Release on Obama Health Care Tax Credit
Senator Barack Obama Announces Plan to Provide a New Health Care Tax Credit for Small Businesses
CHICAGO, IL –Senator Obama today unveiled a new tax credit for small businesses that offer quality healthcare to their employees.
Senator Obama will discuss this plan in his remarks to the National Council of La Raza this afternoon and Chairwoman of the House Small Business Committee, Congresswoman Nydia Velazquez and Obama Campaign Economic Policy Director, Jason Furman will detail the plan in a conference call prior to Senator Obama’s remarks.
Barack Obama understands that the skyrocketing cost of healthcare poses a serious competitive threat to America’s small businesses. <1> Small businesses are the drivers of job growth in our economy, creating, on average, more than 2/3 of net new jobs each year.<2> Yet they face unique challenges in providing health care to their employees, including higher administrative costs<3>, lower bargaining power<4>, greater price volatility and fewer pooling options. On average, small firms pay 18% more for health premiums than their larger counterparts.<5> And as health costs have risen, a growing number of small businesses have had to shed their healthcare plans. The recent decline in employer-based health care coverage is almost entirely attributable to the precipitous drop-off in coverage among small firms. The percent of smallest firms that offer health benefits fell from 57% in 2000 to 45% in 2007.<6>
In summary, Senator Obama’s plan will:
Reduce the burden on small businesses in our economy by offering a new Health Tax Credit to small businesses that provide quality health care to their employees. This idea – which has been championed by Hillary Clinton – will help small businesses grow and create good jobs with health care here in the U.S.
The Obama Small Business Health Tax Credit will provide a refundable credit of up to 50% on premiums paid by small businesses on behalf of their employees. To be eligible for the credit, small businesses will have to offer a quality health plan to all of their employees, and cover a meaningful share of the cost of employee health premiums. The credit would be fully available to small firms, and would be phased out for medium-sized firms. It would also be phased out for small firms with high-income employees.
Under Obama’s plan, small businesses will not be required to provide healthcare to their employees or contribute to the national exchange on their behalf. But with the new Obama Health Tax Credit, small businesses will have a strong incentive to offer high quality health care to their workers. For small firms that already offer health insurance, the Health Tax Credit will reward them and make it easier for them to continue providing coverage while remaining competitive. And for firms that do not currently offer health insurance, the Health Tax Credit will give them a generous new financial incentive to begin doing so.
Obama’s Small Business Health Tax Credit will work alongside other aspects of his health care plan to lower costs and improve competitiveness for America’s small businesses, including:
Providing access to a low-cost National Health Exchange: The Obama health care plan will provide small businesses with new opportunities to buy low-cost, high quality health plans for their employees through a national exchange similar to what is offered to members of Congress. This exchange will allow small businesses to get the same benefits of spreading risk and administrative costs over a large pool that larger businesses currently enjoy.
Reducing volatility and lowering costs by offsetting the cost of catastrophic care: The Obama plan will reimburse employer health plans for a portion of the catastrophic costs they incur above a threshold if they guarantee such savings are used to reduce the cost of workers’ premiums. This reimbursement (often called reinsurance) is particularly important for small business plans, which can be overwhelmed by the costs of catastrophic expenditures for even a single employee. Through this provision, the Obama plan will reduce the volatility of premiums and help lower health costs for small employers and their employees.
Reduce costs throughout the health system through up-front investments in health IT, increased insurance market competition, and disease management: The Obama plan will aggressively lower health costs by facilitating broad adoption of standards-based electronic health information systems, and other value-increasing innovations improving chronic care management, and increasing insurance market competition.
The additional cost of incorporating the new Small Business Health Tax Credit into Obama’s his health care plan will be about $6 billion per year. Obama will cover this cost by adopting new reforms to lower federal health care spending. First, Obama will create a pathway for generic biologic drugs, which will increase market competition and lower federal spending on prescription drugs accounting for a growing share of the overall drug market.
. Second, to ensure that his new Health Tax Credit does not increase the net cost of his health care plan, Senator Obama will dedicate a portion of savings from reducing disproportionate share hospital (DSH) payments, which can be significantly reduced and restructured in a reformed health system in which all Americans are covered.
<1> According to the National Federation of Independent Businesses, the cost of healthcare consistently ranks as the number one concern of small business owners. http://www.inc.com/news/articles/2008/06/nfib.html.
<2> U.S. Census, various years.
<3> Commonwealth Fund, 5/9/06.
<4> Kaiser Family Foundation, 9/11/07
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