CHICAGO -- For decades, Garry Apelian has seen his annual health care costs go up at his family's carpet and flooring business in Evanston, Ill.
That trend is about to change under the newly implemented federal health care law.
Starting this year, Apelian Carpets and Orientals will be among millions of small businesses across the country eligible for a tax credit of up to 35 percent of the cost of plans. When he files his taxes next year, the credit should mitigate the impact of his premiums.
"Over the last 20 years, we've seen premiums rise 15 to 20 percent a year, and it's been a huge problem," said Apelian, treasurer of the business, which has six full-time employees.
The high cost of insurance has prevented Apelian from adding workers even when business is good. The financial burden has carried over to the store's benefits policy: Apelian said he can afford to offer health coverage only after workers have completed a year of employment.
"This tax credit will take the strain off the total cost," Apelian said. "We are going to be able to offer (health insurance) to more of our employees, and that is the key. A lot of companies will not even offer coverage anymore."
To deal with soaring health costs, many small businesses have had to switch insurance carriers, push more of the financial burden on to workers, or reduce, if not eliminate, coverage.
About 12 percent of nearly 500 small businesses polled in a dozen states dropped coverage for their workers in 2008 and 2009, according to a report by the Illinois Main Street Alliance. In addition, 35 percent reported switching within the past two years to insurance that covers fewer services.
The smallest businesses, those with fewer than 25 workers who have wages of less than $50,000 a year, will benefit the most from the tax credit because they tend to have the highest premium costs. Although most of the benefits under the health overhaul law, which is intended to expand health insurance to 32 million Americans, don't kick in for another four years, certain aspects of the law, including the tax credit for small businesses, take effect with the 2010 tax year.
Last year, only 46 percent of employers with three to nine workers offered health insurance coverage to their employees, according to a report from consumer groups Families USA and Small Business Majority. The number of employers offering coverage to their workers rose to 72 percent for small businesses with 10 to 24 employees, while more than 95 percent of small businesses with 50 or more workers offered coverage to their employees.
The tax credit aims to level the playing field by helping small businesses, which tend to lack the purchasing power of larger employers, maintain coverage by pooling risk.
On average, small businesses pay about 18 percent more than large firms for the same health insurance policy, according to federal government website HealthCare.gov.
"This tax credit is really for companies on the cusp of dropping coverage for their workers," said Kathleen Stoll, deputy executive director for Families USA, which has long advocated to expand coverage to the uninsured.
Apelian Carpets is hoping to be able to use the tax credit to offer benefits to a warehouse worker before the one-year mark and hire additional workers and offer them benefits, Apelian said. That, analysts say, could help spur the economic recovery.
"If you don't offer it, you are going to lose people," Apelian said. "And we have lost good workers over the years."
To qualify, employers must provide "at least 50 percent of the cost of health care coverage for some of its workers based on the single rate," according to HealthCare.gov.
The value of the tax credit varies, and not all firms will get the full 35 percent. A nonprofit business, for example, can claim up to 25 percent of the costs for their employees' coverage.