reports on the actual
use of credit, the numbers are disappointing. For instance, the
final IRS data for 2010 indicates 335,600 claims were made, but
another report by the GAO found that only 170,300 small
employers claimed the credit. But both show the same thing: few
small businesses are taking advantage of a critical tax credit
that would benefit them greatly.
Today's hearing serves as a way for us to examine the tax
credit and learn what challenges faced small businesses
attempting to use the credit. Most recently, the GAO concluded
that nearly 168,000 employers claimed the credit in 2012.
Despite few employers using the credit, nearly 1 million
employees obtained employer-sponsored health coverage through
businesses claiming the credit.
It is clear that the low adoption rates by small businesses
were caused by numerous factors. The single greatest factor was
the lack of awareness surrounding how the credit actually
worked. The complexity of the calculations and requirements to
be met were daunting for small employers with limited time and
resources. Another challenge for small firms was meeting the
stringent eligibility rules to be fully qualified for the
credit. Strict salary requirements and employee counts had to
be met. This added to the complexity and credit amount
available. A final challenge was the delay in the Small
Business Health Options Program, or SHOP Exchanges.
Despite these problems, small employers and the healthcare
industry in general are experiencing some benefits. More
workers are obtaining health coverage and are now able to start
their own businesses or change jobs without fear of losing
their insurance. Additionally, we have seen per capita
healthcare spending grow at its lowest rate on record for any
3-year period, and the uninsured rate drop. Premium rates are
decreasing in some states and stabilizing in others. In fact,
the average premium for employer-based family coverage grew a
relatively modest 4.2 percent in 2015. This continues the trend
of slow growth with the last 4 years accounting for the lowest
growth rate since 1999. These lower rates are in part due to
more competition in the market.
This hearing will show just how critical the tax credit was
to small firms wishing to offer health coverage and highlight
areas where improvements could have been made. We will hear
today why expanding and improving and strengthening the credit
should have been done while it mattered most to our small
employers.
I would like to welcome all the witnesses and thank them
for being here today. Thank you, and I yield back.
Chairman HUELSKAMP. Thank you.
If Committee members have an opening statement prepared, I
ask that they be submitted for the record.
I would like to take a moment to explain the timing lights
for each of our witnesses. You each have 5 minutes to deliver
your testimony. The light will start out as green. When you
have 1 minute remaining, the light will turn yellow. Finally,
at the end of your 5 minutes, it will turn red. I ask that you
try to adhere to this time limit.
Our first witness is James McTigue, Director of Strategic
Issues at the GAO, overseeing their audits of the IRS on a wide
range of issues relating to tax administration and policy. He
has 25 years of GAO audit experience across a variety of
agencies and programs. Mr. McTigue holds a bachelor's degree in
economics from Brown University and master's degree in public
and private management from the Yale School of Management. I
appreciate you being with us today, Mr. McTigue, and you may
begin.
STATEMENTS OF JAMES R. MCTIGUE, JR., DIRECTOR, STRATEGIC
ISSUES, UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE; HAROLD
JACKSON, EXECUTIVE CHAIRMAN, BUFFALO SUPPLY, INC.; HOLLY WADE,
DIRECTOR, RESEARCH AND POLICY ANALYSIS, NFIB RESEARCH
FOUNDATION; MICHAEL RICCO, QUALITY MANAGER, AEEC, LLC
STATEMENT OF JAMES R. MCTIGUE, JR.
Mr. MCTIGUE. Thank you, Mr. Chairman, Ranking Member Chu,
Congressman Hanna. I am pleased to be here today to discuss our
work on small employers' use of the health insurance tax
credit.
The tax credit was established as part of the Patient
Protection and Affordable Care Act to help small employers
provide health insurance for their employees. Our findings
indicate that use of the credit has continued to be lower than
expected, limiting the effect of the credit on expanding health
insurance coverage through small employers.
As we discussed in our 2012 report, small, low-wage
employers historically have not offered insurance for three
reasons. First, health insurance is expensive and drives up the
cost of labor. Second, lower-wage employees generally prefer
cash over benefits. And third, insurers of small employers face
high costs and are less able to pool risk across many
employees. As a result, plans for small employers are likely to
have higher premiums and fewer benefits.
Government estimates indicate that about 86 percent of
employers who may have been eligible for the full credit and 76
percent who may have been eligible for a partial credit did not
offer their employees health insurance in 2013. While
government and industry estimates place the number of eligible
employers somewhere between 1.4 and 4 million, only about
181,000 employers claimed the credit in 2014. This is down
slightly from 2010 as shown in Figure 1 of my statement.
In our 2012 study, we identified four key reasons why small
employers did not claim the credit based on interviews with
groups representing small employers, tax preparers, insurance
brokers, as well as discussion groups with small employers
themselves. First, the amount of the credit is too small to
influence employers to offer or maintain insurance. This is
because few small employers actually qualify for the maximum
credit since the credit is phased out to zero as the number of
employees reach 25 full-time equivalents and average wages
approach $52,000. And the credit is limited to the average
premium in the small group market in the State.
In our report, we found that only about 17 percent of
employers who claimed the credit in 2010 were eligible for the
full amount. Usually, employers could not meet the average wage
requirement. In fact, 68 percent did not qualify based on
wages, even though they met the FTE requirement. Second, the
credit can only be claimed for 2 consecutive years beginning in
2013. We found that employers may be reluctant to provide a
benefit that they may have to take away later when the credit
is no longer available and they are faced with higher costs for
premiums. Third, GAO also found that the cost and complexity
involved in claiming the credit was significant, deterring
small employers from claiming it. For example, a major
complaint that we heard had to do with the effort required to
gather information on the number of hours worked for each
employee in order to calculate full-time equivalence in the
associated average annual wages. Tax preparers told us it could
take 2 to 8 hours to gather the necessary information and that
they spent 3 to 5 hours calculating the credit. Fourth, many
small employers have also reported that they were unaware of
the credit. In response, the IRS developed a communication
strategy that includes written materials, a website, and
outreach to interest groups. However, the effectiveness of this
outreach is unknown.
Our 2012 report also discussed ways that the design of the
credit could be altered to spur greater use of the credit.
Options include increasing the amount of the full credit, the
partial credit, or eliminating the State average premium cap.
Other options would expand eligibility by increasing the FTE
and wage limits for employers. And some options involve
simplifying the credit calculation by using the number of
employees and wage information already reported on the
employer's tax return, or offering a flat credit amount per
employee rather than a percentage. In recent years, Congress
and the administration have proposed a number of changes to the
credit as well. These include expanding the size of eligible
employers, altering the phase-out rules, and allowing the
credit to be claimed in more than 2 consecutive years.
In conclusion, expanding eligibility or increasing the
amount of the credit may spur more small employers to claim the
credit. However, these changes would increase the cost to the
Federal Government.
Mr. Chairman, Ranking Member Chu, and members of the
Subcommittee, this concludes my prepared remarks, and I would
be happy to take any questions.
Chairman HUELSKAMP. Thank you, Mr. McTigue. I appreciate
your testimony. We will have questions here shortly.
Next up, I am now pleased to welcome Harold Jackson, who is
Executive Chairman of Buffalo Supply, Inc., located in
Lafayette, Colorado, just to my west from Kansas. Buffalo
Supply is a family-owned business that has been devoted to
providing high-tech medical supplies and equipment to the
Federal Government since its inception in 1983. Mr. Jackson
joined the company in 1990. He is also an active member of the
U.S. Chamber of Commerce, where he serves on the Small Business
Council and the Government Procurement Subcouncil. He is also a
longtime member of the Coalition for Government Procurement. I
appreciate you being with us today, Mr. Jackson. You may begin.
STATEMENT OF HAROLD JACKSON
Mr. JACKSON. Thank you, Chairman, and Ranking Member Chu,
distinguished members of the Committee. My name is Harold
Jackson. I am the executive chairman of Buffalo Supply, a 20-
employee small business located in Lafayette, Colorado. I am
honored to speak to you today on behalf of the United States
Chamber of Commerce.
Since 1983, our family-owned business has been devoted to
providing high-tech medical equipment and supplies to Federal-
funded facilities. We provide exceptional customer service, a
deep level of expertise to our supply partners, and a high-
quality workplace for our employees. We have 16 full-time and 4
part-time employees.
I understand most tax credits are designed to incent or
change behavior. Let me be clear. We have always provided
health insurance for our employees, but premiums have increased
dramatically year after year, and we may not be able to
continue to provide health insurance in the future. Because BSI
is ineligible, the tax credit does not help me provide
affordable coverage for my employees now, nor will it encourage
me to continue so in the future. We may be forced to stop
providing health insurance due to the escalating costs.
Over the years, we have changed carriers almost annually
and explored different plan designs moving from PPO to high-
deductible plans, and in the beginning, we covered the
associated HSA contributions to cover the high deductible, but
we had to reduce that from 100 percent coverage for our
employees to 50 percent of the deductible, and now down to 0.
We do pay 100 percent of the premiums for our employees and
their dependents, but subject to higher family deductibles from
$3,000 up to $5,000, and higher maximum out-of-pocket expenses
up from $4,000 to $6,800. So we are paying more in premiums and
our employees are paying more when they require medical
services.
When Connect for Health Colorado opened its shop in 2015, I
went online and tried to enroll. Unfortunately, the amount of
information required in the online application process was
incredible. Much of the information I did not have access to,
such as dependents' and spouses' Social Security numbers, dates
of birth, tobacco use. After 3 days of gathering this
information and another 10 hours of entering it into the
system, I could not review the plan options or see quotes, so I
contacted the shop at their 800 number and I was told that we
do not provide quotes to small businesses; that you would need
to go through your insurance broker. Interestingly enough, when
I called the insurance broker, he said, well, I will be happy
to provide you with a quote, but it will not be through SHOP.
They are way too much hassle for us to deal with. So the people
they referred me to did not even want to use them.
Based on my experience, the SHOP requirement is an onerous
hurdle in and of itself. The biggest hurdle though is the
annual earnings cap of $50,000. I am certainly not a tax
expert, but it would appear to me that we could improve it by
first removing the requirement that small businesses go through
SHOP. Second, increase average earnings cap. Third, make the
credit available for more than 2 consecutive years. The bottom
line is the tax credit needs to be easier for businesses to
assess and the hoops need to be simplified. It seems like a big
part of the problem is the rules for the tax credit are so
confusing that small businesses cannot assess the benefit
without hiring outside counsel. Ultimately, any changes should
not only increase the tax benefit to help small businesses but
must be simple and easily understood.
Thank you for this opportunity to testify, and I would be
happy to answer any questions.
Chairman HUELSKAMP. Thank you, Mr. Jackson. I appreciate
your testimony, and I am disappointed by your experience with
SHOP, and hopefully, there will be some questions on that
later.
Up next, I am pleased to welcome to the Subcommittee Holly
Wade, who is the Director of Research and Policy Analysis at
the NFIB. In that role, Ms. Wade oversees the foundation's
publications, including the monthly ``Small Business Economic
Trend Survey and Small Business Problems and Priorities.'' She
also provides in-depth analysis on public policy issues that
impact our small businesses. She is a member of the National
Association of Business Economics and the Department of
Commerce's Industry Trade Advisory Committee on Small and
Minority Business. Ms. Wade is a graduate of the University of
Washington, with a degree in political science and sociology,
and she has a master of public policy from the University of
Denver. And I appreciate you being with us today, Ms. Wade. You
may begin.
STATEMENT OF HOLLY WADE
Ms. WADE. Thank you. Good morning, Chairman Huelskamp,
Ranking Member Chu, and members of the Subcommittee. Thank you
for the opportunity to testify today. I am pleased to be here
on behalf of the National Federation of Independent Businesses
as the Committee discusses the Small Business Health Insurance
Tax Credit.
Small business owners rank the cost of health insurance as
their most severe problem in operating their business out of 75
potential issues, with 56 percent of small business owners
finding it a critical problem. The high cost of health
insurance is the main reasons owners do not offer employer-
sponsored health insurance and the main reason owners
discontinue providing the benefit. And for those offering, many
owners annually confront the arduous task of adjusting profit
expectations, insurance plans, cost sharing, and other
mechanisms to help absorb the often erratic changes in total
premium costs. The rising cost of health insurance has forced
many small employers to rethink the viability of offering
health insurance to their employees, especially during and in
the wake of the Great Recession.
Since 2008, the offer rates for small businesses with fewer
than 50 employees has dropped precipitously. Small business
owners are far more hesitant to commit themselves to offering a
long-term, high-cost benefit. The offer rates for this group
have fallen over 10 percentage points from 43 percent offering
in 2008 to 32 percent in 2014.
The Small Business Health Insurance Tax Credit was a
targeted approach to help curb health insurance costs for
offering small employers and was intended to provide an
incentive for those that do not to start offering. However, the
tax credit was largely ineffective in both fronts as its design
is exceedingly restrictive, complicated, and only offers
limited and temporary relief to a larger small business cost
problem. To date, the tax credit has generally served as a
windfall for the few small business owners who qualify and take
the time or pay an accountant to file for it.
The ineffectiveness of the tax credit is largely due to
four factors. The first and most limiting factor in claiming
the tax credit is that eligibility was targeted to and most
beneficial for those small businesses least likely to offer
health insurance. Health insurance operates very significantly
by employee size of firm and average wages. Those businesses
with lower than average wages are more likely to compensate
employees in cash and not benefits. Health insurance costs
would significantly crowd out employee's take-home pay. Smaller
small businesses are also less likely to offer health insurance
and those factors vary from high administrative burdens, low
take-up rates, and higher than average premium costs.
Second, the tax credit is exceedingly complicated to verify
eligibility and claim the credit. The IRS estimates that
recordkeeping requirements to claim the credit average just
under 11 hours for most filers. The education component is
estimated to take about an hour and a half. And finally, the
time spent preparing and filing is estimated to take an average
of 2 hours and 45 minutes. While most small employers use a tax
preparer for their business, the cost associated with claiming
the tax credit will deter many from going through the process
in the first place. Since 2010, NFIB has received numerous
complaints from small business owners regarding the complexity
of the tax credit. Some owners called to say that even their
tax preparer told them the credit was not the extra cost
associated with determining eligibility and filing the
paperwork.
Third, the tax credit is temporary. At most, the credit was
available to small business owners for 6 years that they
started claiming the credit in 2010. Currently, small business
owners can claim the credit for 2 years. Health insurance is a
long-term benefit offered by employers to retain and recruit
employees. Owners generally start offering the benefit when
profits allow for the added cost. Profitability was an
important factor in offering health insurance for 63 percent of
newly offering firms. The tax credit is little relief in the
long-term cost challenges small business owners face in
offering health insurance.
And fourth, as of July 1, 2014, the Small Business Tax
Credit is only available to qualifying businesses through the
Small Business Health Options Program marketplaces. Most small
employers purchase health insurance through an insurance agent
and therefore, rely on the agent for suggesting health
insurance options available to them. Only 13 percent of
offering small businesses visited their SHOP Exchange, and of
those offering and shopped, less than 1 percent purchased
through the SHOP marketplace. Among nonoffering firms, 17
percent of small employers shopped for coverage through the
SHOP Exchange. The vast majority of nonoffering firms did not
select a plan through SHOP because the plans were too
expensive.
The Small Business Health Insurance Tax Credit was too
narrowly designed to be an effective cost-saving tool for small
employers. The tax credit is now available to qualifying small
business owners, small employers, for 5 years, and still very
few businesses have benefited. But more importantly, health
insurance costs continue to increase, and small business owners
continue to struggle with their ability to afford offering the
benefit.
I appreciate this opportunity to present NFIB's views and
data on the effects of the Small Business Health Insurance Tax
Credit, and I look forward to answering any questions you may
have.
Chairman HUELSKAMP. Thank you, Ms. Wade. I appreciate your
testimony. I look forward to questions and answers on that.
I am now pleased to yield to the Ranking Member of this
Subcommittee so that she may introduce our final witness, Mr.
Ricco.
Ms. CHU. Yes. It is my pleasure to introduce Mr. Michael
Ricco, Quality Manager for AEEC, a minority and women-owned
small business. AEEC provides IT, environmental, and
engineering services to federal and commercial customers. Mr.
Ricco has been with AEEC for over 2 years and oversees quality
assurance and compliance for every department and Federal
contract at the company. Additionally, Mr. Ricco is a
facilitator and member of AEEC's management board. He holds a
master of arts from Syracuse University and a bachelor of arts
from the University of Arizona. As the manager of a women-owned
business, he is testifying today on behalf of the U.S. Women's
Chamber of Commerce, which represents 500,000 members, three-
quarters of whom are small business owners and federal
contractors. Welcome, Mr. Ricco.
Chairman HUELSKAMP. I thank the Ranking Member for that
introduction. Mr. Ricco, you may begin.
STATEMENT OF MICHAEL RICCO
Mr. RICCO. Good morning, Chairman Huelskamp, Ranking Member
Chu, and other Subcommittee members. Thank you for this
opportunity to provide testimony before the Subcommittee on
Economic Growth, Tax, and Capital Access. My name is Michael
Ricco. I am the quality manager for AEEC, a women and minority-
owned small business located here in Reston, Virginia. Our
president, Sangita Patil, wishes she could be here in person
but she had a conflict.
AEEC is an award-winning, professional services
organization offering top-quality technology, environmental,
and engineering solutions to U.S. Federal Government and
Fortune 50 customers since 1995. We support our customers'
requirements and offer a range of customized solutions with the
highest degree of honesty, integrity, and service excellence.
We offer solutions that are efficient, appropriate, and worthy
of investment. Our company is also a member of the U.S. Women's
Chamber of Commerce. While I would like to testify today that
my company has been able to benefit from the Small Business
Health Care Tax Credit, that is, unfortunately, not the case
because we are ineligible for the following reasons: First, we
are ineligible because we have more than 25 employees. As this
Subcommittee is well aware, there are many differing
definitions of what a small business is, ranging from 50 to 100
to sometimes even 500 employees. The size standards for
companies to use this health care tax credit is on the woefully
low side and should be increased so that many more legitimate
small businesses can take advantage of this tax credit.
Second, we are an IT company, and as such, our employees
tend to earn higher salaries than many other employees working
in small businesses nationwide. Therefore, we do not qualify
because our workers on average make more than $50,000, which is
the current cap as stated in the implementation language
governing this credit. We question the fairness of this cap
because in essence, it punishes our company for paying our
employers a higher wage. This limitation in our view should be
removed from the eligibility requirements of this tax credit.
Why do I say these changes should be made? Because AEEC
would very much like to use this credit. Receiving a tax credit
for up to 50 percent of our healthcare costs would certainly
help us reduce our own costs. We all know, and as pointed out
in the GAO report, plans for small employers are likely to have
higher premiums, less coverage, and higher costs than plans for
large employers, yet we, as a small business, want to do the
right thing and provide healthcare coverage for our hardworking
employees. AEEC has long provided healthcare coverage to all of
our employees, and we go far beyond the minimum coverage now
required by the Affordable Care Act. Our package would fall in
the platinum or high gold range, so expanding the tax credit
would go a long way to help us pay for premium increases and
cover the additional compliance and reporting requirements that
have come with the ACA.
Here is something else to consider. The expectations that
would-be employees have for benefits coverage get higher with
salary levels. For example, a cashier at a fast food restaurant
might be thrilled getting any healthcare coverage, but a senior
data architect expects to have a platinum healthcare package.
This makes small businesses like ours among the most in need
for a tax credit.
Finally, I would like to stress that although the ACA very
much helps very small businesses with subsidies, large business
benefit from large pools that keep their costs down. It is the
small businesses in the middle, particularly those between 50
and 100 employees, that would benefit the most from this health
care tax credit. Therefore, I would ask this Subcommittee to
consider making changes to this credit so that more small
businesses that are so critical to our Nation's economy can be
better able financially to pay for these healthcare costs.
Two changes I have already mentioned, increasing the
eligibility threshold for the number of employees that work at
a small business and removing the wage barrier that excludes so
many businesses from eligibility. Two other reforms that we
would recommend are increasing the credit so that it is more
cost-effective for small businesses to actually use it and to
make it last longer than 2 consecutive years.
Again, thank you for this opportunity to address this
Subcommittee. AEEC is dedicated to providing our employees with
the best healthcare coverage possible; yet, the fact remains
that we are still a small business and these costs are quite
high. We would urge this Subcommittee to put forth language
that would make this important health care tax credit more
accessible to the small businesses in our Nation that I would
like to point out, on average, account for over 60 percent of
all net new jobs created in this country.
I would be happy to answer any of your questions. Thank
you.
Chairman HUELSKAMP. Thank you, Mr. Ricco, and other
witnesses for your input. I will go ahead and open it up for
questions. We have a few Subcommittee members here, but I will
start.
First, Mr. McTigue, Mr. Jackson, I appreciate your
testimony. Mr. McTigue, we have been given the number of
employers that are participating. What is the number of actual
employees that are receiving some additional coverage because
of this credit at that level? Do you have that data?
Mr. MCTIGUE. Yes. The actual number of employees covered,
it fluctuates year to year, but on average I would say it is
around $800,000. So a larger number than the actual employers.
Chairman HUELSKAMP. Certainly. In terms of that, the
estimates that you presented were on the employer level, and,
of course, the estimates from the CBO were significantly higher
than they have come in. The number of employees, did they
actually identify how many they thought would be covered
because of this at that employee level? Did they meet those
estimates with the implementation? Do you have those figures?
Mr. MCTIGUE. I do not have the figures. I can provide them
for the record, but I do know that the overall costs, the take-
up rate of the credit was much lower than originally estimated
by CBO and JCT. And it continues to be lower than the revised
estimates.
Chairman HUELSKAMP. Yes, I appreciate that.
Mr. Jackson, you have given some insight, particularly your
personal experience with your company and the limits working
through the SHOP Exchange. Can you describe that a little bit
more? You go to the SHOP. They ask for information you did not
have, and then they refused to provide an estimate? I am just
shocked that they would tell you, well, we do not provide
estimates for small businesses. I assume in the State of
Colorado, I see it is a state-run exchange. Was small business
not a focus at all? I mean, there are exchanges, one exchange
for small business and the individual market. Can you describe
that a little bit more for the Subcommittee, your experience
with the SHOP in your State?
Mr. JACKSON. Well, my personal opinion is that it is more
focused on the individual marketplace than it is the small
business marketplace. And it would have been helpful if they
just upfront said small businesses go to your broker to get a
quote. But they allow you or keep asking you all this
information about your employees, and they do not really tell
you that ever. When you get to the end, I had to call them and
say, well, I have entered all this data. Now where do I find
the options, the policy options, and the quotes? And that is
when they said, well, we do not really provide small businesses
with quotes. So it was a very frustrating process. I would
throw in that we have done everything, I think, reasonable and
prudent possible to try to minimize our premiums, yet over the
last 5 years they have still gone up over 25 percent, and we
cannot--and even to do that, we are not in a small business
program. I had to join a professional employer organization to
get into another company's large insurance pool to keep our
premiums as low as they were. The last small business quote I
got, our premium increases were going to be something in the
neighborhood of 70 percent one year to the next year.
Chairman HUELSKAMP. Ms. Wade, the experience of Mr.
Jackson, is that what you are seeing across other states, even
if it was a state-level exchange or a federally-facilitated
exchange, partnership exchange? Is this similar to the story
you are hearing across the various States?
Ms. WADE. It is a very common story that we are hearing
from our members. And it is not, unfortunately, State specific.
It is not size specific. They are all having a lot of
frustrating circumstances in accessing SHOP, and looking to
find more affordable health insurance for their employees. And
if they are not offering insurance, finding a plan that would
work for their business and for their employees. So yes, we are
hearing many stories that are very similar to Mr. Jackson. And
they are still coming in, unfortunately.
Chairman HUELSKAMP. Follow-up question for any of the
witnesses who can answer this. The information that Mr. Jackson
provided to the SHOP, extensive hours and hours, then chose to
go elsewhere because he really had no choice to stay in the
SHOP, what happens to that information?
Mr. JACKSON. That is an interesting question that I do not
know the answer to because some of my people were, well, I will
say semi-reluctant to provide me with the information, but I
explained if they wanted health coverage, they really did not
have a choice but to provide me with that information. I have
no idea what happens to it, but I am concerned.
Chairman HUELSKAMP. Yes, so you asked for some information,
they reluctantly provided it, you turned it over to the SHOP,
and then you did not even sign up through that. That is
something I would like to follow-up on for folks that might be
able to answer that. So I appreciate that, Mr. Jackson.
I see I am out of time, and I will recognize our Ranking
Member for her 5 minutes of questions.
Ms. CHU. Mr. Ricco, the Small Business Health Care Tax
Credit was meant to incentivize small employers into offering
health insurance. How do you feel the IRS worked with the
business community to provide information about the credit, and
was that outreach adequate?
Mr. RICCO. In our situation, it was adequate because it was
very clear what the size standards were, 25 or fewer employees,
average of $50,000 or less. If you could not hit those, there
was no sense in looking further. So, for us and many other
small businesses in our situation, we could tell right away we
were not eligible. Now, that may not be the case for smaller
businesses that would have; however, there was information out
there and they could have reached out.
Ms. CHU. Well, talking about size standards, the tax code
contains many different definitions of a small business and
what a small business is depending on what section of the code
we are discussing. This lack of uniformity certainly was
highlighted by the ACA in its definition of a small business.
This definition shaped which businesses were eligible for the
tax incentives in offering health care. Mr. Ricco, what do you
think would be a better size standard with regard to the ACA?
Mr. RICCO. Well, it certainly makes sense to have size
standards, because small businesses are in much greater need
for a tax credit than larger companies. However, I think it
would have made a lot more sense to base if off of NAICS codes.
The government already sets NAICS codes for every industry. If
you want to be a Federal contractor, you have to fall into
those. Every business knows what their NAICS codes are. It
would not take any type of change to use that as the basis
instead of this arbitrary 25 employee, $50,000 cap.
Ms. CHU. Mr. McTigue, what do you think of the size
standards? What have you found to be a better size standard
with regard to participation?
Mr. MCTIGUE. We did not look at what would necessarily be a
better size standard. Obviously, there are tradeoffs associated
with how you target a benefit, whether through the tax code or
spending program. So expanding eligibility, expanding both on
the FTE and average wage would have tradeoffs in terms of
increasing the cost of the program or the tax credit to Federal
Government, so those options have to be weighed. Complexity, as
we have heard from all the witnesses, is a major issue.
Reducing complexity can be achieved at relatively less cost, so
that might be an option to pursue.
Ms. CHU. Let me ask about the different numbers to the
analyses of the Small Business Health Care Tax Credit by the
Treasury Inspector General of Tax Administration. The IRS and
the GAO all concluded drastically different results for the use
of this incentive. Mr. McTigue, can you walk me through why the
GAO's numbers are much lower than those of the Treasury
Inspector General of Tax Administration and the IRS for the
2010 claims?
Mr. MCTIGUE. Yes. For today's statement, for today's
report, we reached out to the IRS and obtained the most recent
data available. Those data do differ from what we originally
reported in 2012 for the tax year 2010. Basically, it is an
issue of more returns having come in since we previously
reported. Overall, the numbers are relatively low compared to
the number of potentially eligible small employers. So I have
not looked at the TIGTA numbers specifically. We can look at
those and get back to you for the record, but again, I think
you mentioned something in the order of $300,000 versus 181,000
that we reported today. Not a big difference compared to
potentially eligible in the millions.
Ms. CHU. Do you plan to perform a final analysis using
these numbers?
Mr. MCTIGUE. Not at this time. We would be happy to do so
at the Committee's request.
Ms. CHU. Yes. I certainly would be interested in that.
Despite the low adoption rate, nearly 1 million employees
whose employers claim the credit are benefiting from the ACA,
but this is an increase from only 770,000 workers in 2010 and
through fewer employers. Has the GAO studied whether these
numbers are due to small employers hiring more employees or
simply different businesses entirely who are claiming the
credit?
Mr. MCTIGUE. We have not studied that issue. There are a
number of factors that come into play. It could be the size of
the company, companies coming in and out claiming the credit.
As you are aware, the credit originally was available for up to
6 years when it was originally established. Beginning in 2013,
it was only available for 2 years. Also, we mentioned one of
the factors that we found was the lack of awareness, maybe part
of the issue is companies becoming more aware of it and signing
up for it.
Ms. CHU. Thank you. I yield back.
Chairman HUELSKAMP. Thank you. I would like to recognize
Mr. Richard Hanna, who actually has personal experience in this
arena. I look forward to your 5 minutes of questions.
Mr. HANNA. Thank you, Chairman.
The government is famous for unintended consequences, but
there is something insidious about this. The time, the
incentive to raise pay, the complexity, the fact that you went
from 16 percent to 32 percent of companies that are not doing
this or are not supplying it.
Mr. McTigue, Ms. Wade, is it possible that in this
particular case this law is doing exactly what it was intended
to do, and that is incentivize people to have insurance for a
short period of time, but ultimately, create a marketplace
where the real goal is to force everybody to provide insurance
without really giving them any benefit? Maybe that sounds like
a strange question, but it seems like there is nothing about
this that is workable or working. If you really wanted people
to get more insurance, this is not what you would design. None
of us here would. So what do you think of that? I mean, it is
my inference.
Mr. MCTIGUE. I think in terms of the Patient Protection and
Affordable Care Act as, you know, a congressman in the United
Sates, many people--the majority of people, the majority of
workers receive their health insurance through their employers.
I think it is something in the range of 55 percent of all
employees receive through their employer or spouse's employer,
something of that nature. Whether or not this was the best way
or the most efficient way, the most equitable way to either
incentivize small employers to provide health insurance or have
all individuals have some sort of health insurance coverage,
you know, there are tradeoffs in terms of different ways of
requiring that, delivering the service. I mentioned, you know,
would a spending program be more efficient? You know, a direct
subsidy as opposed to a tax credit. The small employer health
tax credit is a small piece of a larger strategy to provide
health insurance for all individuals.
Mr. HANNA. The bottom line is this is not working, and
people are not incentivized to use it. And it is not producing
the outcome it was intended. I mean, it is nice that more
people have insurance, but on the margin you have to say it is
a very small number compared to the number that it might be
able to affect. If it were simpler, longer, maybe raise the
number, I do not know. So this ought to be something you can
look back and either decide to make it go away or fix it and
make it cleaner. Ms. Wade? Anybody?
Ms. WADE. No, I absolutely agree. The tax credit is far too
temporary and far too limiting to the people that are able to--
--
Mr. HANNA. The temporary part is what makes me think it is
a little insidious because clearly people, you are not going
backwards. You do not give somebody a pay raise effectively
through insurance and then yank it back in 2 years. Any fool
can project the cost of that out for however long you may think
you have your average employee and say, you know, I am not
doing that because in 10 years it is going to cost me 10 times
or 5 times more. So I think the whole rule is suspect.
Ms. WADE. Absolutely. For small employers, offering health
insurance is a very costly, long-term benefit that generally
takes some time when they start their business to offer that.
It is based on profitability, their certainty about where sales
are projected to go in the near future. So offering the benefit
is serious consideration for small business owners and for
long-term.
Mr. HANNA. It looks like the government are trying to lock
people into this without giving them an exit strategy or
incentive that actually works in the real world. What do you
think, Mr. McTigue?
Mr. MCTIGUE. I would just say that again it comes down to a
tradeoff between the cost to the government and cost-sharing
overall. Certainly, if we expanded the credit or made it
permanent and offered it to more people, a lot more people
would benefit. However, it would cost the government a lot
more.
Mr. HANNA. You have to look at the goal though. If the goal
is somewhere in between, right?
Mr. MCTIGUE. Exactly.
Mr. HANNA. I would wager that the government looked at this
and said this is really expensive, and how can we limit it? So
you do 2 years and a few other things that you have thrown in
here, but the net result is not as many people are enjoying the
outcome as we would like to have.
My time is expired. Thank you, Chairman.
Chairman HUELSKAMP. Thank you, Mr. Hanna. As Mr. Kelly
prepares, I'd like to make a statement very quickly here.
I was not around when they passed this law, and it would
be, I guess, fascinating to try to decide whether they really
thought this would have an impact or was this kind of dropped
in there and sounded good? In 2012, we had these discussions
that it clearly was not going to work. Here we are 4 years
later, still coming to the same conclusion. That is very
disappointing.
Next, I recognize Mr. Kelly, but he had his questions
already all answered. I appreciate you coming here. It has been
a very quick hearing discussing this.
I am going to spend a couple more minutes and leave
questions for the other members as well. As we move forward, if
we are really trying to incentivize and encourage small
businesses, if you could devise that, Mr. Ricco, how would you
devise that? Obviously, you want to take the cap off so it
would not punish or penalize those who actually are paying
maybe more than their competitors. In 1 minute, if you could
just say how would you devise this and what would you change to
make certain that it produces the effect to encourage our small
businesses to provide a pretty expensive benefit for their
employees. Mr. Ricco?
Mr. RICCO. Well, like I mentioned before, I would certainly
do it by NAICS code or a similar mechanism. I would also get
rid of the way that it is tied to the States with the amount
that you can get back because that just adds another
calculation that gets factored in for a small business to
figure out how much money they are actually going to get back
with a subsidy like that. You could also look at making a more
uniform change that will help small businesses pay for the
additional compliance and reporting costs that we have
associated now that we have got to comply with these new
mandates.
Chairman HUELSKAMP. Okay. Ms. Wade, any thoughts on the
system, the Wade system if you put that together?
Ms. WADE. Certainly, expanding the population that would be
eligible for the tax credit would be immensely helpful. But
still, I would say that it is a temporary approach to a larger
cost issue that small business owners are facing. Thirty
percent increase on average for health insurance costs since
2008 when profits and earnings and wages have been fairly
stagnant for the small business population is still a hefty
hurdle for them to get across to offer and keep offering health
insurance. So while the tax credit is helpful for those that
can access it, it is not a particularly helpful solution for
the broader small business population in offering and affording
health insurance for their employees.
Chairman HUELSKAMP. Simply an additional cost of doing
business and that might provide some benefits, but at the end
of the day you still have to have enough business to cover that
cost.
Mr. Jackson, personal experience? If you were looking out
there and waved a magic wand, what would it look like?
Mr. JACKSON. Well, the increasing costs have been a major,
major hurdle for us to continue providing our insurance, and
certainly any way that we can devise a system that minimizes
that cost, I am all in favor of. I would not be opposed to if
you are going to have a cap, not make it an average cap for the
employee but make it an employee-specific cap, so I know if I
have 10 employees that make $48,000 I am going to get the
credit. And if I have 10 that make $53,000, I am not going to
get the credit for them. But make it simple and straightforward
and untie it from States and all the other--if we meet the size
standard and your employee makes less than whatever the magic
number is for the cap, then give the people the credit for it.
Chairman HUELSKAMP. Mr. McTigue, you have an interesting
perspective and very insightful. I mean, 4 years ago sitting
with businesses, particularly with the Chamber and say, hey, we
knew this was not going to work, worse than we feared. How
would you devise that, scrap it all together and replace it
with what?
Mr. MCTIGUE. Well, I think one area that you have heard
from all, the three other witnesses, to look at simplifying how
a small employer goes about claiming the credit. As we
mentioned in our statement, you could use wage and employee
counter information that is already available. It might not be
as precise as FTEs and average ages, but there is a tradeoff
between precision and targeting and the cost and complexity of
the burden on small employers to comply in order to claim the
credit. Obviously, you want a design that allows the most
people eligible, the largest number of eligible employers to
access the credit. Otherwise, it is a very inefficient way to
provide this benefit.
Chairman HUELSKAMP. Okay.
Mr. MCTIGUE. Mr. Chairman, if I could add for the record.
Chairman HUELSKAMP. Yes.
Mr. MCTIGUE. In response to Ms. Chu's question about the
360 employers reported by TIGTA. The TIGTA account actually
included partnerships and S corporations which are basically
passthrough entities, whereas the 181,000 employers that we
testified to are real employers. So that accounts for the
difference. Thank you.
Chairman HUELSKAMP. Thank you, Mr. McTigue, Mr. Jackson,
Ms. Wade, and Mr. Ricco. I appreciate your testimony. I wish we
would have a happy story today, and that is not the case. But
thank you for being here.
As we know, the Small Business Health Insurance Tax Credit
was created with a stated purpose of making it easier for small
business owners to provide health benefits for their employees.
The numbers in testimony show, however, that this credit simply
did not deliver, and from what we have heard today, I believe
we can see why. This credit proved to be complicated,
confusing, and costly to implement. It is yet another broken
promise to the small business community.
The Committee on Small Business remains dedicated to the
interest of small businesses and their hardworking employees.
It is our duty to ensure that America's entrepreneurs, job
creators, and their employers are actually being helped, not
simply being paid lip service.
I ask unanimous consent that the members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
The hearing is now adjourned.
[Whereupon, at 10:55 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The U.S. Chamber of Commerce is the world's largest
business federation representing the interests of more than 3
million businesses of all sizes, sectors, and regions, as well
as state and local chambers and industry associations. The
Chamber is dedicated to promoting, protecting, and defending
America's free enterprise system.
More than 96% of Chamber member companies have fewer than
100 employees, and many of the nation's largest companies are
also active members. We are therefore cognizant not only of the
challenges facing smaller businesses, but also those facing the
business community at large.
Besides representing a cross-section of the American
business community with respect to the number of employees,
major classifications of American business--e.g.,
manufacturing, retailing, services, construction, wholesalers,
and finance--are represented. The Chamber has membership in all
50 states.
The Chamber's international reach is substantial as well.
We believe that global interdependence provides opportunities,
not threats. In addition to the American Chambers of Commerce
abroad, an increasing number of our members engage in the
export and import of both goods and services and have ongoing
investment activities. The Chamber favors strengthened
international competitiveness and opposes artificial U.S. and
foreign barriers to international business.
Statement on
``Lip Service but Little Else:
Failure of the Small Business Health Insurance Tax Credit''
Submitted to
THE HOUSE SMALL BUSINESS COMMITTEE'S
SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX AND CAPITAL ACCESS
on behalf of
U.S. CHAMBER OF COMMERCE
By
Harold Jackson
Executive Chairman
Buffalo Supply, Inc.
Lafayette, Colorado
March 22, 2016
Chairman Huelskamp, Ranking Member Chu and distinguished
members of the Subcommittee, thank you for inviting me to
testify before you today about my experiences with the small
business health insurance tax credit. I hope that my testimony
and remarks will help provide a concrete real life example as
to the shortfalls of this premium tax credit which is
unfortunately illusive to most small businesses. I understand
that most tax credits are designed to incent or change behavior
and - to be clear - we have always provided health insurance
for our employees. But the fact is prices have increased so
dramatically year after year that we may not be able to
continue to provide health insurance in the future. Because we
are ineligible, this tax credit does not help me in any way to
provide affordable health coverage to my employees now. And
unfortunately, it will not encourage me to do so in the future
- if and when - I may be forced to stop offering insurance
because of prohibitively escalating costs. Despite efforts to
encourage employers to provide health insurance and bolster the
small group and individual markets, this premium tax credit
helps with neither goal. Instead, we are unable to mitigate
increasing costs to our company and our employees as we strive
to provide our Buffalo Supply family with health insurance.
My name is Harold Jackson. I am the Executive Chairman of
Buffalo Supply, Inc., a 20-employee small business located in
Lafayette, Colorado, specializing in federal contracting for
medical supplies and equipment. I am honored to speak with you
today on behalf of the U.S. Chamber of Commerce. The U.S.
Chamber of Commerce is the world's largest business federation,
representing the interests of more than three million
businesses and organizations of every size, sector, and region.
As you might know, more than 96 percent of the Chamber's
members are small businesses with 100 or fewer employees, just
like mine, and 70 percent of which have 10 or fewer employees.
Company Background
Since 1983, our family-owned business has been devoted to
providing high-tech medical supplies and high-tech medical
equipment to the federal government. While our company has
grown to be successful, we began in the basement of my brother
Stonewall's home. With a strong belief that he could help
companies understand the federal procurement process and bring
value to federal customers, my brother established Buffalo
Supply with originally just one supplier partner. Over the past
33 years, we have grown to be one of the top 20 federal
contractors for medical supplies and equipment and are
currently the exclusive small business federal distributor for
many well-recognized brands, such as Integra Lifesciences,
Stryker Spine, STERIS Corporation, and Bausch + Lomb Storz (to
name a few). Today, we have 16 full-time employees and four
part-time employees.
At Buffalo Supply, Inc. (BSI), we understand the
complexities of federal contracting and work closely with our
supplier partners to ensure that we are bringing high quality
medical supplies and equipment to our Veterans and warfighters,
while also helping our supplier partners remain compliant with
all Federal Acquisition Regulations. We hold multiple FSS
Contracts, ECAT and DAPA contracts, and Blanket Purchase
Agreements (BPAs) to ensure that federal customers are able to
purchase the products they need through their preferred
contract platform.
BSI has numerous Federal Supply Schedule contracts with
products to satisfy a wide variety of operating room and health
care needs. Through our diligent work and extensive experience
in the federal marketplace, BSI has developed a high level of
expertise in helping federal institutions efficiently meet
their objectives of providing high quality health care
equipment at competitive prices. We primarily provide our goods
and services to federal medical facilities, mainly within the
Department of Veterans Affairs, Department of Defense, and
Department of Health and Human Services.
We pride ourselves not only on providing exceptional
customer service to our customers and a deep level of expertise
to our supplier partners, but also on providing a high quality
workplace for our employees. We spend a lot of time and effort
in training our employees to stay up to date on changes to
regulations, changes in the federal market, etc. When you call
BSI, you always get a live person. Even if you ask for
something we can't provide, we'll help you find it. We went to
be the government buyers' partner in providing the products our
vets and warfighters deserve, helping however we can. And to
help us do this, we spent a lot of time and effort on hiring.
It's extremely important to not just find people with the right
education level and the skill levels, but also with the
personality that will complement our organization--to keep the
attitude positive and moving forward. We're a family at our
small business--our average customer service rep has been with
BSI for nearly 10 years.
Additionally, we also share the profits with the employees
through bonus programs. If we grow the business to the
projections, then everyone gets a couple hundred dollars a
month in addition to their normal check--and it is amazing how
that creates a positive attitude. At the end of the year there
is an additional profit share program--we are all pulling
towards the same cause and when the company is successful, each
of our members should benefit.
While our primary measure of success is the happiness of
our employees and our customers, we have been honored to
receive some external praise as well. Colorado Biz Magazine
named BSI as one of its top 10 small businesses to work for in
Colorado. The DC-based Coalition for Government Procurement and
the US General Services Administration gave BSI their
``Excellence In Partnership - Most Innovative Small Business
Award'' for 2003.
Personally, I have served as an advisor for the University
of Colorado, Denver School of Business for Entrepreneurship. I
am an active member of: The U.S. Chamber of Commerce (where I
serve on the Small Business Council and the Government
Procurement Sub-Council); the Coalition for Government
Procurement; and the NFIB Leadership Council of Colorado. In
2006, the Bush Administration appointed me to the Small
Business Administration's Regulatory Fairness Board, where I
served for two years. In 2012, I was honored by the Leadership
Council of NFIB/Colorado as Colorado's Small Business Champion
of the Year. On November 6, 2013, I received an award for a
Lifetime of Service to Small Business. I am grateful for these
accolades but recognize the company and our employees made all
of this possible.
In my leisure time, I love to fill my days camping,
``Jeeping,'' and as an amateur photographer. Once a year, I
take off with my 4X4 crew and disappear into the wilderness of
Utah and Arizona. I am eager to teach my grandson how to
participate in all of these activities--if I can get my
daughter Kara's permission.
Health Care: My Experience with Premium Increases
We have offered health care coverage to our employees for
many, many years ever since we started hiring additional
employees--probably back in 1990. Since then, providing health
insurance to our workers has always been a priority--it is part
of our culture and important for attracting and maintaining the
best employees. But, it hasn't been easy, and in fact, each
year it gets harder and harder for us financially.
As an employer committed to providing insurance to our
employees and their families, our history with offering health
insurance has been somewhat tumultuous. We try to shield our
employees as much as possible to the challenges we have faced.
For many years we provided our employees with health insurance
coverage through a PPO plan, which allowed employees to pay a
bit extra to go to out-of-network providers--giving them a
greater level of choice.
We came to a point in the mid-2000s where we were growing
quickly and insurance premiums were increasing so much that we
had to try to find some new solutions. Health Savings Accounts,
or HSAs, were new to the market place and we did a lot of
research to understand if offering a High-Deductible Health
Plan in conjunction with an HSA would be good for our
employees. A few members in our management team volunteered to
review their medical expenses for the previous year and compare
how much they would have spent out-of-pocket with the two
different types of plans. After reviewing the comparisons, we
decided to offer an HDHP plan and fully fund our employees'
HSAs to cover the cost of the associated HDHP's deductible.
Unfortunately, as premiums have increased, our company's
ability to fund the HSA to cover the associated HDHP's
deductible has waned--at first down to 50% of the deductible
and now to zero. However, we continue to pay 100% of the
premiums for our employees and their dependents--which
continues to make BSI stand out to job applicants.
In addition to changing plan types and HSA contributions,
we have also had to change carriers, on average every 1-3
years. We have rotated between Anthem, United, Aetna and Rocky
Mountain Health in an effort to find more affordable coverage.
Beyond changes in plan design and carriers, we have seen
tremendous cost increases despite modest decreases in benefits.
For example, in 2010 our average premium was under $12,840
annually for family coverage. This average premium skyrocketed
to a $16,380 annual premium for family coverage this year (over
a 25% increase). This increase accompanies less robust
coverage. Now our health insurance plan has a higher family
deductible (up from $3,000 to $5,000) and a new out-of-pocket
maximum of $6,800--up from $4,000 in 2010. So we are paying
more in premiums and sadly--our employees are also paying more
when they need medical care and services.
My Limited Experience with the Elusive Small Business Premium
Tax Credit
When the Colorado Exchange ``Connect for Health Colorado''
opened its Small Business Health Options Plan in 2015, I went
on-line and tried to enroll. I learned through my colleagues at
the U.S. Chamber and NFIB that small businesses with 25 or
fewer employees may be eligible for a small business premium
tax credit provided coverage was purchased through the SHOP.
Unfortunately, the amount of information that the SHOP asked
for in its on-line application process was incredible; much of
the information requested--I didn't have. They wanted a lot of
information about spouses and dependents that we don't have or
maintain--such as dependent's and spouse's Social Security
numbers, dates of birth, and tobacco use. It took me two or
three days to gather up this information. I spent about 10
hours entering this information into the system, after which I
couldn't figure out how to review the plans available or get
quotes.
I called the 800 number and they told me that they don't
give quotes to small business. The SHOP representative said
that I needed to go through a broker. When I called a broker,
clearly he had heard from other businesses like me about the
SHOP--even though SHOP referred me to him--he told me ``I can
get you a quote, but I don't want to go through the exchange,
it's too much hassle.''
I mention all of this because--as you know--the small
business premium tax credit is only available to small
businesses (those with 25 or fewer employees earning on average
less than $50,000 per year) that purchase coverage for their
employees on the SHOP. Clearly, based on my experience, this is
an onerous ``hoop'' in and of itself as a requirement.
Unfortunately, it is not the only hoop that makes the prospect
of obtaining a small business tax credit elusive. The other--
and bigger--hurdle for small businesses is the annual average
earning cap. The average annual earning threshold is simply too
low.
Possible Solutions/Improvements?
I do believe small businesses need help, both to encourage
others (like we do) to provide health insurance and also to
help those who (perhaps also like we) may one day find that
they cannot continue to provide health insurance to their
employees. I am certainly not a tax expert--although lord knows
I pay taxes and wish I were--but it seems to me like there are
several ways to make this tax credit more useful to small
businesses.
First, it should be available to small
businesses that purchase coverage on or off the SHOP--
this would level the playing field a bit.
Second, the average earning level must be
raised.
Third, the tax credit should be available
for more than 2 consecutive years.
In any event, the benefit of this tax credit
needs to be easier for businesses to assess and the
hoops should be simplified for businesses to more
easily satisfy.
Conclusion
I am proud of the company that my brother started and that
we as a family have built. I am proud of the employees that we
have--our broader family. I am concerned about the ability of
our company and others around the country to continue to
provide health insurance and I think this premium tax credit
may be increasingly necessary to encourage companies to provide
coverage--particularly given the premium increases we continue
to see year over year. Based on my experience, I think part of
the problem is that the rules for the tax credit are so
confusing that small businesses cannot assess benefit of the
tax credit without hiring outside counsel. Ultimately, any
changes should not only increase the tax benefit to help small
businesses provide health insurance for their employees, but
must be simple and easily understood. As my brothers and I
transition our company to our children, I hope that they will
be able to benefit from the struggles we have had in many areas
and learn from our successes as well. Unfortunately, at this
point, providing health insurance continues to be a struggle.
Thank you for this opportunity to testify, and I look
forward to your questions.
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Good morning Chairman Huelskamp, Ranking Member Chu and
members of the Subcommittee on Economic Growth, Tax and Capital
Access. Thank you for the opportunity to testify today. I am
pleased to be here on behalf of the National Federation of
Independent Business (NFIB) as the Committee discusses the
small business health insurance tax credit.
Small business owners rank the cost of health insurance as
their most severe problem in operating their business out of 75
potential issues, with 56 percent of small business owners
finding it a ``critical'' problem.\1\ The high cost of health
insurance is the main reason owners do not offer employer-
sponsored health insurance and the main reason owners
discontinue providing the benefit. And for those offering, many
owners annually confront the arduous task of adjusting profit
expectations, insurance plans, cost-sharing and other
mechanisms to help absorb often erratic changes in total
premium costs.
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\1\ Wade, Holly, Small Business Problems and Priorities, NFIB
Research Foundation, August 2012.
The rising cost of health insurance has forced many small
employers to rethink the viability of offering health insurance
to their employees, especially during and in the wake of the
great recession. Since 2008, the offer rate for small
businesses with fewer than 50 employees has dropped
precipitously. Small business owners are far more hesitant to
committing themselves to offering a long term, high cost
benefit. The offer rates for this group have fallen over 10
percentage points from 43 percent offering in 2008 to 32
percent in 2014.\2\
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\2\ Source: Agency for Healthcare Research and Quality, Center for
Financing, Access and Cost Trends. 2008-2014 Medical Expenditure Panel
Survey-Insurance Component.
The small business health insurance tax credit was a
targeted approach to help curb health insurance costs for
offering small employers and was intended to provide an
incentive for those that do not, to start offering. However,
the tax credit was largely ineffective on both fronts as its
design is exceedingly restrictive, complicated, and only offers
limited and temporary relief to a larger small business cost
problem. To date, the tax credit has generally served as a
windfall for the few small business owners who quality and take
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the time, or pay an accountant, to file for it.
In 2010, the Congressional Budget Office (CBO) estimated
the tax credit would provide $40 billion in cost relief for
small business owners over 10 years. More recently, CBO has
lowered the cost estimate to $10 billion over 10 years due to
lower than expected utilization. NFIB initially estimated the
eligible population of small business owners to be about 1.4
million. The Administration's estimate, which included non-
offering firms, was 4 million.\3\ IRS data reported that in
2010 just over 170,000 small businesses claimed the tax credit
at a cost of $468 million, despite considerable outreach
efforts by the IRS and other groups to raise awareness of the
credit.\4\
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\3\ Fact Sheet: Small Business Health Care Tax Credit, April 1,
2010. https://www.whitehouse.gov/the-press-office/fact-sheet-small-
business-health-care-tax-credit.
\4\ The IRS mailed 4.4 million postcards to small business owners
informing them of the tax credit.
The ineffectiveness of the tax credit is largely due to
four factors. The first, and most limiting, factor in claiming
the tax credit is that eligibility was targeted to and most
beneficial for those small businesses least likely to offer
health insurance. Health insurance offer rates vary
significantly by employee size of firm and average wages.\5\
Those businesses with lower than average wages are more likely
to compensate employees in cash and not benefits. Health
insurance costs would significantly crowd out employees' take
home pay. Smaller, small businesses are also less likely to
offer health insurance and those factors vary from high
administrative burdens, low take-up rates, and higher than
average premiums.
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\5\ Source: Agency for Healthcare Research and Quality, Center for
Financing, Access and Cost Trends. 2008-2014 Medical Expenditure Panel
Survey-Insurance Component.
Second, the tax credit is exceedingly complicated to verify
eligibility and claim the credit. The IRS estimates that
recordkeeping requirements to claim the credit average just
under 11 hours for most filers. The education component is
estimated to take about 1 1/2 hours. And finally the time spent
preparing and filing is estimated to take an average of 2 hours
and 46 minutes. While most small employers use a tax preparer
for their business, the costs associated with claiming the tax
credit will deter many from going through the process in the
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first place.
Since 2010, NFIB has received numerous complaints from
small business owners regarding the complexity of the tax
credit. Some owners called to say that even their tax preparer
told them the credit was not worth the extra costs associated
with determining eligibility and filling out the paperwork.
Third, the tax credit is temporary. At most, the credit was
available to small business owners for six years if they
started claiming the credit in 2010. Currently, small business
owners can claim the credit for two years. Health insurance is
a long term benefit offered by employers to retain and recruit
employees. Owners generally start offering the benefit when
profits allow for the added costs. Profitability was an
important factor in offering health insurance for 63 percent of
newly offering firms.\6\ The tax credit is a little relief in
the long term cost challenges small business owners face in
offering health insurance.
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\6\ Dennis, WJ, Jr. (2014). Small Business's Introduction to the
Affordable Car Act, Part II. NFIB Research Foundation: Washington, DC.
http://www.nfib.com/assets/nfib-aca-study-2014.pdf.
And fourth, as of July 1, 2014, the small business tax
credit is only available to qualifying businesses through the
Small Business Health Options Program (SHOP) marketplaces. Most
small employers purchase health insurance through an insurance
agent and therefore rely on the agent for suggesting insurance
options available to them. Only 13 percent of offering small
businesses visited their SHOP exchange. And of those offering
and shopped, less than 1 percent purchased through the SHOP
marketplace. Among non-offering firms, 17 percent of small
employers shopped for coverage through a SHOP exchange. The
vast majority of non-offering firms did not select a plan
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through SHOP because the plans were too expensive.
The small business health insurance tax credit was too
narrowly designed to be an effective cost savings tool for
small employers. The tax credit has now been available to
qualifying small employers for 5 years and still, very few
businesses have benefited. But more importantly, health
insurance costs continue to increase, and small business owners
continue to struggle with their ability to afford offering the
benefit.
I appreciate the opportunity to present NFIB's views and
data on the effects of the small businesses health insurance
tax credit. I look forward to answering any questions you might
have.
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Good morning Chairman Huelskamp, Ranking Member Chu, and
other Subcommittee members. Thank you for this opportunity to
provide testimony before the Subcommittee on Economic Growth,
Tax and Capital Access.
I am Michael Ricco, Quality Manager for AEEC--a women- and
minority-owned small business located in Reston, VA. Our
President--Sangita Patil--wishes she could be here in person,
but she had a conflict. AEEC is an award-winning professional
services organization offering top-quality technology,
environmental, and engineering solutions to US Federal
Government and Fortune 50 customers since 1995. We support our
customers' requirements and offer a range of customized
solutions with the highest degree of honesty, integrity, and
service excellence. We offer solutions that are efficient,
appropriate and worthy of the investment. Our company is also a
member of the U.S. Women's Chamber of Commerce.
While I would like to testify today that my company has
been able to benefit from the Small Business Health Care Tax
Credit, that is unfortunately not the case because we are
ineligible for the following reasons. First, we are ineligible
because we have more than 25 employees. As this Subcommittee is
well aware, there are many differing definitions of what a
``small business'' is--ranging from 50 to 100 to even 500
employees. The size standard for companies to use this health
care tax credit is on the woefully low side and should be
increased so that many more legitimate small businesses can
take advantage of this tax credit.
Second, we are an IT company and as such our employees tend
to earn higher salaries than many other employees working in
small businesses nationwide. Therefore, we do not qualify
because our workers on average make more than the $50,000 cap
as stated in the implementation language governing this credit.
We question the fairness of this cap because, in essence, it
punishes our company for paying our employees a higher wage.
This limitation, in our view, should be removed from the
eligibility requirements of this tax credit.
Why do I say these changes could be made? Because AEEC
would very much like to use this credit. Receiving a tax credit
for up to 50 percent of our health care costs would certainly
help us reduce costs. We all know and as pointed out in the GAO
report, ``plans for small employers are likely to have higher
premiums, less coverage and higher costs than plans for large
employers.'' Yet we, as a small business, want to do the right
thing and provide health care coverage for our hard-working
employees. AEEC has long provided health coverage to all of our
employees and we go far beyond the minimum coverage now
required by the Affordable Care Act. Our package would fall
into the platinum or high-level gold range. So expanding the
tax credit would go a long way to help us pay for these premium
increases and cover our additional compliance and reporting
requirements.
Here is something else to consider. The expectations that
would-be employees have for benefits coverage get higher with
salary levels. For example, a cashier at McDonald's is going to
be thrilled with any health care coverage while a Senior Data
Architect expects a platinum health. So small businesses like
ours are among the most in need for a tax credit.
Finally I would like to stress that while the ACA very much
helped very small businesses with subsidies and large
businesses benefit from large pools that keep their costs down,
it is the small businesses in middle--particularly those
between 50-100 employees--that could benefit the most from this
health care tax credit. Therefore, I would ask this
Subcommittee to consider making changes to this credit so that
more small businesses that are so critical to our nation's
economy can be better able financially to pay these health care
costs.
Two changes I already mentioned--increasing the eligibility
threshold for number of employees that work at a small business
and removing the wage barrier that excludes so many small
businesses from eligibility. Two other reforms that we would
recommend are increasing the credit so that it is more cost
effective for small businesses to actually use it and to make
it last longer than two consecutive tax years.
Again, thank you for this opportunity to address this
Subcommittee. AEEC is dedicated to providing our employees with
the best health care coverage possible. Yet the fact remains
that we are still a small business and these costs are quite
high. We would urge this Subcommittee to put forth language
that would make this important health care tax credit more
accessible to the small businesses in our nation that I would
like to point out, on average, account for over 60 percent of
all net new jobs created in this country.
I would be happy to answer any of your questions.
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