Health Insurance in Small Firms: Availability, Coverage, and the Effect of Tax Incentives

Release Date: 
Friday, September 2, 2011 - 4:00am
Release Number: 
11-26 ADV
Patrick Morris


Washington, D.C. – A new study by the Office of Advocacy investigates health care coverage provided by small firms and the effects of state and federal tax incentives on health insurance availability. States have tried a variety of approaches to improve health plan coverage, particularly health insurance offered by small businesses. The study finds that most existing state tax incentive programs apply to a narrow class of employers. The increase in the federal self-employed health insurance tax deduction in 2003 did create an incentive for some self-employed individuals to purchase health insurance. In 2007, it was estimated that small employers deducted approximately $53.8 billion for health insurance benefits.


 “I hear from small businesses every day about the challenges of providing affordable health care coverage for their employees,” said Chief Counsel for Advocacy Winslow Sargeant. “As someone who has started and run a company, I know firsthand the difficulties that health care costs place on a small business. This research will provide valuable information for policymakers as they work on reducing the burden of health care costs on small business.”


The study by Quantria Strategies,Health Insurance in the Small Business Market: Availability, Coverage, and the Effect of Tax Incentives, shows that while the federal tax exclusion for employer-sponsored health insurance delivers sizable benefits to lower income taxpayers, the self-employed deduction distributes the tax benefits more evenly across income levels. The authors also estimate that 65 percent, or about 2.6 million of the 4 million eligible firms, would receive a benefit from the small business health insurance tax credit in the Patient Protection and Affordable Care Act. Because the tax credit is nonrefundable, some employers will not be able to take full advantage of it.


According to state data, the percentage of businesses that offer health insurance varies significantly by firm size and state. For example, in 2009, the health insurance offer rate was more than 50 percent for businesses with fewer than 10 workers in Hawaii, New Jersey, and the District of Columbia, compared with between 20 and 29 percent in six other states. The study also shows that by 2009, ten states and the District of Columbia had adopted state tax incentives to offer health insurance to their employees. Click here to view the full report and research summary.


The Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government.  The presidentially appointed Chief Counsel for Advocacy advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policymakers. Regional advocates and an office in Washington, D.C., support the Chief Counsel’s efforts. For more information, visit, or call (202) 205-6533.                   


Related State: