[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]









   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

                               __________
                               
                               
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                             
                               
                   
                   
                   
                   

            Small Business Committee Document Number 114-051
              Available via the GPO Website: www.fdsys.gov
              
              
                                     ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

99-544                         WASHINGTON : 2016 
-----------------------------------------------------------------------
  For sale by the Superintendent of Documents, U.S. Government Publishing 
  Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
         DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001            
              
              
              
              
              
              
              
              
              
                   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 VELAZQUEZ, 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
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Tim Huelskamp...............................................     1
Hon. Judy Chu....................................................     2

                               WITNESSES

Mr. James R. McTigue, Jr., Director, Strategic Issues, United 
  States Government Accountability Office, Washington, DC........     3
Mr. Harold Jackson, Executive Chairman, Buffalo Supply, Inc., 
  Lafayette, CO, testifying on behalf of the U.S. Chamber of 
  Commerce.......................................................     5
Ms. Holly Wade, Director, Research & Policy Analysis, NFIB 
  Research Foundation, Washington, DC............................     6
Mr. Michael Ricco, Quality Manager, AEEC, LLC, Reston, VA, 
  testifying on behalf of the U.S. Women's Chamber of Commerce...     8

                                APPENDIX

Prepared Statements:
    Mr. James R. McTigue, Jr., Director, Strategic Issues, United 
      States Government Accountability Office, Washington, DC....    17
    Mr. Harold Jackson, Executive Chairman, Buffalo Supply, Inc., 
      Lafayette, CO, testifying on behalf of the U.S. Chamber of 
      Commerce...................................................    38
    Ms. Holly Wade, Director, Research & Policy Analysis, NFIB 
      Research Foundation, Washington, DC........................    46
    Mr. Michael Ricco, Quality Manager, AEEC, LLC, Reston, VA, 
      testifying on behalf of the U.S. Women's Chamber of 
      Commerce...................................................    50
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.
 
   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.
    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 employer-sponsored 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 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 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.
    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 family-owned 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.
    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.
    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 claiming 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 
Economic Growth, Tax, and Capital Access. My name is Michael 
Ricco. I am the quality manager for AEEC, a women and minority-
owned 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 
would-be 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 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 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.
    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 having 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 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 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 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.]
    
    
    
                            A P P E N D I X


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





    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.
                              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 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 
part-time 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 however 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 DC-based 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 Sub-Council); 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.

    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 
on-line 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 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 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.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    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.
---------------------------------------------------------------------------
    \1\ Wade, Holly, Small Business Problems and Priorities, NFIB 
Research Foundation, August 2012.

    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\
---------------------------------------------------------------------------
    \2\ Source: Agency for Healthcare Research and Quality, Center for 
Financing, Access and Cost Trends. 2008-2014 Medical Expenditure Panel 
Survey-Insurance Component.

    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\
---------------------------------------------------------------------------
    \3\ Fact 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.
    \4\ The IRS mailed 4.4 million postcards to small business owners 
informing them of the tax credit.

    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.
---------------------------------------------------------------------------
    \5\ Source: Agency for Healthcare Research and Quality, Center for 
Financing, Access and Cost Trends. 2008-2014 Medical Expenditure Panel 
Survey-Insurance Component.

    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.
---------------------------------------------------------------------------
    \6\ Dennis, 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-study-2014.pdf.

    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 non-offering 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.

    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.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    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 
would-be 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 expects 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.

                                 [all]