Tax credits could help offset staff insurance costs

A column about keeping your practice in good health

By — Posted May 3, 2010.

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

Much of the discussion of the recently passed health system reform law has focused on the possible impact on how physicians practice medicine. But this sizeable piece of legislation also will affect medical offices as small businesses.

Whether the cost of providing health insurance to employees goes up or down is unclear and the subject of much debate. Nevertheless, in the short term, there could be tax credits that might make it a little easier to insure your staff -- and cut overall costs.

"[Physicians] should be thinking about how they can capitalize on the tax credits as rapidly as possible and meeting with their advisers," said John Leifer, national director of health policy with CBIZ, which provides human resource, financial and technical services to businesses.

Companies that have fewer than 25 full-time-equivalent employees with average wages of less than $50,000, and that pay at least half of individual coverage costs, will be eligible for credits of up to 35% of their share of premiums. This credit is retroactive to the beginning of 2010 and is in effect through 2013. A physician-owner's salary is not counted in the average, but the salary of a physician employed by the practice is.

In 2010, the percentage of employee health insurance premiums paid by an employer does not have to be the same for all staff members, although in subsequent years it will.

Businesses with 10 full-time-equivalent employees making an annual average of less than $25,000 will receive the maximum credit. Those with more staff members with higher salaries will receive progressively less. The premium eligible for this tax credit is capped at the average market price, as assessed by the Dept. of Health and Human Services. This information will be published by the Internal Revenue Service.

Counting employees, however, is not as simple as counting heads, and not everyone is included in salary calculations. Owners, family members and seasonal workers employed fewer than 120 days a year are not included when tallying the average salary or the number of employees.

Part-timers, however, do play a role. The total annual hours worked by all part-timers should be divided by 2,080, the hours one full-time employee would be expected to work in a year. That number then should be added to the number of full-time staff to determine how many full-time equivalents a company has.

The average salary is based on that FTE. "The challenge for professionals will be staying under the average wage threshold," said Edward Fensholt, senior vice president and director of compliance services with Lockton Inc. in Kansas City, Mo.

In 2014 and 2015, the tax credit for businesses increases to 50% of the money a company pays for a staffer's premium for state-based insurance exchanges.

Health insurance reform also will require slight changes to what is reported to the IRS.

As of 2011, employers must disclose the value of health-related benefits on each employee's W-2 form. This will not affect an individual's taxable income, but will determine if an employer is in compliance with health reform legislation. Those that are not may be subject to penalties.

Two other changes will affect employers who provide dependent coverage. Health reform includes an extension of dependent coverage that allows children to remain on a parent's health insurance until age 26, regardless of marital or student status. Many states already require this. In addition, a child's preexisting condition no longer can be excluded, and lifetime caps are banned.

Expert opinion as to whether the amount of money employers spend on employee premiums will go up or down varies widely, although this law requires insurance companies to justify increases before they take effect and to report what share of premiums is spent on nonmedical costs.

"There are still a lot of details to be worked out, and a lot of these things are very fluid right now and will be changing," said Michael Alter, president and CEO of SurePayroll Inc. in Glenview, Ill., which provides payroll services to many small businesses, including some medical practices.

But experts also suspect that many of these changes will make it easier for practices to offer health insurance, and thus ease hiring and reduce turnover. Small businesses and individuals will be able to buy insurance through state exchanges as of 2014.

"This legislation will provide practitioners the ability to compete with the local hospitals and larger practice groups for quality employees," said Carl Kleimann, president of Odyssey OneSource. The firm provides human resources services to practices ranging from six to 400 employees. "These reforms should have the effect of leveling the playing field, because access to coverage is going to improve."

Penalties for employers that do not provide coverage and have workers who receive government-subsidized premiums start in 2014. How this all will be implemented remains to be seen, but many medical practices are unlikely to be affected, because these rules apply only to companies that have at least 50 employees.

Back to top


How your practice might benefit

Small practices could be eligible for a tax credit if they paid at least half the cost of insurance premiums for their staffs. Here are some scenarios for possible credits for 2010, adapted from Internal Revenue Service examples. Costs of paying health insurance premiums in these examples are based on information gathered by Kaiser Family Foundation. The insurance premium eligible for the tax credit is capped at the average market price, as assessed by the Dept. of Health and Human Services.

Scenario 1

Solo practice: 3 full- and part-time employees
Full-time equivalents: 2.25
Average annual salary: $25,000
Cost of paying half of employee health insurance premiums: $16,000
Maximum possible credit: $5,600
Actual credit: $5,600 (no reductions)

Scenario 2

Two-physician office: 9 full- and part-time employees.
Full-time equivalents: 7
Average annual salary: $42,800
Cost of paying half of employee health insurance premiums: $35,000
Maximum possible credit: $12,250
Credit reduction: $8,722 (average wage is higher than $25,000) $12,250 x ($17,800/$25,000)
Actual credit: $3,528

Scenario 3

Four-physician office: 14 full- and part-time employees
Full-time equivalents: 12
Average annual salary: $37,000
Cost of paying half of employee health insurance premiums: $100,000
Maximum possible credit: $35,000
Credit reduction: $4,666.67 (more than 10 full-time equivalents) $35,000 x (2/15)
Credit reduction: $16,800 (average wage greater than $25,000) $35,000 x (12,000/25,000)
Actual credit: $13,533.33

Sources: Internal Revenue Service; Kaiser Family Foundation

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story