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Boustany Opening Statement: Hearing on the Implementation and Effectiveness of the Small Business Health Insurance Tax Credit

November 15, 2011

Small businesses are the backbone of our economy: they account for more than half of America’s private gross domestic product and employ about half of its private sector workforce.

As our economy struggles to recover from the worst downturn since the Great Depression, small businesses are bearing the brunt of the pain.  Consumer demand is down, costs are rising, and too often, Washington exacerbates their problems through new regulations, higher taxes, and burdensome red tape.  

As the former owner of a small medical practice in Louisiana, I know the challenges of running a small business.

So I take special interest in the subject of today’s hearing, because I know small business owners need real help when it comes to the rising costs of health care.   The problem is worse today than ever before.   The cost of premiums for family policies have gone up by an average of 9 percent in the past year – and I have heard complaints of premiums for small businesses going up by as much as 43 percent.  A recent survey by the National Small Business Association found that 32 percent of small business owners have held off on hiring new employees due to rising health care costs.

We are here today to consider how the small business health insurance tax credit has been implemented and whether it is effective in reducing health care costs for employers.   When it was enacted as part of the President’s health care overhaul, supporters said the credit would provide access to affordable insurance and help small employers insure their employees.

Two years later, we see that the results do not match up to the promises.  Instead, it is a convoluted tax credit that temporarily subsidizes the cost of employee health insurance in a very small number of cases.  Employers must undertake complicated calculations to determine whether they even qualify for the credit – the instructions to the form are eight pages long.  This chart shows the complex analysis an employer has to undertake before knowing whether they can claim the credit or how much it is worth.  If employers are able to navigate the calculations and confirm they are eligible, they must limit additional hiring and employee compensation in order to keep it.

Although the credit does not appear to be providing meaningful assistance to small business owners, it is still the IRS’s job to implement it and do so in a way that protects taxpayer dollars from erroneous payments.  

So we are here today to discuss two critical issues – 1) is IRS administrating the small business health insurance tax credit in a way that reduces the risks of erroneous payments and provides necessary information to taxpayers, and 2) why has the credit been ineffective in helping many small employers reduce the costs of health insurance or incentivizing employers not previously offering insurance to begin doing so?  These are important questions, and I look forward to today’s discussion.