Health-Care Debate: Issues for Small Business

Cost tops the list of concerns for small business owners as Congress prepares to debate health-care reform legislation

With Congress set to begin debating health-care reform in earnest next month, expect to see the trials of small companies once again take center stage. The 16.8 million uninsured workers at firms with fewer than 100 employees make up 63% of all workers without coverage, even though such companies employ just 41% of the labor force, according to the Employee Benefit Research Institute. The share of small companies offering health benefits dropped from 68% in 2000 to 62% in 2008 as the average price of premiums more than doubled, according to research from the Kaiser Family Foundation. Those small companies that do offer health insurance pay more than large companies do for equivalent plans. Comprehensive health-care reform could lower costs for small businesses, make their benefits more competitive with those of big companies, and improve the health of their workforce.

President Barack Obama says he wants to enact a plan to lower health-care costs and expand coverage before the end of the year. Whether small businesses see much improvement from health-care reform will depend not only on the ability of legislation to cut costs and insure more people, but on the balance it strikes between the competing interests of employers, insurers, doctors, and hospitals. Here's a look at the big issues at stake for small businesses in the coming health-care debate.

1. How much will it cost?

Three-quarters of small businesses that didn't offer health benefits cited cost as the reason, according to polls last year by Small Business Majority, a health-care research and advocacy group. Obama has emphasized that he thinks the cost of insurance can be cut by tying payments to medical results rather than the number of procedures performed, improving health information technology, and encouraging preventive care and wellness. Lowering health-care premiums—or at least stabilizing them—could mean real savings for small businesses, and most agree that expanding coverage depends on controlling costs. Any plan to expand coverage without first containing costs would fail to address the biggest concern for small employers, says Michelle Dimarob, manager of legislative affairs for the National Federation of Independent Business.

2. Who will have to buy it?

Plans to expand coverage could require individuals to buy insurance, mandate that companies offer it, or both. Some, including Small Business Majority, suggest small business owners won't oppose an employer mandate if costs do indeed come down. But the NFIB calls the idea a nonstarter, and the group's stand against employer mandates helped derail President Bill Clinton's 1994 health reform effort. Instead, the group says that increasing affordability will bring more people into the market for private insurance without the burden of a mandate.

The stands of small business advocates are less clear when it comes to requiring individuals to buy health insurance—the NFIB hasn't taken a position on it, but other groups favor an individual mandate. Such a plan, with subsidies for low-income people, would in theory lower costs by getting more healthy people to pay into the system and giving those who are currently uninsured some access to basic care before they develop dire illnesses. "We don't think we can fix the small business problems in the insurance market short of getting everyone into the system," says Todd McCracken, president of the National Small Business Assn.

3. How big is a "small" business?

During the Presidential campaign, Obama broadly outlined a plan to require companies above a certain size to provide coverage. What such a mandate would mean for small businesses depends on how the law defines "small." (Massachusetts' reform requires firms with 11 or more employees to offer coverage.) "You can't just say to all businesses, 'You've got to buy into the system,' and not take into account different levels of revenue," says John Arensmeyer, a former technology entrepreneur and founder of Small Business Majority. There are signs that any legislation will treat small and large companies differently. The NSBA's McCracken says any requirements should be phased in gradually as businesses increase in size rather take effect suddenly when a company hits a certain threshold.

4. What kind of help will small businesses get?

Controlling health-care costs won't happen overnight. If the reform expands coverage via individual or employer mandates, the government will likely offer some kind of assistance. That could take the form of subsidies to low-income people to help pay for employer-based insurance, or tax credits or other assistance for employers providing coverage. McCracken says it makes more sense to subsidize individuals, because the government can better evaluate who needs help. Another option would be to make health premiums fully deductible for those who are self-employed. Currently, self-employed people pay a 15.3% tax on income spent on health insurance, while larger businesses and employees pay no tax on that income.

Settling these questions and the other intricacies of health reform won't be easy, but advocates say they're more willing to compromise to pass reform than they were during the fight over the Clinton health plan 15 years ago. That's partly because health-care costs are rising so quickly that many see the current system as unsustainable. "In 1993, 1994 it was really enough to say no" to an unfavorable plan, says the NFIB's Dimarob. "Today the status quo is not acceptable."