One of the less controversial parts of the Affordable Care Act was a tax credit to small businesses that provide health care coverage for their workers. Essentially this is a pass-through to the workers themselves, reducing the costs of insurance coverage relative to what they would find on the open market, at least in the short term. Today, the White House offered the credit to four million small businesses across the country.

Not all of the firms will be eligible for the credits immediately, because not all of them currently offer insurance, Assistant Treasury Secretary Michael Mundaca said on a conference call with reporters. But all were sent government postcards alerting them to the availability of the credit — which covers up to 35 percent of their health-care costs — in hopes of spurring more to offer coverage, Mundaca said.

On Monday, the Internal Revenue Service also issued a series of rules clarifying eligibility for the credit, which is available to businesses with fewer than 25 employees and paying an average salary of less than $50,000 a year. The value of the credit phases out as the number of workers and their salaries rise, with the full 35 percent credit available only to businesses with fewer than 10 full-time workers paying an average salary of $20,000.

The IRS said the value of the credit would not be reduced by state health-care tax credits, which exist in as many as 20 states, according to a list compiled by the National Conference of State Legislatures. Businesses will also be permitted to apply the credit to vision, dental and other such coverage, so long as they pay at least 50 percent of their workers’ premiums.

Given the above stats, there’s really no such thing as a 35% credit. But White House officials hope that some inducement will be enough to get small businesses to purchase insurance. The fact that state and federal tax credits for purchasing insurance can be combined, and that the credit can be taken for vision and dental, ought to help as well. And, the credit increases up to 50% by 2014, when the exchanges kick in. The credit for 2010 can be used immediately.

Currently under the law, small businesses would not have to provide the same level of coverage to every employee, but that change would filter in over time. The White House estimates the cost of the tax credits at $40 billion over 10 years.

It goes without saying that you wouldn’t need such inducements for employers to provide health care if the market were functioning. But as this basically flows directly from government to employees in the form of available coverage, I’m not complaining.

David Dayen

David Dayen