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99–544 2016

LIP SERVICE BUT LITTLE ELSE: FAILURE OF THE 

SMALL BUSINESS HEALTH INSURANCE TAX CREDIT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND 

CAPITAL ACCESS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

MARCH 22, 2016 

Small Business Committee Document Number 114–051 

Available via the GPO Website: www.fdsys.gov 

SBREP-219A with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

CHRIS GIBSON, New York 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

CARLOS CURBELO, Florida 

MIKE BOST, Illinois 

CRESENT HARDY, Nevada 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

YVETTE CLARK, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRENDA LAWRENCE, Michigan 

ALMA ADAMS, North Carolina 

SETH MOULTON, Massachusetts 

MARK TAKAI, Hawaii 

KEVIN FITZPATRICK, Staff Director 

EMILY MURPHY, Deputy Staff Director for Policy 

JAN OLIVER, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

SBREP-219A with DISTILLER

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Tim Huelskamp .............................................................................................. 00 

Hon. Judy Chu ......................................................................................................... 00 

WITNESSES 

Mr. James R. McTigue, Jr., Director, Strategic Issues, United States Government Accountability Office, Washington, DC .................................................... 00 

Mr. Harold Jackson, Executive Chairman, Buffalo Supply, Inc., Lafayette, 

CO, testifying on behalf of the U.S. Chamber of Commerce ............................ 00 

Ms. Holly Wade, Director, Research & Policy Analysis, NFIB Research Foundation, Washington, DC ...................................................................................... 00 

Mr. Michael Ricco, Quality Manager, AEEC, LLC, Reston, VA, testifying 

on behalf of the U.S. Women’s Chamber of Commerce ..................................... 00 

APPENDIX 

Prepared Statements: 

Mr. James R. McTigue, Jr., Director, Strategic Issues, United States 

Government Accountability Office, Washington, DC ................................. 00 

Mr. Harold Jackson, Executive Chairman, Buffalo Supply, Inc., Lafayette, 

CO, testifying on behalf of the U.S. Chamber of Commerce ..................... 00 

Ms. Holly Wade, Director, Research & Policy Analysis, NFIB Research 

Foundation, Washington, DC ....................................................................... 00 

Mr. Michael Ricco, Quality Manager, AEEC, LLC, Reston, VA, testifying 

on behalf of the U.S. Women’s Chamber of Commerce ............................. 00 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

None. 

SBREP-219A with DISTILLER

SBREP-219A with DISTILLER

(1) 

LIP SERVICE BUT LITTLE ELSE: FAILURE OF 

THE SMALL BUSINESS HEALTH INSURANCE 

TAX CREDIT 

TUESDAY, MARCH 22, 2016 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON ECONOMIC GROWTH, 

TAX AND CAPITAL ACCESS, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2360, Rayburn House Office Building. Hon. Tim Huelskamp 

[Chairman of the Subcommittee] presiding. 

Present: Representatives Huelskamp, Hanna, Kelly, and Chu. 

Chairman HUELSKAMP. Good morning. Thank you all for being 

with us today. I call this hearing to order. 

Six years ago tomorrow, the Patient Protection and Affordable 

Care Act of 2010, otherwise known as ‘‘Obamacare,’’ was enacted. 

It imposed a host of new obligations and taxes on insurance companies, individuals, and employers, including small businesses. These 

new burdens included an individual mandate, which requires that 

most individuals have health insurance and an employer mandate, 

requiring that most employers provide health insurance for their 

employees. In both cases, noncompliance results in significant penalties. Fortunately, employers with fewer than 50 employees were 

exempted from the employer mandate. However, their employees 

are still subject to the individual mandate and must have insurance. As we all know, many businesses with more than 50 employees can hardly be termed large, yet those businesses are ineligible 

for the exemption. 

In order to provide an incentive for the smallest of the small, 

those employers with fewer than 25 employees, to provide employee 

health insurance, a small business health insurance tax credit was 

included to offset the cost to the employer. Like so many other 

parts of Obamacare, this was another case of over-promise and 

under deliver. Multiple assessments, both during initial implementation and now today, years down the road, have made it abundantly clear the credit scheme is so cumbersome and poorly designed that it is largely ineffective. As the credit’s useful life comes 

to a close, today’s hearing will reevaluate its efficacy from several 

different perspectives. 

I would like to thank our witnesses for coming today, and I look 

forward to your testimony. I now yield to Ranking Member Chu for 

her opening remarks. 

SBREP-219A with DISTILLER

2 

Ms. CHU. Thank you, Mr. Chair. 

Before the Affordable Care Act was enacted, the rising cost of 

health care was one of the biggest worries for small companies and 

their employees. The ACA introduced many substantial changes to 

the insurance market with the hopes of making quality health care 

affordable for small employers. 

One way in which the ACA helped make health insurance more 

accessible to small companies was through the Small Business 

Health Care Tax Credit. The ACA provided $40 billion in tax assistance through the Small Business Health Care Tax Credit and 

was made available immediately upon its enactment. This credit 

aimed to make healthcare coverage attainable for the smallest of 

businesses. Research has shown that the fewer employees a company has, the less likely it is that the business offers health insurance. For example, businesses with between 3 and 9 employees 

only offer rates of 46 percent. This is a stark contrast from their 

larger counterparts with more than 50 employees that offers a rate 

of over 95 percent. 

The tax credit was designed for businesses that are small. However, while the credit was originally estimated to support between 

1.4 million to 4 million small employers, the use of the credit by 

small employers was much lower than projected. While final data 

on the use of the credit is still being collected and analyzed, the 

most current information shows its use to be low among eligible 

businesses. 

Although there are some conflicting reports on the actual use of 

credit, the numbers are disappointing. For instance, the final IRS 

data for 2010 indicates 335,600 claims were made, but another report by the GAO found that only 170,300 small employers claimed 

the credit. But both show the same thing: few small businesses are 

taking advantage of a critical tax credit that would benefit them 

greatly. 

Today’s hearing serves as a way for us to examine the tax credit 

and learn what challenges faced small businesses attempting to 

use the credit. Most recently, the GAO concluded that nearly 

168,000 employers claimed the credit in 2012. Despite few employers using the credit, nearly 1 million employees obtained employersponsored health coverage through businesses claiming the credit. 

It is clear that the low adoption rates by small businesses were 

caused by numerous factors. The single greatest factor was the lack 

of awareness surrounding how the credit actually worked. The complexity of the calculations and requirements to be met were 

daunting for small employers with limited time and resources. Another challenge for small firms was meeting the stringent eligibility 

rules to be fully qualified for the credit. Strict salary requirements 

and employee counts had to be met. This added to the complexity 

and credit amount available. A final challenge was the delay in the 

Small Business Health Options Program, or SHOP Exchanges. 

Despite these problems, small employers and the healthcare industry in general are experiencing some benefits. More workers are 

obtaining health coverage and are now able to start their own businesses or change jobs without fear of losing their insurance. Additionally, we have seen per capita healthcare spending grow at its 

lowest rate on record for any 3-year period, and the uninsured rate 

SBREP-219A with DISTILLER

3 

drop. Premium rates are decreasing in some states and stabilizing 

in others. In fact, the average premium for employer-based family 

coverage grew a relatively modest 4.2 percent in 2015. This continues the trend of slow growth with the last 4 years accounting 

for the lowest growth rate since 1999. These lower rates are in part 

due to more competition in the market. 

This hearing will show just how critical the tax credit was to 

small firms wishing to offer health coverage and highlight areas 

where improvements could have been made. We will hear today 

why expanding and improving and strengthening the credit should 

have been done while it mattered most to our small employers. 

I would like to welcome all the witnesses and thank them for 

being here today. Thank you, and I yield back. 

Chairman HUELSKAMP. Thank you. 

If Committee members have an opening statement prepared, I 

ask that they be submitted for the record. 

I would like to take a moment to explain the timing lights for 

each of our witnesses. You each have 5 minutes to deliver your testimony. The light will start out as green. When you have 1 minute 

remaining, the light will turn yellow. Finally, at the end of your 

5 minutes, it will turn red. I ask that you try to adhere to this time 

limit. 

Our first witness is James McTigue, Director of Strategic Issues 

at the GAO, overseeing their audits of the IRS on a wide range of 

issues relating to tax administration and policy. He has 25 years 

of GAO audit experience across a variety of agencies and programs. 

Mr. McTigue holds a bachelor’s degree in economics from Brown 

University and master’s degree in public and private management 

from the Yale School of Management. I appreciate you being with 

us today, Mr. McTigue, and you may begin. 

STATEMENTS OF JAMES R. MCTIGUE, JR., DIRECTOR, STRATEGIC ISSUES, UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE; HAROLD JACKSON, EXECUTIVE CHAIRMAN, 

BUFFALO SUPPLY, INC.; HOLLY WADE, DIRECTOR, RESEARCH AND POLICY ANALYSIS, NFIB RESEARCH FOUNDATION; MICHAEL RICCO, QUALITY MANAGER, AEEC, LLC 

STATEMENT OF JAMES R. MCTIGUE, JR. 

Mr. MCTIGUE. Thank you, Mr. Chairman, Ranking Member 

Chu, Congressman Hanna. I am pleased to be here today to discuss 

our work on small employers’ use of the health insurance tax credit. 

The tax credit was established as part of the Patient Protection 

and Affordable Care Act to help small employers provide health insurance for their employees. Our findings indicate that use of the 

credit has continued to be lower than expected, limiting the effect 

of the credit on expanding health insurance coverage through small 

employers. 

As we discussed in our 2012 report, small, low-wage employers 

historically have not offered insurance for three reasons. First, 

health insurance is expensive and drives up the cost of labor. Second, lower-wage employees generally prefer cash over benefits. And 

third, insurers of small employers face high costs and are less able 

SBREP-219A with DISTILLER

4 

to pool risk across many employees. As a result, plans for small 

employers are likely to have higher premiums and fewer benefits. 

Government estimates indicate that about 86 percent of employers who may have been eligible for the full credit and 76 percent 

who may have been eligible for a partial credit did not offer their 

employees health insurance in 2013. While government and industry estimates place the number of eligible employers somewhere between 1.4 and 4 million, only about 181,000 employers claimed the 

credit in 2014. This is down slightly from 2010 as shown in Figure 

1 of my statement. 

In our 2012 study, we identified four key reasons why small employers did not claim the credit based on interviews with groups 

representing small employers, tax preparers, insurance brokers, as 

well as discussion groups with small employers themselves. First, 

the amount of the credit is too small to influence employers to offer 

or maintain insurance. This is because few small employers actually qualify for the maximum credit since the credit is phased out 

to zero as the number of employees reach 25 full-time equivalents 

and average wages approach $52,000. And the credit is limited to 

the average premium in the small group market in the State. 

In our report, we found that only about 17 percent of employers 

who claimed the credit in 2010 were eligible for the full amount. 

Usually, employers could not meet the average wage requirement. 

In fact, 68 percent did not qualify based on wages, even though 

they met the FTE requirement. Second, the credit can only be 

claimed for 2 consecutive years beginning in 2013. We found that 

employers may be reluctant to provide a benefit that they may 

have to take away later when the credit is no longer available and 

they are faced with higher costs for premiums. Third, GAO also 

found that the cost and complexity involved in claiming the credit 

was significant, deterring small employers from claiming it. For example, a major complaint that we heard had to do with the effort 

required to gather information on the number of hours worked for 

each employee in order to calculate full-time equivalence in the associated average annual wages. Tax preparers told us it could take 

2 to 8 hours to gather the necessary information and that they 

spent 3 to 5 hours calculating the credit. Fourth, many small employers have also reported that they were unaware of the credit. In 

response, the IRS developed a communication strategy that includes written materials, a website, and outreach to interest 

groups. However, the effectiveness of this outreach is unknown. 

Our 2012 report also discussed ways that the design of the credit 

could be altered to spur greater use of the credit. Options include 

increasing the amount of the full credit, the partial credit, or eliminating the State average premium cap. Other options would expand eligibility by increasing the FTE and wage limits for employers. And some options involve simplifying the credit calculation by 

using the number of employees and wage information already reported on the employer’s tax return, or offering a flat credit amount 

per employee rather than a percentage. In recent years, Congress 

and the administration have proposed a number of changes to the 

credit as well. These include expanding the size of eligible employers, altering the phase-out rules, and allowing the credit to be 

claimed in more than 2 consecutive years. 

SBREP-219A with DISTILLER

5 

In conclusion, expanding eligibility or increasing the amount of 

the credit may spur more small employers to claim the credit. However, these changes would increase the cost to the Federal Government. 

Mr. Chairman, Ranking Member Chu, and members of the Subcommittee, this concludes my prepared remarks, and I would be 

happy to take any questions. 

Chairman HUELSKAMP. Thank you, Mr. McTigue. I appreciate 

your testimony. We will have questions here shortly. 

Next up, I am now pleased to welcome Harold Jackson, who is 

Executive Chairman of Buffalo Supply, Inc., located in Lafayette, 

Colorado, just to my west from Kansas. Buffalo Supply is a familyowned business that has been devoted to providing high-tech medical supplies and equipment to the Federal Government since its 

inception in 1983. Mr. Jackson joined the company in 1990. He is 

also an active member of the U.S. Chamber of Commerce, where 

he serves on the Small Business Council and the Government Procurement Subcouncil. He is also a longtime member of the Coalition for Government Procurement. I appreciate you being with us 

today, Mr. Jackson. You may begin. 

STATEMENT OF HAROLD JACKSON 

Mr. JACKSON. Thank you, Chairman, and Ranking Member 

Chu, distinguished members of the Committee. My name is Harold 

Jackson. I am the executive chairman of Buffalo Supply, a 20-employee small business located in Lafayette, Colorado. I am honored 

to speak to you today on behalf of the United States Chamber of 

Commerce. 

Since 1983, our family-owned business has been devoted to providing high-tech medical equipment and supplies to Federal-funded 

facilities. We provide exceptional customer service, a deep level of 

expertise to our supply partners, and a high-quality workplace for 

our employees. We have 16 full-time and 4 part-time employees. 

I understand most tax credits are designed to incent or change 

behavior. Let me be clear. We have always provided health insurance for our employees, but premiums have increased dramatically 

year after year, and we may not be able to continue to provide 

health insurance in the future. Because BSI is ineligible, the tax 

credit does not help me provide affordable coverage for my employees now, nor will it encourage me to continue so in the future. We 

may be forced to stop providing health insurance due to the escalating costs. 

Over the years, we have changed carriers almost annually and 

explored different plan designs moving from PPO to high-deductible plans, and in the beginning, we covered the associated HSA 

contributions to cover the high deductible, but we had to reduce 

that from 100 percent coverage for our employees to 50 percent of 

the deductible, and now down to 0. We do pay 100 percent of the 

premiums for our employees and their dependents, but subject to 

higher family deductibles from $3,000 up to $5,000, and higher 

maximum out-of-pocket expenses up from $4,000 to $6,800. So we 

are paying more in premiums and our employees are paying more 

when they require medical services. 

SBREP-219A with DISTILLER

6 

When Connect for Health Colorado opened its shop in 2015, I 

went online and tried to enroll. Unfortunately, the amount of information required in the online application process was incredible. 

Much of the information I did not have access to, such as dependents’ and spouses’ Social Security numbers, dates of birth, tobacco 

use. After 3 days of gathering this information and another 10 

hours of entering it into the system, I could not review the plan 

options or see quotes, so I contacted the shop at their 800 number 

and I was told that we do not provide quotes to small businesses; 

that you would need to go through your insurance broker. Interestingly enough, when I called the insurance broker, he said, well, I 

will be happy to provide you with a quote, but it will not be 

through SHOP. They are way too much hassle for us to deal with. 

So the people they referred me to did not even want to use them. 

Based on my experience, the SHOP requirement is an onerous 

hurdle in and of itself. The biggest hurdle though is the annual 

earnings cap of $50,000. I am certainly not a tax expert, but it 

would appear to me that we could improve it by first removing the 

requirement that small businesses go through SHOP. Second, increase average earnings cap. Third, make the credit available for 

more than 2 consecutive years. The bottom line is the tax credit 

needs to be easier for businesses to assess and the hoops need to 

be simplified. It seems like a big part of the problem is the rules 

for the tax credit are so confusing that small businesses cannot assess the benefit without hiring outside counsel. Ultimately, any 

changes should not only increase the tax benefit to help small businesses but must be simple and easily understood. 

Thank you for this opportunity to testify, and I would be happy 

to answer any questions. 

Chairman HUELSKAMP. Thank you, Mr. Jackson. I appreciate 

your testimony, and I am disappointed by your experience with 

SHOP, and hopefully, there will be some questions on that later. 

Up next, I am pleased to welcome to the Subcommittee Holly 

Wade, who is the Director of Research and Policy Analysis at the 

NFIB. In that role, Ms. Wade oversees the foundation’s publications, including the monthly ‘‘Small Business Economic Trend Survey and Small Business Problems and Priorities.’’ She also provides 

in-depth analysis on public policy issues that impact our small 

businesses. She is a member of the National Association of Business Economics and the Department of Commerce’s Industry Trade 

Advisory Committee on Small and Minority Business. Ms. Wade is 

a graduate of the University of Washington, with a degree in political science and sociology, and she has a master of public policy 

from the University of Denver. And I appreciate you being with us 

today, Ms. Wade. You may begin. 

STATEMENT OF HOLLY WADE 

Ms. WADE. Thank you. Good morning, Chairman Huelskamp, 

Ranking Member Chu, and members of the Subcommittee. Thank 

you for the opportunity to testify today. I am pleased to be here on 

behalf of the National Federation of Independent Businesses as the 

Committee discusses the Small Business Health Insurance Tax 

Credit. 

SBREP-219A with DISTILLER

7 

Small business owners rank the cost of health insurance as their 

most severe problem in operating their business out of 75 potential 

issues, with 56 percent of small business owners finding it a critical problem. The high cost of health insurance is the main reasons 

owners do not offer employer-sponsored health insurance and the 

main reason owners discontinue providing the benefit. And for 

those offering, many owners annually confront the arduous task of 

adjusting profit expectations, insurance plans, cost sharing, and 

other mechanisms to help absorb the often erratic changes in total 

premium costs. The rising cost of health insurance has forced many 

small employers to rethink the viability of offering health insurance to their employees, especially during and in the wake of the 

Great Recession. 

Since 2008, the offer rates for small businesses with fewer than 

50 employees has dropped precipitously. Small business owners are 

far more hesitant to commit themselves to offering a long-term, 

high-cost benefit. The offer rates for this group have fallen over 10 

percentage points from 43 percent offering in 2008 to 32 percent in 

2014. 

The Small Business Health Insurance Tax Credit was a targeted 

approach to help curb health insurance costs for offering small employers and was intended to provide an incentive for those that do 

not to start offering. However, the tax credit was largely ineffective 

in both fronts as its design is exceedingly restrictive, complicated, 

and only offers limited and temporary relief to a larger small business cost problem. To date, the tax credit has generally served as 

a windfall for the few small business owners who qualify and take 

the time or pay an accountant to file for it. 

The ineffectiveness of the tax credit is largely due to four factors. 

The first and most limiting factor in claiming the tax credit is that 

eligibility was targeted to and most beneficial for those small businesses least likely to offer health insurance. Health insurance operates very significantly by employee size of firm and average wages. 

Those businesses with lower than average wages are more likely to 

compensate employees in cash and not benefits. Health insurance 

costs would significantly crowd out employee’s take-home pay. 

Smaller small businesses are also less likely to offer health insurance and those factors vary from high administrative burdens, low 

take-up rates, and higher than average premium costs. 

Second, the tax credit is exceedingly complicated to verify eligibility and claim the credit. The IRS estimates that recordkeeping 

requirements to claim the credit average just under 11 hours for 

most filers. The education component is estimated to take about an 

hour and a half. And finally, the time spent preparing and filing 

is estimated to take an average of 2 hours and 45 minutes. While 

most small employers use a tax preparer for their business, the 

cost associated with claiming the tax credit will deter many from 

going through the process in the first place. Since 2010, NFIB has 

received numerous complaints from small business owners regarding the complexity of the tax credit. Some owners called to say that 

even their tax preparer told them the credit was not the extra cost 

associated with determining eligibility and filing the paperwork. 

Third, the tax credit is temporary. At most, the credit was available to small business owners for 6 years that they started claimSBREP-219A with DISTILLER

8 

ing the credit in 2010. Currently, small business owners can claim 

the credit for 2 years. Health insurance is a long-term benefit offered by employers to retain and recruit employees. Owners generally start offering the benefit when profits allow for the added 

cost. Profitability was an important factor in offering health insurance for 63 percent of newly offering firms. The tax credit is little 

relief in the long-term cost challenges small business owners face 

in offering health insurance. 

And fourth, as of July 1, 2014, the Small Business Tax Credit is 

only available to qualifying businesses through the Small Business 

Health Options Program marketplaces. Most small employers purchase health insurance through an insurance agent and therefore, 

rely on the agent for suggesting health insurance options available 

to them. Only 13 percent of offering small businesses visited their 

SHOP Exchange, and of those offering and shopped, less than 1 

percent purchased through the SHOP marketplace. Among nonoffering firms, 17 percent of small employers shopped for coverage 

through the SHOP Exchange. The vast majority of nonoffering 

firms did not select a plan through SHOP because the plans were 

too expensive. 

The Small Business Health Insurance Tax Credit was too narrowly designed to be an effective cost-saving tool for small employers. The tax credit is now available to qualifying small business 

owners, small employers, for 5 years, and still very few businesses 

have benefited. But more importantly, health insurance costs continue to increase, and small business owners continue to struggle 

with their ability to afford offering the benefit. 

I appreciate this opportunity to present NFIB’s views and data 

on the effects of the Small Business Health Insurance Tax Credit, 

and I look forward to answering any questions you may have. 

Chairman HUELSKAMP. Thank you, Ms. Wade. I appreciate 

your testimony. I look forward to questions and answers on that. 

I am now pleased to yield to the Ranking Member of this Subcommittee so that she may introduce our final witness, Mr. Ricco. 

Ms. CHU. Yes. It is my pleasure to introduce Mr. Michael Ricco, 

Quality Manager for AEEC, a minority and women-owned small 

business. AEEC provides IT, environmental, and engineering services to federal and commercial customers. Mr. Ricco has been with 

AEEC for over 2 years and oversees quality assurance and compliance for every department and Federal contract at the company. 

Additionally, Mr. Ricco is a facilitator and member of AEEC’s management board. He holds a master of arts from Syracuse University 

and a bachelor of arts from the University of Arizona. As the manager of a women-owned business, he is testifying today on behalf 

of the U.S. Women’s Chamber of Commerce, which represents 

500,000 members, three-quarters of whom are small business owners and federal contractors. Welcome, Mr. Ricco. 

Chairman HUELSKAMP. I thank the Ranking Member for that 

introduction. Mr. Ricco, you may begin. 

STATEMENT OF MICHAEL RICCO 

Mr. RICCO. Good morning, Chairman Huelskamp, Ranking 

Member Chu, and other Subcommittee members. Thank you for 

this opportunity to provide testimony before the Subcommittee on 

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9 

Economic Growth, Tax, and Capital Access. My name is Michael 

Ricco. I am the quality manager for AEEC, a women and minorityowned small business located here in Reston, Virginia. Our president, Sangita Patil, wishes she could be here in person but she had 

a conflict. 

AEEC is an award-winning, professional services organization offering top-quality technology, environmental, and engineering solutions to U.S. Federal Government and Fortune 50 customers since 

1995. We support our customers’ requirements and offer a range of 

customized solutions with the highest degree of honesty, integrity, 

and service excellence. We offer solutions that are efficient, appropriate, and worthy of investment. Our company is also a member 

of the U.S. Women’s Chamber of Commerce. While I would like to 

testify today that my company has been able to benefit from the 

Small Business Health Care Tax Credit, that is, unfortunately, not 

the case because we are ineligible for the following reasons: First, 

we are ineligible because we have more than 25 employees. As this 

Subcommittee is well aware, there are many differing definitions of 

what a small business is, ranging from 50 to 100 to sometimes 

even 500 employees. The size standards for companies to use this 

health care tax credit is on the woefully low side and should be increased so that many more legitimate small businesses can take 

advantage of this tax credit. 

Second, we are an IT company, and as such, our employees tend 

to earn higher salaries than many other employees working in 

small businesses nationwide. Therefore, we do not qualify because 

our workers on average make more than $50,000, which is the current cap as stated in the implementation language governing this 

credit. We question the fairness of this cap because in essence, it 

punishes our company for paying our employers a higher wage. 

This limitation in our view should be removed from the eligibility 

requirements of this tax credit. 

Why do I say these changes should be made? Because AEEC 

would very much like to use this credit. Receiving a tax credit for 

up to 50 percent of our healthcare costs would certainly help us reduce our own costs. We all know, and as pointed out in the GAO 

report, plans for small employers are likely to have higher premiums, less coverage, and higher costs than plans for large employers, yet we, as a small business, want to do the right thing and 

provide healthcare coverage for our hardworking employees. AEEC 

has long provided healthcare coverage to all of our employees, and 

we go far beyond the minimum coverage now required by the Affordable Care Act. Our package would fall in the platinum or high 

gold range, so expanding the tax credit would go a long way to help 

us pay for premium increases and cover the additional compliance 

and reporting requirements that have come with the ACA. 

Here is something else to consider. The expectations that wouldbe employees have for benefits coverage get higher with salary levels. For example, a cashier at a fast food restaurant might be 

thrilled getting any healthcare coverage, but a senior data architect 

expects to have a platinum healthcare package. This makes small 

businesses like ours among the most in need for a tax credit. 

Finally, I would like to stress that although the ACA very much 

helps very small businesses with subsidies, large business benefit 

SBREP-219A with DISTILLER

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from large pools that keep their costs down. It is the small businesses in the middle, particularly those between 50 and 100 employees, that would benefit the most from this health care tax credit. Therefore, I would ask this Subcommittee to consider making 

changes to this credit so that more small businesses that are so 

critical to our Nation’s economy can be better able financially to 

pay for these healthcare costs. 

Two changes I have already mentioned, increasing the eligibility 

threshold for the number of employees that work at a small business and removing the wage barrier that excludes so many businesses from eligibility. Two other reforms that we would recommend are increasing the credit so that it is more cost-effective 

for small businesses to actually use it and to make it last longer 

than 2 consecutive years. 

Again, thank you for this opportunity to address this Subcommittee. AEEC is dedicated to providing our employees with the 

best healthcare coverage possible; yet, the fact remains that we are 

still a small business and these costs are quite high. We would 

urge this Subcommittee to put forth language that would make this 

important health care tax credit more accessible to the small businesses in our Nation that I would like to point out, on average, account for over 60 percent of all net new jobs created in this country. 

I would be happy to answer any of your questions. Thank you. 

Chairman HUELSKAMP. Thank you, Mr. Ricco, and other witnesses for your input. I will go ahead and open it up for questions. 

We have a few Subcommittee members here, but I will start. 

First, Mr. McTigue, Mr. Jackson, I appreciate your testimony. 

Mr. McTigue, we have been given the number of employers that 

are participating. What is the number of actual employees that are 

receiving some additional coverage because of this credit at that 

level? Do you have that data? 

Mr. MCTIGUE. Yes. The actual number of employees covered, it 

fluctuates year to year, but on average I would say it is around 

$800,000. So a larger number than the actual employers. 

Chairman HUELSKAMP. Certainly. In terms of that, the estimates that you presented were on the employer level, and, of 

course, the estimates from the CBO were significantly higher than 

they have come in. The number of employees, did they actually 

identify how many they thought would be covered because of this 

at that employee level? Did they meet those estimates with the implementation? Do you have those figures? 

Mr. MCTIGUE. I do not have the figures. I can provide them for 

the record, but I do know that the overall costs, the take-up rate 

of the credit was much lower than originally estimated by CBO and 

JCT. And it continues to be lower than the revised estimates. 

Chairman HUELSKAMP. Yes, I appreciate that. 

Mr. Jackson, you have given some insight, particularly your personal experience with your company and the limits working 

through the SHOP Exchange. Can you describe that a little bit 

more? You go to the SHOP. They ask for information you did not 

have, and then they refused to provide an estimate? I am just 

shocked that they would tell you, well, we do not provide estimates 

for small businesses. I assume in the State of Colorado, I see it is 

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a state-run exchange. Was small business not a focus at all? I 

mean, there are exchanges, one exchange for small business and 

the individual market. Can you describe that a little bit more for 

the Subcommittee, your experience with the SHOP in your State? 

Mr. JACKSON. Well, my personal opinion is that it is more focused on the individual marketplace than it is the small business 

marketplace. And it would have been helpful if they just upfront 

said small businesses go to your broker to get a quote. But they 

allow you or keep asking you all this information about your employees, and they do not really tell you that ever. When you get to 

the end, I had to call them and say, well, I have entered all this 

data. Now where do I find the options, the policy options, and the 

quotes? And that is when they said, well, we do not really provide 

small businesses with quotes. So it was a very frustrating process. 

I would throw in that we have done everything, I think, reasonable 

and prudent possible to try to minimize our premiums, yet over the 

last 5 years they have still gone up over 25 percent, and we cannot—and even to do that, we are not in a small business program. 

I had to join a professional employer organization to get into another company’s large insurance pool to keep our premiums as low 

as they were. The last small business quote I got, our premium increases were going to be something in the neighborhood of 70 percent one year to the next year. 

Chairman HUELSKAMP. Ms. Wade, the experience of Mr. Jackson, is that what you are seeing across other states, even if it was 

a state-level exchange or a federally-facilitated exchange, partnership exchange? Is this similar to the story you are hearing across 

the various States? 

Ms. WADE. It is a very common story that we are hearing from 

our members. And it is not, unfortunately, State specific. It is not 

size specific. They are all having a lot of frustrating circumstances 

in accessing SHOP, and looking to find more affordable health insurance for their employees. And if they are not offering insurance, 

finding a plan that would work for their business and for their employees. So yes, we are hearing many stories that are very similar 

to Mr. Jackson. And they are still coming in, unfortunately. 

Chairman HUELSKAMP. Follow-up question for any of the witnesses who can answer this. The information that Mr. Jackson provided to the SHOP, extensive hours and hours, then chose to go 

elsewhere because he really had no choice to stay in the SHOP, 

what happens to that information? 

Mr. JACKSON. That is an interesting question that I do not 

know the answer to because some of my people were, well, I will 

say semi-reluctant to provide me with the information, but I explained if they wanted health coverage, they really did not have a 

choice but to provide me with that information. I have no idea 

what happens to it, but I am concerned. 

Chairman HUELSKAMP. Yes, so you asked for some information, they reluctantly provided it, you turned it over to the SHOP, 

and then you did not even sign up through that. That is something 

I would like to follow-up on for folks that might be able to answer 

that. So I appreciate that, Mr. Jackson. 

I see I am out of time, and I will recognize our Ranking Member 

for her 5 minutes of questions. 

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Ms. CHU. Mr. Ricco, the Small Business Health Care Tax Credit 

was meant to incentivize small employers into offering health insurance. How do you feel the IRS worked with the business community to provide information about the credit, and was that outreach adequate? 

Mr. RICCO. In our situation, it was adequate because it was 

very clear what the size standards were, 25 or fewer employees, average of $50,000 or less. If you could not hit those, there was no 

sense in looking further. So, for us and many other small businesses in our situation, we could tell right away we were not eligible. Now, that may not be the case for smaller businesses that 

would have; however, there was information out there and they 

could have reached out. 

Ms. CHU. Well, talking about size standards, the tax code contains many different definitions of a small business and what a 

small business is depending on what section of the code we are discussing. This lack of uniformity certainly was highlighted by the 

ACA in its definition of a small business. This definition shaped 

which businesses were eligible for the tax incentives in offering 

health care. Mr. Ricco, what do you think would be a better size 

standard with regard to the ACA? 

Mr. RICCO. Well, it certainly makes sense to have size standards, because small businesses are in much greater need for a tax 

credit than larger companies. However, I think it would have made 

a lot more sense to base if off of NAICS codes. The government already sets NAICS codes for every industry. If you want to be a 

Federal contractor, you have to fall into those. Every business 

knows what their NAICS codes are. It would not take any type of 

change to use that as the basis instead of this arbitrary 25 employee, $50,000 cap. 

Ms. CHU. Mr. McTigue, what do you think of the size standards? 

What have you found to be a better size standard with regard to 

participation? 

Mr. MCTIGUE. We did not look at what would necessarily be a 

better size standard. Obviously, there are tradeoffs associated with 

how you target a benefit, whether through the tax code or spending 

program. So expanding eligibility, expanding both on the FTE and 

average wage would have tradeoffs in terms of increasing the cost 

of the program or the tax credit to Federal Government, so those 

options have to be weighed. Complexity, as we have heard from all 

the witnesses, is a major issue. Reducing complexity can be 

achieved at relatively less cost, so that might be an option to pursue. 

Ms. CHU. Let me ask about the different numbers to the analyses of the Small Business Health Care Tax Credit by the Treasury 

Inspector General of Tax Administration. The IRS and the GAO all 

concluded drastically different results for the use of this incentive. 

Mr. McTigue, can you walk me through why the GAO’s numbers 

are much lower than those of the Treasury Inspector General of 

Tax Administration and the IRS for the 2010 claims? 

Mr. MCTIGUE. Yes. For today’s statement, for today’s report, we 

reached out to the IRS and obtained the most recent data available. Those data do differ from what we originally reported in 2012 

for the tax year 2010. Basically, it is an issue of more returns havSBREP-219A with DISTILLER

13 

ing come in since we previously reported. Overall, the numbers are 

relatively low compared to the number of potentially eligible small 

employers. So I have not looked at the TIGTA numbers specifically. 

We can look at those and get back to you for the record, but again, 

I think you mentioned something in the order of $300,000 versus 

181,000 that we reported today. Not a big difference compared to 

potentially eligible in the millions. 

Ms. CHU. Do you plan to perform a final analysis using these 

numbers? 

Mr. MCTIGUE. Not at this time. We would be happy to do so 

at the Committee’s request. 

Ms. CHU. Yes. I certainly would be interested in that. 

Despite the low adoption rate, nearly 1 million employees whose 

employers claim the credit are benefiting from the ACA, but this 

is an increase from only 770,000 workers in 2010 and through 

fewer employers. Has the GAO studied whether these numbers are 

due to small employers hiring more employees or simply different 

businesses entirely who are claiming the credit? 

Mr. MCTIGUE. We have not studied that issue. There are a 

number of factors that come into play. It could be the size of the 

company, companies coming in and out claiming the credit. As you 

are aware, the credit originally was available for up to 6 years 

when it was originally established. Beginning in 2013, it was only 

available for 2 years. Also, we mentioned one of the factors that we 

found was the lack of awareness, maybe part of the issue is companies becoming more aware of it and signing up for it. 

Ms. CHU. Thank you. I yield back. 

Chairman HUELSKAMP. Thank you. I would like to recognize 

Mr. Richard Hanna, who actually has personal experience in this 

arena. I look forward to your 5 minutes of questions. 

Mr. HANNA. Thank you, Chairman. 

The government is famous for unintended consequences, but 

there is something insidious about this. The time, the incentive to 

raise pay, the complexity, the fact that you went from 16 percent 

to 32 percent of companies that are not doing this or are not supplying it. 

Mr. McTigue, Ms. Wade, is it possible that in this particular case 

this law is doing exactly what it was intended to do, and that is 

incentivize people to have insurance for a short period of time, but 

ultimately, create a marketplace where the real goal is to force everybody to provide insurance without really giving them any benefit? Maybe that sounds like a strange question, but it seems like 

there is nothing about this that is workable or working. If you really wanted people to get more insurance, this is not what you would 

design. None of us here would. So what do you think of that? I 

mean, it is my inference. 

Mr. MCTIGUE. I think in terms of the Patient Protection and 

Affordable Care Act as, you know, a congressman in the United 

Sates, many people—the majority of people, the majority of workers receive their health insurance through their employers. I think 

it is something in the range of 55 percent of all employees receive 

through their employer or spouse’s employer, something of that nature. Whether or not this was the best way or the most efficient 

way, the most equitable way to either incentivize small employers 

SBREP-219A with DISTILLER

14 

to provide health insurance or have all individuals have some sort 

of health insurance coverage, you know, there are tradeoffs in 

terms of different ways of requiring that, delivering the service. I 

mentioned, you know, would a spending program be more efficient? 

You know, a direct subsidy as opposed to a tax credit. The small 

employer health tax credit is a small piece of a larger strategy to 

provide health insurance for all individuals. 

Mr. HANNA. The bottom line is this is not working, and people 

are not incentivized to use it. And it is not producing the outcome 

it was intended. I mean, it is nice that more people have insurance, 

but on the margin you have to say it is a very small number compared to the number that it might be able to affect. If it were simpler, longer, maybe raise the number, I do not know. So this ought 

to be something you can look back and either decide to make it go 

away or fix it and make it cleaner. Ms. Wade? Anybody? 

Ms. WADE. No, I absolutely agree. The tax credit is far too temporary and far too limiting to the people that are able to—— 

Mr. HANNA. The temporary part is what makes me think it is 

a little insidious because clearly people, you are not going backwards. You do not give somebody a pay raise effectively through insurance and then yank it back in 2 years. Any fool can project the 

cost of that out for however long you may think you have your average employee and say, you know, I am not doing that because in 

10 years it is going to cost me 10 times or 5 times more. So I think 

the whole rule is suspect. 

Ms. WADE. Absolutely. For small employers, offering health insurance is a very costly, long-term benefit that generally takes 

some time when they start their business to offer that. It is based 

on profitability, their certainty about where sales are projected to 

go in the near future. So offering the benefit is serious consideration for small business owners and for long-term. 

Mr. HANNA. It looks like the government are trying to lock people into this without giving them an exit strategy or incentive that 

actually works in the real world. What do you think, Mr. McTigue? 

Mr. MCTIGUE. I would just say that again it comes down to a 

tradeoff between the cost to the government and cost-sharing overall. Certainly, if we expanded the credit or made it permanent and 

offered it to more people, a lot more people would benefit. However, 

it would cost the government a lot more. 

Mr. HANNA. You have to look at the goal though. If the goal is 

somewhere in between, right? 

Mr. MCTIGUE. Exactly. 

Mr. HANNA. I would wager that the government looked at this 

and said this is really expensive, and how can we limit it? So you 

do 2 years and a few other things that you have thrown in here, 

but the net result is not as many people are enjoying the outcome 

as we would like to have. 

My time is expired. Thank you, Chairman. 

Chairman HUELSKAMP. Thank you, Mr. Hanna. As Mr. Kelly 

prepares, I’d like to make a statement very quickly here. 

I was not around when they passed this law, and it would be, 

I guess, fascinating to try to decide whether they really thought 

this would have an impact or was this kind of dropped in there and 

sounded good? In 2012, we had these discussions that it clearly was 

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15 

not going to work. Here we are 4 years later, still coming to the 

same conclusion. That is very disappointing. 

Next, I recognize Mr. Kelly, but he had his questions already all 

answered. I appreciate you coming here. It has been a very quick 

hearing discussing this. 

I am going to spend a couple more minutes and leave questions 

for the other members as well. As we move forward, if we are really trying to incentivize and encourage small businesses, if you 

could devise that, Mr. Ricco, how would you devise that? Obviously, 

you want to take the cap off so it would not punish or penalize 

those who actually are paying maybe more than their competitors. 

In 1 minute, if you could just say how would you devise this and 

what would you change to make certain that it produces the effect 

to encourage our small businesses to provide a pretty expensive 

benefit for their employees. Mr. Ricco? 

Mr. RICCO. Well, like I mentioned before, I would certainly do 

it by NAICS code or a similar mechanism. I would also get rid of 

the way that it is tied to the States with the amount that you can 

get back because that just adds another calculation that gets 

factored in for a small business to figure out how much money they 

are actually going to get back with a subsidy like that. You could 

also look at making a more uniform change that will help small 

businesses pay for the additional compliance and reporting costs 

that we have associated now that we have got to comply with these 

new mandates. 

Chairman HUELSKAMP. Okay. Ms. Wade, any thoughts on the 

system, the Wade system if you put that together? 

Ms. WADE. Certainly, expanding the population that would be 

eligible for the tax credit would be immensely helpful. But still, I 

would say that it is a temporary approach to a larger cost issue 

that small business owners are facing. Thirty percent increase on 

average for health insurance costs since 2008 when profits and 

earnings and wages have been fairly stagnant for the small business population is still a hefty hurdle for them to get across to offer 

and keep offering health insurance. So while the tax credit is helpful for those that can access it, it is not a particularly helpful solution for the broader small business population in offering and affording health insurance for their employees. 

Chairman HUELSKAMP. Simply an additional cost of doing 

business and that might provide some benefits, but at the end of 

the day you still have to have enough business to cover that cost. 

Mr. Jackson, personal experience? If you were looking out there 

and waved a magic wand, what would it look like? 

Mr. JACKSON. Well, the increasing costs have been a major, 

major hurdle for us to continue providing our insurance, and certainly any way that we can devise a system that minimizes that 

cost, I am all in favor of. I would not be opposed to if you are going 

to have a cap, not make it an average cap for the employee but 

make it an employee-specific cap, so I know if I have 10 employees 

that make $48,000 I am going to get the credit. And if I have 10 

that make $53,000, I am not going to get the credit for them. But 

make it simple and straightforward and untie it from States and 

all the other—if we meet the size standard and your employee 

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makes less than whatever the magic number is for the cap, then 

give the people the credit for it. 

Chairman HUELSKAMP. Mr. McTigue, you have an interesting 

perspective and very insightful. I mean, 4 years ago sitting with 

businesses, particularly with the Chamber and say, hey, we knew 

this was not going to work, worse than we feared. How would you 

devise that, scrap it all together and replace it with what? 

Mr. MCTIGUE. Well, I think one area that you have heard from 

all, the three other witnesses, to look at simplifying how a small 

employer goes about claiming the credit. As we mentioned in our 

statement, you could use wage and employee counter information 

that is already available. It might not be as precise as FTEs and 

average ages, but there is a tradeoff between precision and targeting and the cost and complexity of the burden on small employers to comply in order to claim the credit. Obviously, you want a 

design that allows the most people eligible, the largest number of 

eligible employers to access the credit. Otherwise, it is a very inefficient way to provide this benefit. 

Chairman HUELSKAMP. Okay. 

Mr. MCTIGUE. Mr. Chairman, if I could add for the record. 

Chairman HUELSKAMP. Yes. 

Mr. MCTIGUE. In response to Ms. Chu’s question about the 360 

employers reported by TIGTA. The TIGTA account actually included partnerships and S corporations which are basically passthrough entities, whereas the 181,000 employers that we testified 

to are real employers. So that accounts for the difference. Thank 

you. 

Chairman HUELSKAMP. Thank you, Mr. McTigue, Mr. Jackson, 

Ms. Wade, and Mr. Ricco. I appreciate your testimony. I wish we 

would have a happy story today, and that is not the case. But 

thank you for being here. 

As we know, the Small Business Health Insurance Tax Credit 

was created with a stated purpose of making it easier for small 

business owners to provide health benefits for their employees. The 

numbers in testimony show, however, that this credit simply did 

not deliver, and from what we have heard today, I believe we can 

see why. This credit proved to be complicated, confusing, and costly 

to implement. It is yet another broken promise to the small business community. 

The Committee on Small Business remains dedicated to the interest of small businesses and their hardworking employees. It is 

our duty to ensure that America’s entrepreneurs, job creators, and 

their employers are actually being helped, not simply being paid lip 

service. 

I ask unanimous consent that the members have 5 legislative 

days to submit statements and supporting materials for the record. 

Without objection, so ordered. 

The hearing is now adjourned. 

[Whereupon, at 10:55 a.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

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The U.S. Chamber of Commerce is the world’s largest business 

federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local 

chambers and industry associations. The Chamber is dedicated to 

promoting, protecting, and defending America’s free enterprise system. 

More than 96% of Chamber member companies have fewer than 

100 employees, and many of the nation’s largest companies are also 

active members. We are therefore cognizant not only of the challenges facing smaller businesses, but also those facing the business 

community at large. 

Besides representing a cross-section of the American business 

community with respect to the number of employees, major classifications of American business—e.g., manufacturing, retailing, services, construction, wholesalers, and finance—are represented. The 

Chamber has membership in all 50 states. 

The Chamber’s international reach is substantial as well. We believe that global interdependence provides opportunities, not 

threats. In addition to the American Chambers of Commerce 

abroad, an increasing number of our members engage in the export 

and import of both goods and services and have ongoing investment 

activities. The Chamber favors strengthened international competitiveness and opposes artificial U.S. and foreign barriers to international business. 

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Statement on 

‘‘Lip Service but Little Else: 

Failure of the Small Business Health Insurance Tax Credit’’ 

Submitted to 

THE HOUSE SMALL BUSINESS COMMITTEE’S 

SUBCOMMITTEE ON ECONOMIC GROWTH, 

TAX AND CAPITAL ACCESS 

on behalf of 

U.S. CHAMBER OF COMMERCE 

By 

Harold Jackson 

Executive Chairman 

Buffalo Supply, Inc. 

Lafayette, Colorado 

March 22, 2016 

Chairman Huelskamp, Ranking Member Chu and distinguished 

members of the Subcommittee, thank you for inviting me to testify 

before you today about my experiences with the small business 

health insurance tax credit. I hope that my testimony and remarks 

will help provide a concrete real life example as to the shortfalls 

of this premium tax credit which is unfortunately illusive to most 

small businesses. I understand that most tax credits are designed 

to incent or change behavior and - to be clear - we have always provided health insurance for our employees. But the fact is prices 

have increased so dramatically year after year that we may not be 

able to continue to provide health insurance in the future. Because 

we are ineligible, this tax credit does not help me in any way to 

provide affordable health coverage to my employees now. And unfortunately, it will not encourage me to do so in the future - if and 

when - I may be forced to stop offering insurance because of prohibitively escalating costs. Despite efforts to encourage employers 

to provide health insurance and bolster the small group and individual markets, this premium tax credit helps with neither goal. 

Instead, we are unable to mitigate increasing costs to our company 

and our employees as we strive to provide our Buffalo Supply family with health insurance. 

My name is Harold Jackson. I am the Executive Chairman of 

Buffalo Supply, Inc., a 20-employee small business located in Lafayette, Colorado, specializing in federal contracting for medical 

SBREP-219A with DISTILLER

41 

supplies and equipment. I am honored to speak with you today on 

behalf of the U.S. Chamber of Commerce. The U.S. Chamber of 

Commerce is the world’s largest business federation, representing 

the interests of more than three million businesses and organizations of every size, sector, and region. As you might know, more 

than 96 percent of the Chamber’s members are small businesses 

with 100 or fewer employees, just like mine, and 70 percent of 

which have 10 or fewer employees. 

Company Background 

Since 1983, our family-owned business has been devoted to providing high-tech medical supplies and high-tech medical equipment 

to the federal government. While our company has grown to be successful, we began in the basement of my brother Stonewall’s home. 

With a strong belief that he could help companies understand the 

federal procurement process and bring value to federal customers, 

my brother established Buffalo Supply with originally just one supplier partner. Over the past 33 years, we have grown to be one of 

the top 20 federal contractors for medical supplies and equipment 

and are currently the exclusive small business federal distributor 

for many well-recognized brands, such as Integra Lifesciences, 

Stryker Spine, STERIS Corporation, and Bausch + Lomb Storz (to 

name a few). Today, we have 16 full-time employees and four parttime employees. 

At Buffalo Supply, Inc. (BSI), we understand the complexities of 

federal contracting and work closely with our supplier partners to 

ensure that we are bringing high quality medical supplies and 

equipment to our Veterans and warfighters, while also helping our 

supplier partners remain compliant with all Federal Acquisition 

Regulations. We hold multiple FSS Contracts, ECAT and DAPA 

contracts, and Blanket Purchase Agreements (BPAs) to ensure that 

federal customers are able to purchase the products they need 

through their preferred contract platform. 

BSI has numerous Federal Supply Schedule contracts with products to satisfy a wide variety of operating room and health care 

needs. Through our diligent work and extensive experience in the 

federal marketplace, BSI has developed a high level of expertise in 

helping federal institutions efficiently meet their objectives of providing high quality health care equipment at competitive prices. 

We primarily provide our goods and services to federal medical facilities, mainly within the Department of Veterans Affairs, Department of Defense, and Department of Health and Human Services. 

We pride ourselves not only on providing exceptional customer 

service to our customers and a deep level of expertise to our supplier partners, but also on providing a high quality workplace for 

our employees. We spend a lot of time and effort in training our 

employees to stay up to date on changes to regulations, changes in 

the federal market, etc. When you call BSI, you always get a live 

person. Even if you ask for something we can’t provide, we’ll help 

you find it. We went to be the government buyers’ partner in providing the products our vets and warfighters deserve, helping howSBREP-219A with DISTILLER

42 

ever we can. And to help us do this, we spent a lot of time and effort on hiring. It’s extremely important to not just find people with 

the right education level and the skill levels, but also with the personality that will complement our organization—to keep the attitude positive and moving forward. We’re a family at our small business—our average customer service rep has been with BSI for 

nearly 10 years. 

Additionally, we also share the profits with the employees 

through bonus programs. If we grow the business to the projections, then everyone gets a couple hundred dollars a month in addition to their normal check—and it is amazing how that creates a 

positive attitude. At the end of the year there is an additional profit share program—we are all pulling towards the same cause and 

when the company is successful, each of our members should benefit. 

While our primary measure of success is the happiness of our 

employees and our customers, we have been honored to receive 

some external praise as well. Colorado Biz Magazine named BSI as 

one of its top 10 small businesses to work for in Colorado. The DCbased Coalition for Government Procurement and the US General 

Services Administration gave BSI their ‘‘Excellence In Partnership 

- Most Innovative Small Business Award’’ for 2003. 

Personally, I have served as an advisor for the University of Colorado, Denver School of Business for Entrepreneurship. I am an active member of: The U.S. Chamber of Commerce (where I serve on 

the Small Business Council and the Government Procurement SubCouncil); the Coalition for Government Procurement; and the NFIB 

Leadership Council of Colorado. In 2006, the Bush Administration 

appointed me to the Small Business Administration’s Regulatory 

Fairness Board, where I served for two years. In 2012, I was honored by the Leadership Council of NFIB/Colorado as Colorado’s 

Small Business Champion of the Year. On November 6, 2013, I received an award for a Lifetime of Service to Small Business. I am 

grateful for these accolades but recognize the company and our employees made all of this possible. 

In my leisure time, I love to fill my days camping, ‘‘Jeeping,’’ and 

as an amateur photographer. Once a year, I take off with my 4X4 

crew and disappear into the wilderness of Utah and Arizona. I am 

eager to teach my grandson how to participate in all of these activities—if I can get my daughter Kara’s permission. 

Health Care: My Experience with Premium Increases 

We have offered health care coverage to our employees for many, 

many years ever since we started hiring additional employees— 

probably back in 1990. Since then, providing health insurance to 

our workers has always been a priority—it is part of our culture 

and important for attracting and maintaining the best employees. 

But, it hasn’t been easy, and in fact, each year it gets harder and 

harder for us financially. 

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As an employer committed to providing insurance to our employees and their families, our history with offering health insurance 

has been somewhat tumultuous. We try to shield our employees as 

much as possible to the challenges we have faced. For many years 

we provided our employees with health insurance coverage through 

a PPO plan, which allowed employees to pay a bit extra to go to 

out-of-network providers—giving them a greater level of choice. 

We came to a point in the mid-2000s where we were growing 

quickly and insurance premiums were increasing so much that we 

had to try to find some new solutions. Health Savings Accounts, or 

HSAs, were new to the market place and we did a lot of research 

to understand if offering a High-Deductible Health Plan in conjunction with an HSA would be good for our employees. A few members 

in our management team volunteered to review their medical expenses for the previous year and compare how much they would 

have spent out-of-pocket with the two different types of plans. After 

reviewing the comparisons, we decided to offer an HDHP plan and 

fully fund our employees’ HSAs to cover the cost of the associated 

HDHP’s deductible. Unfortunately, as premiums have increased, 

our company’s ability to fund the HSA to cover the associated 

HDHP’s deductible has waned—at first down to 50% of the deductible and now to zero. However, we continue to pay 100% of the premiums for our employees and their dependents—which continues to 

make BSI stand out to job applicants. 

In addition to changing plan types and HSA contributions, we 

have also had to change carriers, on average every 1-3 years. We 

have rotated between Anthem, United, Aetna and Rocky Mountain 

Health in an effort to find more affordable coverage. 

Beyond changes in plan design and carriers, we have seen tremendous cost increases despite modest decreases in benefits. For 

example, in 2010 our average premium was under $12,840 annually for family coverage. This average premium skyrocketed to a 

$16,380 annual premium for family coverage this year (over a 25% 

increase). This increase accompanies less robust coverage. Now our 

health insurance plan has a higher family deductible (up from 

$3,000 to $5,000) and a new out-of-pocket maximum of $6,800—up 

from $4,000 in 2010. So we are paying more in premiums and 

sadly—our employees are also paying more when they need medical care and services. 

My Limited Experience with the Elusive Small Business Premium 

Tax Credit 

When the Colorado Exchange ‘‘Connect for Health Colorado’’ 

opened its Small Business Health Options Plan in 2015, I went online and tried to enroll. I learned through my colleagues at the U.S. 

Chamber and NFIB that small businesses with 25 or fewer employees may be eligible for a small business premium tax credit provided coverage was purchased through the SHOP. Unfortunately, 

the amount of information that the SHOP asked for in its on-line 

application process was incredible; much of the information requested—I didn’t have. They wanted a lot of information about 

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spouses and dependents that we don’t have or maintain—such as 

dependent’s and spouse’s Social Security numbers, dates of birth, 

and tobacco use. It took me two or three days to gather up this information. I spent about 10 hours entering this information into 

the system, after which I couldn’t figure out how to review the 

plans available or get quotes. 

I called the 800 number and they told me that they don’t give 

quotes to small business. The SHOP representative said that I 

needed to go through a broker. When I called a broker, clearly he 

had heard from other businesses like me about the SHOP—even 

though SHOP referred me to him—he told me ‘‘I can get you a 

quote, but I don’t want to go through the exchange, it’s too much 

hassle.’’ 

I mention all of this because—as you know—the small business 

premium tax credit is only available to small businesses (those 

with 25 or fewer employees earning on average less than $50,000 

per year) that purchase coverage for their employees on the SHOP. 

Clearly, based on my experience, this is an onerous ‘‘hoop’’ in and 

of itself as a requirement. Unfortunately, it is not the only hoop 

that makes the prospect of obtaining a small business tax credit 

elusive. The other—and bigger—hurdle for small businesses is the 

annual average earning cap. The average annual earning threshold 

is simply too low. 

Possible Solutions/Improvements? 

I do believe small businesses need help, both to encourage others 

(like we do) to provide health insurance and also to help those who 

(perhaps also like we) may one day find that they cannot continue 

to provide health insurance to their employees. I am certainly not 

a tax expert—although lord knows I pay taxes and wish I were— 

but it seems to me like there are several ways to make this tax 

credit more useful to small businesses. 

• First, it should be available to small businesses that purchase coverage on or off the SHOP—this would level the playing field a bit. 

• Second, the average earning level must be raised. 

• Third, the tax credit should be available for more than 2 

consecutive years. 

• In any event, the benefit of this tax credit needs to be easier for businesses to assess and the hoops should be simplified 

for businesses to more easily satisfy. 

Conclusion 

I am proud of the company that my brother started and that we 

as a family have built. I am proud of the employees that we have— 

our broader family. I am concerned about the ability of our company and others around the country to continue to provide health 

insurance and I think this premium tax credit may be increasingly 

necessary to encourage companies to provide coverage—particularly 

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given the premium increases we continue to see year over year. 

Based on my experience, I think part of the problem is that the 

rules for the tax credit are so confusing that small businesses cannot assess benefit of the tax credit without hiring outside counsel. 

Ultimately, any changes should not only increase the tax benefit to 

help small businesses provide health insurance for their employees, 

but must be simple and easily understood. As my brothers and I 

transition our company to our children, I hope that they will be 

able to benefit from the struggles we have had in many areas and 

learn from our successes as well. Unfortunately, at this point, providing health insurance continues to be a struggle. 

Thank you for this opportunity to testify, and I look forward to 

your questions. 

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1Wade, Holly, Small Business Problems and Priorities, NFIB Research Foundation, August 

2012. 2Source: Agency for Healthcare Research and Quality, Center for Financing, Access and Cost 

Trends. 2008-2014 Medical Expenditure Panel Survey-Insurance Component. 3Fact Sheet: Small Business Health Care Tax Credit, April 1, 2010. https:// 

www.whitehouse.gov/the-press-office/fact-sheet-small-business-health-care-tax-credit. 4The IRS mailed 4.4 million postcards to small business owners informing them of the tax 

credit. 

Good morning Chairman Huelskamp, Ranking Member Chu and 

members of the Subcommittee on Economic Growth, Tax and Capital Access. Thank you for the opportunity to testify today. I am 

pleased to be here on behalf of the National Federation of Independent Business (NFIB) as the Committee discusses the small 

business health insurance tax credit. 

Small business owners rank the cost of health insurance as their 

most severe problem in operating their business out of 75 potential 

issues, with 56 percent of small business owners finding it a ‘‘critical’’ problem.1 The high cost of health insurance is the main reason owners do not offer employer-sponsored health insurance and 

the main reason owners discontinue providing the benefit. And for 

those offering, many owners annually confront the arduous task of 

adjusting profit expectations, insurance plans, cost-sharing and 

other mechanisms to help absorb often erratic changes in total premium costs. 

The rising cost of health insurance has forced many small employers to rethink the viability of offering health insurance to their 

employees, especially during and in the wake of the great recession. Since 2008, the offer rate for small businesses with fewer 

than 50 employees has dropped precipitously. Small business owners are far more hesitant to committing themselves to offering a 

long term, high cost benefit. The offer rates for this group have fallen over 10 percentage points from 43 percent offering in 2008 to 

32 percent in 2014.2

The small business health insurance tax credit was a targeted 

approach to help curb health insurance costs for offering small employers and was intended to provide an incentive for those that do 

not, to start offering. However, the tax credit was largely ineffective on both fronts as its design is exceedingly restrictive, complicated, and only offers limited and temporary relief to a larger 

small business cost problem. To date, the tax credit has generally 

served as a windfall for the few small business owners who quality 

and take the time, or pay an accountant, to file for it. 

In 2010, the Congressional Budget Office (CBO) estimated the 

tax credit would provide $40 billion in cost relief for small business 

owners over 10 years. More recently, CBO has lowered the cost estimate to $10 billion over 10 years due to lower than expected utilization. NFIB initially estimated the eligible population of small 

business owners to be about 1.4 million. The Administration’s estimate, which included non-offering firms, was 4 million.3 IRS data 

reported that in 2010 just over 170,000 small businesses claimed 

the tax credit at a cost of $468 million, despite considerable outreach efforts by the IRS and other groups to raise awareness of the 

credit.4

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5Source: Agency for Healthcare Research and Quality, Center for Financing, Access and Cost 

Trends. 2008-2014 Medical Expenditure Panel Survey-Insurance Component. 6Dennis, WJ, Jr. (2014). Small Business’s Introduction to the Affordable Car Act, Part II. 

NFIB Research Foundation: Washington, DC. http://www.nfib.com/assets/nfib-aca-study2014.pdf. 

The ineffectiveness of the tax credit is largely due to four factors. 

The first, and most limiting, factor in claiming the tax credit is 

that eligibility was targeted to and most beneficial for those small 

businesses least likely to offer health insurance. Health insurance 

offer rates vary significantly by employee size of firm and average 

wages.5 Those businesses with lower than average wages are more 

likely to compensate employees in cash and not benefits. Health insurance costs would significantly crowd out employees’ take home 

pay. Smaller, small businesses are also less likely to offer health 

insurance and those factors vary from high administrative burdens, 

low take-up rates, and higher than average premiums. 

Second, the tax credit is exceedingly complicated to verify eligibility and claim the credit. The IRS estimates that recordkeeping 

requirements to claim the credit average just under 11 hours for 

most filers. The education component is estimated to take about 1 

1/2 hours. And finally the time spent preparing and filing is estimated to take an average of 2 hours and 46 minutes. While most 

small employers use a tax preparer for their business, the costs associated with claiming the tax credit will deter many from going 

through the process in the first place. 

Since 2010, NFIB has received numerous complaints from small 

business owners regarding the complexity of the tax credit. Some 

owners called to say that even their tax preparer told them the 

credit was not worth the extra costs associated with determining 

eligibility and filling out the paperwork. 

Third, the tax credit is temporary. At most, the credit was available to small business owners for six years if they started claiming 

the credit in 2010. Currently, small business owners can claim the 

credit for two years. Health insurance is a long term benefit offered 

by employers to retain and recruit employees. Owners generally 

start offering the benefit when profits allow for the added costs. 

Profitability was an important factor in offering health insurance 

for 63 percent of newly offering firms.6 The tax credit is a little relief in the long term cost challenges small business owners face in 

offering health insurance. 

And fourth, as of July 1, 2014, the small business tax credit is 

only available to qualifying businesses through the Small Business 

Health Options Program (SHOP) marketplaces. Most small employers purchase health insurance through an insurance agent and 

therefore rely on the agent for suggesting insurance options available to them. Only 13 percent of offering small businesses visited 

their SHOP exchange. And of those offering and shopped, less than 

1 percent purchased through the SHOP marketplace. Among nonoffering firms, 17 percent of small employers shopped for coverage 

through a SHOP exchange. The vast majority of non-offering firms 

did not select a plan through SHOP because the plans were too expensive. 

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The small business health insurance tax credit was too narrowly 

designed to be an effective cost savings tool for small employers. 

The tax credit has now been available to qualifying small employers for 5 years and still, very few businesses have benefited. But 

more importantly, health insurance costs continue to increase, and 

small business owners continue to struggle with their ability to afford offering the benefit. 

I appreciate the opportunity to present NFIB’s views and data on 

the effects of the small businesses health insurance tax credit. I 

look forward to answering any questions you might have. 

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Good morning Chairman Huelskamp, Ranking Member Chu, and 

other Subcommittee members. Thank you for this opportunity to 

provide testimony before the Subcommittee on Economic Growth, 

Tax and Capital Access. 

I am Michael Ricco, Quality Manager for AEEC—a women- and 

minority-owned small business located in Reston, VA. Our President—Sangita Patil—wishes she could be here in person, but she 

had a conflict. AEEC is an award-winning professional services organization offering top-quality technology, environmental, and engineering solutions to US Federal Government and Fortune 50 customers since 1995. We support our customers’ requirements and 

offer a range of customized solutions with the highest degree of 

honesty, integrity, and service excellence. We offer solutions that 

are efficient, appropriate and worthy of the investment. Our company is also a member of the U.S. Women’s Chamber of Commerce. 

While I would like to testify today that my company has been 

able to benefit from the Small Business Health Care Tax Credit, 

that is unfortunately not the case because we are ineligible for the 

following reasons. First, we are ineligible because we have more 

than 25 employees. As this Subcommittee is well aware, there are 

many differing definitions of what a ‘‘small business’’ is—ranging 

from 50 to 100 to even 500 employees. The size standard for companies to use this health care tax credit is on the woefully low side 

and should be increased so that many more legitimate small businesses can take advantage of this tax credit. 

Second, we are an IT company and as such our employees tend 

to earn higher salaries than many other employees working in 

small businesses nationwide. Therefore, we do not qualify because 

our workers on average make more than the $50,000 cap as stated 

in the implementation language governing this credit. We question 

the fairness of this cap because, in essence, it punishes our company for paying our employees a higher wage. This limitation, in 

our view, should be removed from the eligibility requirements of 

this tax credit. 

Why do I say these changes could be made? Because AEEC 

would very much like to use this credit. Receiving a tax credit for 

up to 50 percent of our health care costs would certainly help us 

reduce costs. We all know and as pointed out in the GAO report, 

‘‘plans for small employers are likely to have higher premiums, less 

coverage and higher costs than plans for large employers.’’ Yet we, 

as a small business, want to do the right thing and provide health 

care coverage for our hard-working employees. AEEC has long provided health coverage to all of our employees and we go far beyond 

the minimum coverage now required by the Affordable Care Act. 

Our package would fall into the platinum or high-level gold range. 

So expanding the tax credit would go a long way to help us pay 

for these premium increases and cover our additional compliance 

and reporting requirements. 

Here is something else to consider. The expectations that wouldbe employees have for benefits coverage get higher with salary levels. For example, a cashier at McDonald’s is going to be thrilled 

with any health care coverage while a Senior Data Architect exSBREP-219A with DISTILLER

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pects a platinum health. So small businesses like ours are among 

the most in need for a tax credit. 

Finally I would like to stress that while the ACA very much 

helped very small businesses with subsidies and large businesses 

benefit from large pools that keep their costs down, it is the small 

businesses in middle—particularly those between 50-100 employees—that could benefit the most from this health care tax credit. 

Therefore, I would ask this Subcommittee to consider making 

changes to this credit so that more small businesses that are so 

critical to our nation’s economy can be better able financially to pay 

these health care costs. 

Two changes I already mentioned—increasing the eligibility 

threshold for number of employees that work at a small business 

and removing the wage barrier that excludes so many small businesses from eligibility. Two other reforms that we would recommend are increasing the credit so that it is more cost effective 

for small businesses to actually use it and to make it last longer 

than two consecutive tax years. 

Again, thank you for this opportunity to address this Subcommittee. AEEC is dedicated to providing our employees with the 

best health care coverage possible. Yet the fact remains that we are 

still a small business and these costs are quite high. We would 

urge this Subcommittee to put forth language that would make this 

important health care tax credit more accessible to the small businesses in our nation that I would like to point out, on average, account for over 60 percent of all net new jobs created in this country. 

I would be happy to answer any of your questions. 

Æ 

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