The Positive Effects of Health Care Reform on Small Businesses

Health care benefits for employees have been around for decades and have become a part of an overall compensation, wage and benefit package to attract qualified and skilled workers to businesses, small and large. Mike Langan, principal of the employer benefit consulting group Towers Perrin says that most companies "see a connection between workplace productivity and health benefits". Especially in periods of low unemployment these benefits can be the difference for many companies to attract and keep employees with the talent they need to compete.

The current legislation being pushed by Democrats in Congress will actually make small businesses more competitive with their large business counterparts. As it stands now fewer small businesses are able to provide health care benefits for employees than are larger businesses with 200 or more workers, according to a new report out by the White House's Council of Economic Advisers (CEA). The report also points out that what health insurance policies small businesses are able to provide for their employees, costs are higher than large company policies due to what the CEA refers to as "high broker fees, fixed administrative costs, and adverse selection." These higher costs, as much as 18% higher than bigger businesses, are often passed on to employees in the form of lower wages or end up diminishing company profits that could be used for research & development or other growth investments.

Under the new health care reform legislation small business will gain an edge on their larger counterpart in several ways.

- Based on certain criteria, most small businesses would be able to select policies for their employees from more competitive "insurance exchanges" where they could find a plan that would better meet the needs of their employee base at lower costs

- If their employees wages fall below a certain threshold, many small businesses would earn tax credits to not only encourage providing coverage as a benefit but help keep costs down on what benefits many companies currently offer employees.

- Businesses with fewer than 25 employees would be exempt from current reform options with the pay-or-play provisions - laws penalizing companies that don't provide health care coverage with a maximum fee of $750.00 per employee.

- People who work at companies small enough to be exempt from pay-or-play and whose employers are still unable to provide health coverage benefits would now have access to insurance exchanges where they could shop for their health care plan at prices more reasonable than what the current market offers.

- These health reform cost cutting measures that reduce small businesses costs could more readily spur new entrepreneurs to open their own businesses. According to the CEA report "[f]irms with fewer than 20 employees accounted for ... nearly 25 percent of net employment growth from 1992 to 2005...
The notion that small businesses are diametrically opposed to health care reform is dismissed by people like NFIB's (National Federation of Independent Businesses) legislative policy manager, Michelle Dimarob. A CNN Money report calls the NFIB "the nation's largest and most influential small business group." (Neil DeMause, contributing writer July 7, 2009). What small businesses do want, said Dimarob, is what the health care reform bill delivers on - "universal coverage and ... increas[ed] competition among private insurers, likely through the creation of government-mediated insurance pools" - not a public option style, government run plan.

This sentiment is different from other small business owners. Sam Blair, the director for the Main Street Alliance says "[s]mall business are in a position now where, frankly, they don't trust the insurance companies to be able to deliver quality, affordable health care." A poll of the Alliance's twelve state, 1200 membership found that 59% of them actually favored a government option style plan.

There also exists the concern among small businesses that an excise tax on high-cost employer-sponsored plans will negatively impact them. These plans have been referred to as "Cadillac Plans" and are popular with union members and upper management employees. In his article for CSMonitor.com, "Obama healthcare reform won't crush small business", writer Howard Gleckman points out the 40% tax on such plans "would only be for [those] in excess of $10,200 for individual coverage and $27,500 for families." The tax wouldn't take effect until 2018 but few employers would have little to be concerned about. Gleckman notes that "the average cost of a family plan last year was $13,375. Other research estimates that small firms pay, on average, about 20 percent more, so their typical cost is about $16,000-far below the $27,500 threshold for taxable plans."

The bottom line for all small businesses is that more choice is needed to contain and even reduce the cost of health care. As rates increase more of these costs are passed onto employees or health care coverage is removed altogether. With fewer incentives to keep health care coverage for their employees, that could result in fewer people in the private insurance pool. That would have a negative impact on the rest of the country by raising premiums across the board. Clearly health care reform would benefit small businesses and the American public by keeping people employed and creating future jobs.

RESOURCES:

White House's Council of Economic Advisers

CNN Money.com - Small Business

CSMonitor - Obama healthcare reform won't crush small business. It will help.