Major insurers around the country are reporting that a growing number of small businesses are signing up to give their workers health benefits, a sign of potential progress for the nation's battered health care system.
The increase, although not universal, has brought new security to thousands of workers, many of whom did not have insurance or were at risk of losing it.
An important selling point has been a tax credit that the nation's new health care law provides to companies with fewer than 25 employees and moderate-to-low pay scales to help offset the cost of providing benefits. The tax break is one of the few provisions to kick in early; much of the law rolls out over the next few years.
"We certainly did not expect to see this in this economy," said Gary Claxton, who oversees an annual survey of employer health plans for the nonprofit Kaiser Family Foundation. "It's surprising."
For insurers, the market presents a big opportunity. Nationally, three-quarters of businesses with 10 to 24 workers offer benefits. About half of those with nine or fewer employees provide a health plan. By comparison, 99 percent of firms with more than 200 employees offer benefits.
Now some insurers are reporting significant jumps in coverage. In Western New York, Buffalo-based HealthNow New York, parent of BlueCross BlueShield of Western New York, said it's seeing the best retention rates "in recent history" for employer groups with 25 employees or fewer, better than in either of the past two years, said Bridget McIntee Franz, vice president of the general business unit, which includes those small groups.
The fourth quarter of last year was also "fantastic" for her division, and the company started 2011 "in a solid position with membership." Overall, HealthNow's small-group membership -- employers with 50 or fewer workers -- rose 5 percent from last year.
And while officials can't track for certain how much of it is due to the tax credit, Franz thinks it is tied in. Last June, the company made more than 4,000 outreach calls and visits through brokers and directly to employers who would qualify for tax credits, seeking to help them understand how they could benefit.
Independent Health Association is also "seeing a handful of new small groups joining as a result of the tax credit, but it's hard to put a definite number around that," said spokesman Frank Sava.
He said the Williamsville-based health insurer did an educational mailing about the credit to all of its small groups last year, "as part of our efforts to keep our groups informed" about the legislation. The company also sent information to prospective groups, and "we did get some inquiries from prospects who ended up joining as a result."
Nationwide, in the six months after the law was signed in March, UnitedHealth Group Inc., the country's largest insurer, added 75,000 new customers who work for companies with fewer than 50 employees. The Minnesota company called the increase notable but declined to reveal further details.
Coventry Health Care Inc., an insurer in Maryland that focuses on small businesses, signed contracts to cover 115,000 new workers in the first nine months of this year, an 8 percent jump.
In California, Warner Pacific Insurance Services, a major servicer of insurance brokers, has seen business grow more than 10 percent this year, a company executive said.
And Blue Cross Blue Shield of Kansas City, the largest insurer in the Kansas City, Mo., area, is reporting a 58 percent jump in the number of small businesses buying insurance since April, the first full month after the legislation was signed into law.
The independent, nonprofit insurer has been particularly aggressive in marketing the new tax credit, which can mean a discount of as much as 35 percent for very small companies with low payrolls.
"One of the biggest problems in the small-group market is affordability," said Ron Rowe, who oversees small-group sales for the insurer. "We looked at the tax credit and said, 'This is perfect.' "
Rowe said that 38 percent of the businesses it is signing up had not offered health benefits before.
It's unclear how many businesses around the country are taking advantage of the new tax breaks. National statistics will not be available until next year, after 2010 tax returns are analyzed.
Many small businesses don't qualify for the tax break, which is available to employers that have fewer than 25 full-time positions and pay an average salary of less than $50,000 a year. The employers must also pay for at least half of the cost of single coverage to qualify.
And only those with fewer than 10 employees and an average salary of less than $25,000 a year can claim the full 35 percent credit. Employers with more employees and higher salaries can get a smaller credit.
Finally, the credit isn't permanent, but expires by 2016.
"I'm not sure the credit is big enough to convince anyone to buy insurance that hasn't already," said Russ Childers, an insurance broker in southern Georgia. Childers said he expected about 10 percent of the firms he works with to qualify for some tax break.
For many businesses, even the tax break may not make insurance affordable at a time when the average premium for an individual health plan is more than $5,000 a year and many insurers are hitting businesses with double-digit rate hikes.
That has prompted some critics of the health insurance overhaul, including the conservative National Federation of Independent Business, to dismiss the tax credit.
Nationwide, the Kaiser survey found that 59 percent of firms with fewer than 10 employees offered health benefits, up from 46 percent last year.
News Business Reporter Jonathan D. Epstein contributed to this report.