Majority of ARM firms May Qualify for Tax Credit in Health Reform Law

September marks some important milestones in health care reform for small businesses, and firms and employees in the accounts receivables management industry should take notice.

Starting this month, all insurance plans must pay for preventative care.  Insurance companies can also no longer cancel coverage to people who are sick or deny coverage to children with pre-existing conditions.

While covered employees may sleep better knowing this, the provisions undoubtedly have operating managers at small businesses questioning, as they do every year, whether they can afford to offer insurance.  But one important provision included in the new health reform law – the small business health care tax credit – may make it easier for more small firms to offer coverage.

The provision allows companies and small tax-exempt organizations with fewer than 25 full-time equivalent workers and an average salary of less than $50,000 to receive some portion of the tax credits, which begins with the 2010 tax year. Employers must pay at least 50 percent of employees’ health insurance premium, but that amount and any over that is eligible for the credit. Employers with fewer than 10 full-time equivalent employees qualify for the full tax credit – 35 percent – if the average employee salary is less than $25,000.

According to ACA International, the ARM industry’s leading trade group, the median employee count for member companies is 20, meaning half of its debt collection agencies have more than 20 employees and half have fewer than 20 employees.  And salary.com puts the median base salary for entry level collection representative at $26,870.

ARM firm Buckles & Buckles PLC of Birmingham, Mich. expects to be one of the beneficiaries of the new tax credit.  Partner Gerri Buckles said the debt collection law firm provides health insurance for its full-time employees and it hasn’t been easy, especially during the recession. But the firm continues to foot the entire premium costs for full time employees and their dependents because the partners believe that “if a person works full-time they shouldn’t have to worry about health care coverage,” Buckles said.  

Even though more than 70 percent of ARM firms produce less than $2 million annually in revenues, many offer health insurance to their employees.  At least 60 percent of the employees of small firms who participated in insideARM.com’s 2009 Best Places to Work in Collections award program said they were satisfied with the amount of healthcare costs paid for by their employers, suggesting most ARM employers are making meaningful contributions to employee health care costs.

Given the annual revenues of most ARM firms, their employee count and the IRS salary requirements, Mark Russell, director at ARM advisory firm Kaulkin Ginsberg, said it behooves the leaders at small debt collection firms to learn more about the tax credit. 

“I believe that the majority of companies in the ARM industry today would receive some portion of the benefit,” Russell said.

The tax credit is available through 2013 and increases to as much as 50 percent of the premium contribution in 2014. But employers have to purchase their insurance through a health insurance exchange to qualify in 2014 and the credit expires in 2016 when the government assumes small businesses will have transitioned to buying insurance through health insurance exchanges to receive better rates and coverage packages.  

The IRS has created a fact sheet to help small business owners determine if they are eligible.  Qualifying companies need only file IRS tax Form 8941 with their annual tax returns to take advantage of the credit.

Sara Collins, vice president of the Commonwealth Fund, said small companies pay 18 percent more than large firms for the same health coverage.  Most of the cost goes to administrative and brokers fees.  She said the tax credit could offset that expense and allow small employers to reinvest the savings into their business.

Any amount the firm can recoup from the tax credit would be welcomed, Buckles said. The firm borrowed from its reserve fund to help pay the $100,000 in premiums for its full-time employees this year and it would like to begin replenishing that fund.  The company also would consider plowing the money back into the business by investing in an upgraded phone system, she said.

“Even if it (tax credit) doesn’t benefit us directly, it will be a shot in the arm to our local economy, which always helps our business, as people are better able to pay their bills. So, I am happy about it either way, because it will help many more folks get health insurance,” Buckles said. “In a civilized country, paying medical bills should not be a constant worry for so many hard-working Americans.”