To make health insurance more affordable to small business owners, premiums are 100 percent deductible.
Small business health insurance is a matter of great concern to the federal government, individual states and small businesses. According to the U.S. Chamber of Commerce, 60 percent of uninsured workers in the United States work for small businesses that cannot afford insurance costs.
Many proposals to increase small business health insurance take place at the state level rather than the federal level. In some states, health care costs for small businesses are subsidized, which allows small businesses to offer health insurance and to purchase better health insurance. Since individual states seek to close the insurance gap that exists within small businesses, small business owners may discover incentives to offer health insurance to employees.
There is one major federal incentive for small businesses to offer health insurance: small businesses can deduct the cost of health insurance, according to the U.S. Small Business Administration. Employer contributions are usually 100 percent deductible.
The efforts by individual states to expand health insurance coverage have had both positive and negative effects. In some cases, small businesses have been able to offer more health insurance to employees. State efforts have even enacted reforms to improve small business health insurance, such as assistance with purchasing alliances.
On the other hand, some state efforts have led to additional costs. In Rhode Island, small business employees receive additional tax deductions from their health insurance if they maintain a healthy lifestyle. Small businesses in Massachusetts are also encountering health insurance mandates.
Incentives for small businesses that offer health care vary by state. For example, the state of Washington offers a Health Insurance Partnership (HIP), which provides health insurance coverage to small businesses at lower contribution rates. The HIP program also offers subsidizing to employees depending on their income.
According to the National Conference of State Legislatures (NCSL), premium assistance, flexible spending health accounts and purchasing pools are some common state incentives offered to small businesses.
Flexible spending accounts (FSA), implemented in 2003, allow people to save for future medical costs tax free. FSAs allow small business employees to obtain health insurance. These accounts are not substitutes for health insurance; they help small business employees save for unexpected medical expenses.
Though trade groups or local health care coalitions can also reduce costs for small businesses, guaranteed issue laws require insurers to offer employees health care despite their medical conditions. Most states have guaranteed issue laws. In addition, most states have regulations that limit pre-existing condition exclusions for small businesses.
Other state strategies include:
Other state incentives offered by the National Conference of State Legislatures may include:
Many health care reform efforts for small businesses are underway at the national level. For example, the U.S. Chamber of Commerce implemented federal legislation to allow small businesses to form associations for the sole purpose of purchasing health insurance.