Health Reform Fit For Small Business

A bi-partisan group of senators introduced a health reform bill designed to meet the needs of small business called the Small Business Health Options Program (which they call SHOP—should really be SBHOP, but ok). Here’s the release.

Key points: 1) Lets small firms pool together across state lines to buy insurance. This would bring costs down and give groups of small firms similar purchasing power that big companies and unions now enjoy. Self-employed people can buy into same pools as small businesses.

2) Tax credits. Pay for 60% of coverage and get $1,000 tax credit per employee ($2,000 for family coverage) each year, more if you contribute more than 60%. That would be a welcome reward for companies that currently provide coverage, but I think costs will have to come down substantially for it to incentivize firms that don’t. The average single premium for small firms was $4,586 in 2008 — 60% of that is $2,752, so how many businesses will be swayed by a $1,000 tax credit?

Self-employed would get a $1,800 tax credit towards premiums, double for family coverage. Remember: This falls short of making premiums 100% deductable, which would save self-employed people the most (i.e., to write it off as a business expense and not have to pay 15.3% self-employment tax on income put toward premiums).

3) Stabilize premiums. SHOP purports to do this by stopping insurers from hiking premiums based on workers’ age and health status.

This morning we outlined what’s at stake for small business in health reform. It will be interesting to see how much of SHOP ends up in whatever comprehensive health reform bill that gets voted on. The real nitty gritty of this is supposed to begin in early June. SHOP is sponsored by Sens. Richard Durbin (D-Ill.), Olympia Snowe (R-Maine), and Blanche Lincoln (D-Ark.). It has the backing of (among others) the National Federation of Independent Business and the Service Employees International Union, groups that aren’t often on the same side of issues.

NFIB chief Dan Danner, from the release:

For so many small business owners the cost of healthcare is unsustainable. SHOP is a bipartisan bill that pursues uniform insurance market reforms greatly needed for our nation’s job creators. It explores new pooling options aimed at improving competition, creates new ways for small business owners to access affordable health care options and gives individuals the ability to choose their own plan. We commend these Senators for their continued leadership on this important issue. Enacting solutions specific to the diverse small business community is critical to advancing meaningful reform.

Here’s a quick email reaction from John Arensmeyer of Small Business Majority, which is on the other side of the spectrum from NFIB:

We endorsed this legislation last year, and we think its a very useful framework for designing a purchasing pool for small business as part of comprehensive healthcare reform. Our research shows that 75% of small business owners see cost as the biggest barrier to purchasing health insurance, and they overwhelmingly support pooling as a way to get affordable health coverage. This is critical, because small business pays 18% more for health insurance than big business. Moreover, unlike many small business pooling proposals, this bill includes the self-employed. This is essential, because the self-employed (26% of whom have no health insurance) pay an additional 15.3% payroll tax premium for their healthcare, and are dependent upon the individual health insurance market, where in most states people can be denied insurance for health reasons.

Broad agreement on purchasing pools. Nothing in my quick glance at this seems to contradict what President Obama has been pushing for, but it does leave some big questions unaddressed: How will costs be reduced? Will there be any mandates on individuals to get coverage? (Clearly no employer mandates in this proposal.) And how small do businesses need to be to qualify for tax credits — do they go to all businesses? (If so, that would be a huge tax break for big companies that for the most part already offer coverage — potentially $1,000 or $2,000+ per employee for what they’re mostly already doing.)

I hope to get into this more later this week. If anyone has insights into this bill, other proposals, or what’s being left out — leave ‘em in comments.

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