Health Care Reform Q&A With the VSCPA Insurance Center: Government Subsidies for Health Insurance Premiums

Question: I understand some small employers will receive a government subsidy for health insurance premiums. How will this work?

Answer: In 2010 the government will begin providing subsidies to employer provided health insurance for organizations with fewer than 25 FTEs and $50,000 in average earnings. The highest level of subsidy is intended for employers with less than 10 employees and average annual earnings per employee of $25,000 or below. The subsidy is as large as 35% of an employer’s cost of providing coverage (25% for tax exempt employers) and reduces as a function of FTEs and average annual salary until it reduces to $0 at levels of more than 25 FTEs with average annual earnings greater than $50,000 per year. The guidance, rules and subsidy calculation methodology can be found with the following link http://www.irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6.
The credit will remain at 35% for years 2010 through 2013 when the subsidy increases to 50% in 2014 (35 percent for tax-exempt employers). Beginning in tax year 2014 only employers who purchase insurance through the soon to be created exchanges will be eligible for the subsidy.

Health Care Reform Q&A is facilitated by the VSCPA Insurance Center. Have a question? Leave a comment, or contact the VSCPA Insurance Center directly.