Health-Care Tax Credit Proposed for Small Business

Sen. Barack Obama unveiled a $6 billion-a-year plan to provide tax credits for small businesses offering health insurance to employees, an idea proposed by onetime rival Sen. Hillary Clinton that is targeted at one of the most persistent challenges in achieving universal coverage.

The tax credit offers an incentive for small businesses. Coverage for small businesses helped sink former President Bill Clinton's 1993 plan, which would have required all businesses to contribute toward health costs.

Sen. Obama's proposed tax credit is an effort to bring this powerful constituency to the Democratic camp by offering carrots, not sticks, for providing health coverage. Sen. Clinton proposed a similar credit in the plan she unveiled last year.

Republican candidate Sen. John McCain said last week that Sen. Obama was trying to force small businesses to provide coverage. The Obama plan requires businesses to provide coverage or pay a fine, but it exempts small businesses from the mandate.

The plan comes as U.S. health-care costs are soaring and threatening small businesses. The share of the nation's smallest firms offering health benefits fell to 45% last year from 57% in 2000, according to the Obama campaign, which also said smaller companies pay 18% more for health premiums on average than larger ones do.

On average, small businesses create more than two-thirds of net new jobs each year. Offsetting the health-care costs for these smaller businesses should enable them to invest more money in growth and job creation, the campaign said.

Under the plan, small businesses would get a refundable credit of as much as 50% on the premiums they pay on behalf of employees. To qualify, the businesses will have to offer a "quality health plan" for all workers and cover a "meaningful" share of the costs, said Jason Furman, Obama economic policy director.

Sen. Obama expects to fund his plan with savings he says he will generate in other areas. He plans to make it easier for generic versions of the most expensive drugs to enter the market, stimulating competition and driving down prices. Also, he will use part of the expected savings from reducing payments provided to hospitals by the federal government for covering the uninsured. If all small businesses provided health care, less money would be needed for those payments.