Friday, November 6, 2009

Small businesses brace for House health bill

national insurance

Many small business groups oppose the U.S. House’s 1,990-page health care reform bill, contending that it would raise insurance premiums for many firms and create disincentives for hiring new workers.

Some small business owners, however, support the legislation. They think the insurance market needs the bill’s reforms, such as barring insurance companies from denying coverage based on pre-existing conditions. They also think providing a government-run option in new health insurance exchanges would bring needed competition to the insurance market.

The coming vote on the House bill is the first step in the end game for reform. The Senate still must vote on its version, and then the two bills must be merged for a final vote by each chamber.

This process could take weeks, if not months, to play out, but the House bill provides a starting point for small businesses to determine whether the legislation would help or hurt them.

Here’s a look at some of the provisions that would have the most effect on small businesses:
Health insurance exchanges

The House bill would create a national insurance exchange where small businesses and individuals without coverage could shop for coverage. States could opt to offer their exchanges or create regional exchanges.

These exchanges would become operational in 2013. In the first year, businesses with as many as 25 employees could buy insurance through the exchanges. That would increase to 50 employees in 2014 and 100 employees in 2015.

A government-run plan, or public option, would be offered as an option in the exchange. This plan would negotiate the rates it pays to hospitals and other providers, instead of paying Medicare rates, which are less than the rates private insurers pay providers. The public plan’s costs would be covered by the premiums it charges.

By 2019, 30 million Americans would be covered through the exchanges, with 6 million opting for the public plan, according to Congressional Budget Office estimates.

The exchange will “promote transparency and new choices,” said Kelly Conklin, who owns Foley-Waite Associates, an architectural woodworking company in Bloomfield, N.J.

“It provides a competitive public health insurance plan that will give small businesses new leverage, drive down costs and inject new competition into the marketplace,” Conklin said.

Conklin serves on the national executive board of Main Street Alliance, a coalition of small business owners that supports the House bill.

The National Federation of Independent Business, which opposes the bill, supports allowing small businesses to pool their purchasing power for health insurance. It sees several big problems with the exchanges in the House bill, however.

Health plans that would be offered through the exchange would have to offer a minimum level of insurance benefits — including behavioral health treatments and durable medical equipment — that exceeds what’s now covered in many small business policies, said Michelle Dimarob, a House health care lobbyist for NFIB.

“It’s going to be more expensive that what small businesses typically are buying today,” Dimarob said.

All employers, even those not using the exchanges, would have to meet these minimum insurance standards by 2018.

Business groups also fear that the public plan would undermine private insurance.

A letter to House leaders signed by 10 other business groups that oppose the House bill, including the U.S. Chamber of Commerce, said the public plan “will not operate on a level playing field and compete fairly if the government acts as both a payer and a regulator.”

Even if the public plan initially pays negotiated rates to providers, “soon there would be tremendous pressure for the new public plan to pay below-market rates, just as we have seen in Medicare and Medicaid,” the letter states. This would shift costs to private insurers and employees who are covered by private plans, it said.
Employer mandate

The legislation requires employers with annual payrolls of at least $500,000 to provide health insurance to their employees or pay a payroll tax of as much as 8 percent.

Employers also could face this tax even if they offer insurance. If their coverage isn’t affordable to low-wage workers, these individuals could get government-subsidized coverage through the exchange, and the employer would be taxed to help pay for the coverage.

The bill requires employers to pick up 72.5 percent of the premium for individual coverage and 65 percent for family coverage. That’s a higher share than many small businesses pay now, Dimarob said.

The bill’s supporters say that 86 percent of small businesses would be exempt from the employer mandate. But many small businesses with as few as 15 employees would be subject to the mandate, NFIB Tax Counsel Bill Rys said. Even if they couldn’t afford coverage and were struggling to stay afloat, they still would face the payroll tax because that is based on their companies’ wages, not profits, he said.

“It’s a direct tax on jobs,” Rys said.

The CBO estimated that employers would pay $135 billion in penalties during 10 years as a result of the employer mandate.

Andrew Gross, managing partner of Radiation Technical Services and Sturdy Built Homes in New Orleans, said he doesn’t have a problem with the employer mandate. His businesses provide insurance to all of their 85 full-time employees.

“To me, it’s the morally right thing to do,” Gross said.

Competitors that don’t offer insurance to employees have an unfair advantage, said Gross, who traveled to Washington on Tuesday to lobby with other Main Street Alliance members for the House health care bill.

Some small businesses could qualify for tax credits that would cover as much as 50 percent of the cost of insurance. This credit, however, only lasts two years and is limited to companies with low-wage workers, Rys said.
Tax increases

To help pay for the bill, which would cost $1.05 trillion during 10 years, the legislation would impose a 5.4 percent tax surcharge on individuals with incomes of $500,000 or more (or $1 million for joint filers). This surcharge would raise an estimated $461 billion during 10 years.

Although only a tiny percentage of small business owners would have to pay this new tax, it could hit many of the nation’s most successful business owners — those most likely to create new jobs. Most small businesses are structured as S corporations, partnerships or sole proprietorships, in which company profits flow through to their owners and are taxed as individual income.

Combine this surcharge with a likely increase in individual income tax rates for high earners, and some small business owners could face tax rates around 45 percent —10 percent higher than the highest corporate tax rate.

“That’s a pretty big bite,” Rys said. “It’s less money that they’re going to have to operate the business.”

Gross, however, doesn’t think the surcharge would have too much of a damaging effect on a business if the owner already is able to take $500,000 from it.

Health care should be a shared responsibility, he said. In some years, the surcharge may apply to him.

“When it does, I’ll be very happy for it,” Gross said.