The Senate Health Bill: Bad for Small Business
Posted November 19th, 2009 at 4:19pm in Health Care 
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The Reid health bill (H.R. 3590) leaves small businesses, and particularly small business owners, largely out of the picture. Small businesses, and particularly small businesses that currently do not offer health insurance coverage, will not get much break from this bill. Reid’s bill outlines a “small business tax credit”, which only lasts for two years and largely excludes small business owners, small businesses with high-average payrolls, and firms with 25 or more workers. After all exclusions, essentially the only eligible firms are those firms with 10 or fewer workers as well as those with low-income workers—the least likely to offer coverage even with a significant price reduction.
Reid’s bill, even with these “cost-reducing” tax credits, will not address the many uncertainties small businesses face in deciding whether to offer health insurance coverage to its workers. Small businesses—and particularly small business owners—most often find it difficult to predict year-to-year profits as well as health insurance costs. This is compounded for many small businesses with the fear of having to withdraw coverage in future years. Moreover, most small businesses will not find it worthwhile to begin offering even with the credits. In 2007, only 2.5 percent of total small employers in Maine actually purchased health insurance coverage through the “public option” offered through the state health insurance exchange, even with full knowledge of the program and its “benefits”.
In addition, small businesses, particularly the smallest companies, do not have the capacity to take on the administrative complexities of managing health insurance—a legitimate concern especially for a firm with 10 or fewer workers that would otherwise have to hire an additional worker just to handle the burdensome administrative functions of handling the health insurance plans.
Last, small companies, especially those with 10 or fewer workers, do not need to offer health insurance as a benefit for employment. These companies have little overall incentive to provide costly health insurance coverage as their labor force mix tends to weigh heavily on low-wage, low-skilled workers—along with a relatively high-degree turnover among workers since a lot are temporary or part-time workers. To the extent that any small company relies on seasonal workers in particular the tax credits will remain unhelpful (Sec. 1421(d)(5)(A)and(B)).
While Reid’s bill attempts to respond to legitimate concerns for small businesses—and small business owners—the impact is highly uncertain and provisions such as the “small business tax credits” will likely remain ineffective at helping small businesses. The exclusion of “non-elective contributions”, or contributions of an employer relating to a salary reduction, will make it even more difficult for small businesses to absorb the additional cost of offering coverage to workers—especially if it cannot pass the burden along to workers without the fear of facing penalties (Sec. 1421(e)(3)). Thus, if health insurance costs continue to increase, as many expect will happen, then these changes will remain deleterious for small employers wanting to offer coverage to workers as well as those that continue to offer coverage.
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5 Responses to “The Senate Health Bill: Bad for Small Business”
Pat Conroy, Austin, Texas on November 19th, 2009 at 4:19pm said:
In addition, the way I read the bill, there will be a great incentive to hire employees who do not have families.
Also, if both the employee and the spouse are both employed (by different companies) which company is required to pay the family insurance premium. I didn’t see anything in the bill that addresses this. If it is split 50/50 between the two companies, can you imagine the administrative nightmare of one company having to reimburse the other company? And if one spouse is earning $100K per year and the other spouse is earning $30K per year — how is that handled.
I’m afraid our erstwhile legislators have no idea what they are doing.
Michele, Connecticut on November 19th, 2009 at 4:19pm said:
Unfortunately health care coverage legislation remains “top down” at a time the greatest gap between the “haves” and the “have nots” is the greatest. Fundamentally the template of employer provided health care is applicable to big business but not to small business. Additionally unfunded mandates upon big business can be absorbed in the public sector (therefore easily passed on to consumers)and played out in the stock market. When projected upon small business mandates impact the private sector and shallow pockets. Small businesses have no resources to recover; when small businesses need money it is expected they are to look to themselves and personal assets. Additionally insurance premiums remain higher with employer provided health care. Mandates secure only the insurance industry, no security of coverage exists for Americans. It is harmful to small businesses to expect them to respond like big business. Small business is not part of the public sector economy and legislators know all too little about the private sector economy.
ruth, california on November 19th, 2009 at 4:19pm said:
Why don’t we address the elephant in the room – the fact that attorneys and liberal judges have bent over backward to allow greed to prevail in lawsuits instead of rewarding the few people who understand that personal responsibility is the right choice. Our country’s health care costs have risen to their current high in large part because of the costs of the results of lawsuits based on greed instead of need. This is where we need reform – not new mandates that will only increase the financial crisis. The people need to demand that judges and juries make decisions by applying common sense to the facts at hand instead of rewarding people who want someone else to be responsible for them and in some cases, their foolish choices. Then our health care costs can become representative of the real costs and balance will again prevail without government interference.
ANNETTE-NORTH DAKOTA on November 19th, 2009 at 4:19pm said:
What has happened to our Constitutional Rights? Why have you people (with no ears) gone off the deep end with this healthcare scam!!
For decades the law has forced employers to increase minimum wages. We respect and care about our employees and resent the assumption that we are not taking the best care of them that we can afford to – including health care. Now, it’s come down to a penalization situation if we are paying too much! I believe you folks had better get your heads on straight. You are ruining our country!
East Greenbush, NY on November 19th, 2009 at 4:19pm said:
I find that that health insurance/care bill is a big dark cloud that I, as a small business owner, can not see through. I read some, but there are too many curveballs, too many exceptions, and too many pages. No one has been able to tell me about the impact on my business because the bill seems to be a moving target. What if my employee is covered by their spouse’s plan? What if their spouse is a public employee, or a private employee? What if I have an employee who will not participate, I have one now? What if the insured spouse becomes out of work? Too many questions not answered.