TESTIMONY

BUSINESS HEALTH INSURANCE TAX CREDITS

HOUSE INSURANCE COMMITTEE

June 27, 2000

 

Harrisburg, PA

 

Bill Carlton

Legislative Committee

PENNSYLVANIA ASSOCIATION OF HEALTH UNDERWRITERS

 

Prepared By:

Ross Schriftman, Legislative Chair

1250 Easton Road #270

Horsham, PA 19044

215/682-7075

FAX 215/682-7076

TESTIMONY

My name is Bill Carlton.  I serve on the Legislative Committee of The Pennsylvania Association of Health Underwriters.  Our Association is primarily composed of agents and brokers who sell and service health insurance products.  Our mission is to get as many of our fellow citizens covered with affordable, comprehensive, quality health coverage.  Our careers depend on finding ways to make that happen.  The reasons why people don’t have health insurance are many.  However, the number one reason is affordability.  This is why we strongly support the concept of Business Health Insurance Tax Credits.

 

Why a Business Health Credit?

The vast majority of Americans receive their health insurance through employer-sponsored plans.  It is important to strengthen what works best.  Many businesses, especially small ones, are struggling with rising premiums or have simply been unable to find enough money in their budgets to offer plans.   Those businesses that have coverage are in fact subsidizing those who do not.  Hospitals, physicians and other providers must make up for uncompensated care in some part from those who have private insurance.  Insurers must negotiate reimbursement rates low enough so that premiums do not rise and cause more uninsured.  We all know how this has caused tremendous tension especially between hospitals and insurers in recent times. 

 

A business health credit would make the job of small business owners easier in providing coverage to their workers as well as to themselves and their own families.  If good public policy is for more people to have private health insurance, then good tax policy should encourage this type of behavior.  A business health credit rewards good employers for doing the right thing; getting health insurance for their workers.

 

What kind of credit are we talking about?

We believe that the credit should be available to those small businesses with between 1 and 50 employees.  The amount should be between $350 and $500 per employee per year.  It would be available to those firms who either start a health insurance plan after the effective date of the legislation or enhance what they are doing with their health insurance plan.  For example, if they added a benefit or increased their share of the premiums they pay on behalf of their workers.  It is important to understand that most employers do not pay 100% of the premiums for their workers.  Many will pay the employee’s premiums, but not the premiums for dependents.  The credit could be the catalyst that gets more dependents covered under group plans.  Furthermore, most insurance carriers require 75% of the eligible employees to participate.  Many businesses do not have health insurance plans now simply because too many employees opted out of coverage due to affordability issues.  This results in the entire group going bare.

The credit would be available for health insurance, prescription benefits, vision benefits, disability income insurance, dental insurance or long term care insurance.  This way a business and its employees could design the benefit package to meet their particular needs.  You may wish to refer to Section 105 of the IRS code for some of the items that may be included.

 

We believe the credit should have a short life span of three to five years with a re-evaluation by the Legislature at the end of the period.  If successful, it could be extended by a future body of the General Assembly.

 

Will a credit actually increase the number of Pennsylvanians with health insurance?

There is no guarantee that the offer of a credit will significantly increase the number of Pennsylvanians with private health insurance.  However, as agents and brokers we speak with our clients continually.  They tell us the difficulty that they have in providing the dollars, facing the rising costs and dealing with the regulations such as HIPAA, and COBRA.  It is a very lonely position for them.  The mere fact that the government offers an incentive tells them that what they are doing is right.  It also encourages others to take positive action.  Finally, from the position of Pennsylvania taxpayers, it will cost nothing unless people do something good.  This is in contrast to the creation of another government program that the Commonwealth, once committed to, could ill afford politically to reverse.  We do believe from our experience with our clients that such a credit will increase the number of people insured.

 

Attached to my testimony is a report on the legislative activity in favor of creation of these kinds of tax incentives in other states.  Pennsylvania needs to take a leading role on this issue.

 

Is there a precedent for tax incentives in the Commonwealth?

As mentioned, good public policy and good tax policy go hand in hand.  The Commonwealth has been in the forefront of creating tax incentives for businesses to remain in our state or expand.  The most recent example is a $55 million tax break for one mutual fund company to remain in Pennsylvania and open a new facility with 6,000 employees.  If our health insurance tax incentive program were to insure an additional 100,000 Pennsylvanians and, for argument sake each credit of $500 represented an additional person with health insurance, the cost would be $50 million per year for three to five years.  There would, of course be tremendous offsetting benefits.  They include less uncompensated care, a more competitive health insurance market with more insurers attracted to Pennsylvania, better health care as a result of more people insured and increased revenue to the Commonwealth through premium taxes and income taxes on the people working in the industry.  That is a whole lot of bang for the buck.

Won’t business owners drop coverage so they can re enroll in order to get the credit?

For those firms who now pay 100% of the premiums for both employees and dependents and have full benefits the credit may not be available.  However, the notion that they would drop their plans and then re apply later is very unlikely.  First, it is important to realize that one of the workers covered by the health insurance plan is the business owner as well as his or her family.  No one would want to drop their own protection simply to get a credit later on.  Second, the disruption to the businesses workforce by taking such action would result in lower morale and less productivity for the company.  It may also result in the loss of the best workers to other firms who have coverage.  It is highly unlikely that such a good employer, who is rare in paying all the premiums, would suddenly drop the plan entirely.  The more likely scenario is that this business may end up purchasing additional benefits that are important to the employees and then be eligible for the credit.  This would be a plus for the Commonwealth with all the positives mentioned above.

 

Won’t a credit be hard to administer?

Since premiums are set at the effective date of the Act, firms would simply need to add up the increased premiums that are attributable to the eligible actions for the tax year and put the amount on a new line created on the tax form.  The amount would be equal to the increase in premium up to the credit limits.  An audit trail would be easily tracked by comparing premium billings and payments during the tax year.  Other trackable records include policy contracts and change notifications, payroll records showing employee deductions for premiums and employee notifications of additional benefits.

 

What about the employees share?  What if they still can’t afford to participate?

For lower-income Pennsylvanians who pay a share of their premiums, an employee subsidy program may be an appropriate option.  A coupon could be made available for a portion of the employee’s premium and forwarded from the Commonwealth to the employer group and attached to the remittance to the insurance company.  The insurance company would then receive payment from the Commonwealth for the coupon amount.  This would guarantee that the premiums are actually paid.  It would also further increase the number of persons insured by making coverage affordable.

 

How will the availability of the credit be made known?

Unlike expensive advertising campaigns run by government, health insurance agents will gladly advise their clients and prospects of the availability of this program.  We will do the marketing because that is a primary component of our jobs.  Selling is what we do.  We will make this program successful.  There will be little need for the Commonwealth to expend money to promote this tax incentive.

 

Furthermore, we will assist the client in getting the credit.  We will review the options with the client and his or her tax advisor.  Again this is a primary component of our job now and will continue to do so.

 

In conclusion, our Association stands ready to assist The Committee in its work.  We appreciate the opportunity to present our ideas and we look forward to assisting you in achieving the goal of more Pennsylvanians having health insurance coverage.

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