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Few small Valley firms know benefits of health care law
Two provisions in the federal health care law signed last year can potentially help small businesses cover health care costs of their employees. Surveys conducted in California, however, suggest that small business owners are unaware of these potential benefits.
Janna Rodriguez, one of the owners of J&R Tacos in Merced, wants to learn more about the specific provisions in the federal health care law designed to help small businesses such as hers.
Her restaurant, which opened almost five years ago, employs eight part-time employees — and none of them receive health care benefits.
Rodriguez said if her business were eligible to get help from the federal government to cover the costs of health insurance, she'd probably take advantage of it.
"We definitely want to keep them around and healthy as much as we can," she said of her employees. "I always try to treat my employees as part of the company and not just as somebody who works there. We are all growing together. I would be more than happy to be able to provide insurance for them."
Numerous studies conducted in California have revealed that small-business owners, including those in the Central Valley, don't know what they're missing with the federal health care law.
They're especially unaware of provisions in the law that affect their status — tiny but mighty economic engines in their communities.
Two key provisions
The Patient Protection and Affordable Care Act was signed into law a little more than a year ago by President Barack Obama. Two provisions in the law can benefit small businesses: tax credits that help small businesses cover the costs of health care for their employees; and the health benefit exchange, which is designed to allow small businesses and individuals to get better bargaining for insurance deals.
Each state would establish a health benefit exchange; these are scheduled to be launched in 2014.
Elizabeth Echols, regional administrator of the U.S. Small Business Administration, said there are about 500,000 small businesses in the state eligible for the tax credits. Officials don't know if many of those businesses will take advantage of the tax credits, but there are signs a few companies are.
Some 57 percent of small businesses statewide are unfamiliar with the small- business tax credits, and 62 percent haven't heard of the health benefits exchange the state is establishing. That's according to a 2011 survey conducted by Pacific Community Ventures, an organization that helps businesses to create jobs in low-income communities.
Nearly half — 48 percent — of Central Valley respondents indicated they were unaware of provisions in the law that are geared toward small businesses, the study found. And 73 percent of the employers in the Valley said they provide health insurance for some of their employees.
For that survey, 804 small-business owners were interviewed. The organization's Ben Thornley said owners were selected randomly.
The results didn't surprise him. They're consistent with those of national surveys.
"I think that the thing that was surprising was the (number) of small-business owners who were eager to learn more about the provisions that were designed to help them," he said.
Still, he said, the results represent "a call for action" for the organization "to get out there and educate small businesses."
Thornley believes that a lot of the discussion around the federal health care law has been dominated by Republicans, members of the tea party and others who dislike it. He said the nonprofit is trying to soft-pedal the politics and enable small employers to learn more about the law and how it can benefit them.
Overall, the study indicated that small businesses are interested in the provisions, but there's a level of frustration because they don't have the information, Thornley said. The survey was paid for by The California Endowment. (Editor's note: The California Endowment has given a grant to the Sun-Star for the position of health care reporter.)
Small businesses can learn about the provisions in the law through forums, focus groups and the media, Thornley said. The provisions related to small business "have a tremendous potential to help small businesses," he said.
About 80 percent of small businesses in the state are eligible to receive the tax credits. As the survey revealed, 43 percent of small businesses statewide don't offer health insurance, but said they'd be more likely to offer coverage once they learned about the tax credits.
This is the first year small businesses were able to claim the tax credits, which help cover up to 35 percent of health care costs. Beginning in 2014, it will increase to 50 percent, Thornley said.
Small businesses must meet certain eligibility rules to qualify for the tax credit, such as having fewer than the equivalent of 25 full-time workers. For example, Echols said, a firm with 50 part-time employees could qualify because that's equivalent to 25 full-time employees.
Another qualification is that average wages for an employee are less than $50,000 a year.
Tax credit varies
The amount of the tax credit varies for each small business. On its website, Small Business California — a nonpartisan business advocacy organization — lists examples of how much four small businesses would get from the tax credit. Example No. 1 is that of an auto repair shop with 10 employees with health care costs of $70,000 a year and an average wage of $25,000 for each worker. That business would get about $24,500 from the tax credit in 2010, and $35,000 in 2014.
Kurtis Clark, director of The Alliance Small Business Development Center in Modesto, also said few small-business owners are aware of the tax credits. Those who know about them don't have accurate information, he added.
"This is the first year, so I think it will take time for the word to get out," he said.
In addition, he said, small-business owners are busy running their companies, and they're not always aware of changes in legislation.
It also depends on where small-business owners get their information, Clark said. Most small businesses only meet with their certified public accountant once a quarter, and it's not the CPA's job to educate their clients on the health care law.
The Alliance Small Business Development Center has organized workshops that include information about the tax credits, Clark said.
Scott Hague, president of Small Business California, agreed that, until recently, many small-business owners didn't know that the tax credits were available. Small Business California also conducted a study earlier this year, and 53 percent of those surveyed indicated they didn't know about the tax credits.
"There was certainly an information gap, if you will," he said. "I think part of it is that a lot of them are just so busy that they don't keep up with this stuff."
The nonpartisan organization has held seminars to inform small-business owners about the provisions. Hague said it's been surprising how many of them don't know about the law.
About 16 percent of small-business owners were aware of the tax credits and were going to take advantage of them, according to the Small Business California study. Thirty-one percent indicated they knew about the tax credits, but suggested they wouldn't be able to take advantage of them.
Peter Ferrera, senior fellow for entitlement and budget policy for the Heartland Institute, a national nonprofit public policy research organization, said he believes the law won't help small businesses.
"I think it will hurt small businesses, primarily through the mandate" to provide coverage, he said. He said the mandate will eventually result in higher costs for employers because they need to provide a certain kind of insurance for their workers, which could "harm employment."
Alternatives to law
Ferrera published a book last year, "The Obamacare Disaster," that talks about alternatives to the law. He said there are other ways of achieving universal care without people being ordered to comply. Employers and individuals will have to buy a specific kind of insurance, he said, "and it's not going to be cheap insurance," he added.
He did say the health benefits exchange is a workable idea — but the government shouldn't be the one setting up the exchanges. Private competitors should be the ones in charge of setting them, he said.
"That is the core of a good idea," he said.
Much more debate on the overhaul of health care is expected.
"This is going to be a central issue in 2012," Ferrera said.
Clark, the Alliance Small Business Development Center director, said he believes the law contains pros and cons for small businesses. On the positive side, there are the tax credits, but, echoing Ferrera, on the negative side, there's the requirement to provide insurance to employees.
"There's a concern that the overall policy could have a negative impact on small businesses," he said.
On the flip side, some believe that the health benefit exchange will have a greater impact on small businesses than the tax credits.
"If they work, I think they will be a very valuable tool for small businesses," Hague said.
If the exchanges are set up properly, some say, they'll be the biggest benefit for small businesses because they will give owners the opportunity to compare costs.
"Something that small businesses are really excited about is the exchanges, as they are for the tax credits, to bring down costs," Thornley said.
Overall, the law could affect small businesses in a positive way. Hague said the No. 1 issue for small businesses for the past seven years has been health coverage, because those who offer coverage have seen double-digit increases in premiums.
Thornley, of Pacific Community Ventures, agreed, saying the cost for small businesses for employee insurance is significant.
"They want to provide insurance, but in some instances they can't afford it," he said.
Some of the actions that employers have taken to cope with higher health care costs have included increasing employees' contributions and deductibles, reducing benefits or dropping coverage, Hague said.
Fifteen percent of small-business owners who took part in the Small Business California survey indicated that they had dropped coverage for their employees as a result of rising health insurance costs. Some 29 percent indicated that they'd raised employees' deductibles or co-payments.
But businesses are more likely to offer or continue to offer coverage because of the tax credits, Hague said.
There's a simple three-step process small-business owners have to follow. It can be found on the Internal Revenue Service website, where they can find out whether they're eligible for the tax credit.
The SBA and the U.S. Health and Human Services agency have been trying to better inform small employers about the tax credits, Echols said.
"We still have more work to go," she said. "You would want them to take advantage of the tax credits, and turn to others to take advantage as well."
Small businesses can use the tax credits to bring down their costs and to attract more talented employees, Echols said.
Reporter Yesenia Amaro can be reached at (209) 388-8507 or yamaro [at] mercedsunstar [dot] com.