WASHINGTON–Under the new health care reform law, 76 percent of small businesses in Connecticut are now eligible for tax credits to help pay for health insurance, a benefit that will greatly expand access to health care, according to a new report this week from Families USA, a Washington-based consumer health care advocacy group.

Not so, retorted a leading lobby group for small businesses. The National Federation of Independent Business (NFIB) said that figure is vastly inflated and the tax credit will be a pittance for most small firms.

Welcome to the battle over public opinion on the health care reform law.

This week’s salvos over the small business tax credits represent one skirmish in a broader public relations war over voters’ perceptions of the health care overhaul. The effort is gaining steam as politicians and interest groups anxiously try to gauge whether the measure will be a boost or a drag when voters go to the polls in November.

A Pew Research Center survey conducted earlier this month found that nearly half of respondents, 47 percent, disapproved of the health care law, while 35 percent approved. Democrats and their allies are trying to move that needle to a more positive point, while many Republicans, campaigning on a platform of health care repeal, hope to hammer home those negative views of the law.

In the middle of this week’s confusing conflict are entrepreneurs like Clodomiro Falcon, who owns a Stratford-based company La Guia Hispana, a yellow-pages style telephone directory in Spanish.

Falcon employs 14 people, but most of them are sales representatives working as independent contractors. After the economic downturn began to dent his company’s revenues two years ago, Falcon had to lay off one of his two full-time staff employees to cut costs, with insurance being a significant budget line. And his wife, the firm’s vice president and chief financial officer, had to get a second job so their family could get health insurance through another company.

Falcon now only has one full-time staff employee who gets health benefits–his office manager, who he says is his “right hand” and keeps things running smoothly.

“I need more people, but I don’t have the resources to hire them and pay their insurance,” Falcon said.

To be sure, one thing both sides of the health care debate agree on is that insurance costs are a crippling issue for small businesses.

“Most small businesses are operating on such a small margin,” said Jan Johnson, a financial planner who advises small businesses on health care and other issues from a two-person shop in Manchester. The costs of providing health care are “extremely high,” even for plans with big deductibles, she notes, and employers often say they simply cannot afford it.

The reasons are fairly simple. When it comes to insurance, small businesses don’t offer the same economies of scale that large companies do. Nor do they have the same kind of bargaining power to get affordable premiums. And if one of a firm’s five or six employees has a pre-existing condition, that’s a very small pool across which to spread the risk.

So it’s no wonder that small businesses pay, on average, 18 percent more for insurance than large firms do, said John Arensmeyer, head of the Small Business Majority, a California-based advocacy group. He said his organization’s surveys have found that 72 percent of small businesses offering health insurance say they are struggling to make the payments, and 86 percent of those that do not offer coverage cite cost as the reason.

“The hard evidence shows that small businesses are just getting killed by health care costs,” Arensmeyer said. “We hear this constantly and the problem is only getting worse.”

To address this problem, lawmakers drafting the health reform bill included new tax credits for small businesses. The tax breaks are available to firms with fewer than 25 employees and with average annual wages of under $50,000. Companies must pay at least 50 percent of its employees’ premium costs to claim the credit.

The tax benefit works on a sliding scale. Companies with 10 or fewer employees and average annual wages per employee of less than $25,000 get the most benefit–a 35 percent tax break. The percentage decreases for firms that have more employees or higher average salaries, or both.

Starting in 2014, some small businesses will be eligible for a 50 percent tax credit, but they can only take advantage of it for two additional years. After that, lawmakers concluded that other cost-containment provisions in the health care law would be in full force, and small businesses will not need this extra help.

In a teleconference this week, Arensmeyer and Ron Pollack, head of Families USA, the D.C. consumer health advocacy organization, said this new benefit could be the deciding factor encouraging entrepreneurs to either start or maintain offering health benefits to employees in the coming years.  According to a joint study by the two groups, the vast majority of small businesses in Connecticut-about 76 percent, or 44,000 firms-will be eligible for some credit under the new law.

“They will now receive financial help,” said Pollack. Nearly 13,000 of those firms could be eligible for the maximum tax break of 35 percent in 2010, the Families USA numbers show. Both groups strongly supported the health care reform bill, and said these tax credits are a first step toward making health care more affordable across the board.

The NFIB, which adamantly opposed the legislation, says those estimates are overblown and its own tally shows that only about 45 percent of small firms in Connecticut, about 30,000, could benefit. Bill Rys, the NFIB’s tax counsel, said that for many companies that don’t meet the lower 10-employee $25,000-salary threshold, the benefit will range from miniscule to zip. “When you apply both of those factors, it will mean no credit at all for some small businesses,” he said. And for others, “it will be so small it’s not going to be an incentive for them to go out and offer health insurance.”

The bottom line, according to the NFIB, which has joined a lawsuit seeking to overturn the law, is that these breaks are temporary and limited and the broader health reform measure will do little to address spiraling medical costs.

A spokesman for the Internal Revenue Service said the agency sent notices to more than 53,000 small businesses in Connecticut, notifying them that they might be eligible for the tax credit, but the agency did not have an estimate of how many of those firms would actually meet the criteria. The White House has cited national figures estimating that as many as 4 million small businesses would be eligible for the breaks, a total that mirrors the overall Families USA calculations.

Eric George, associate counsel for the Connecticut Business & Industry Association, said he was not sure how many small firms in the state would benefit, although he said he would be “pleasantly shocked, but shocked nonetheless” if it were as many as the Families USA report indicated. He pointed to an analysis done by the Congressional Budget Office last year estimating that the provision would affect only about 12 percent of people who get insurance in the small group market, lowering their insurance premiums by about 10 percent by 2016.

Still, George said, the credit will definitely make a difference for some firms as they struggle with health insurance costs, which is the number one concern for most businesses, large and small. In CBIA’s annual survey of its members, he said, three-quarters of respondents say they “are making hiring and firing decisions based on health care costs.”

That is certainly true for Falcon. Right now he pays more than $4,000 annually in premiums-50 percent of the total cost- for his one employee who gets insurance. He said he feels terrible that his wife is working another job to get insurance for his own family. And last year, he tried to hire a second full-time staffer, but could not meet the prospective employee’s request that he pay 80 percent of the premium costs.

For him, the new incentive would translate into about $300 in tax savings, according to online calculators on the websites of both the NFIB and Small Business Majority. Falcon said the “whole [health care] system needs be changed,” but until that happens, any little bit will help.

“Whatever credit I get will be better than nothing,” he said, “because the truth of the matter is for me to retain valuable employees, I need to provide health insurance.”

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