Small Business

HEALTH REFORM: A Small Businessman Who Can't Wait For Health Reform

Health Policy — Fri, 02 Oct 2009 14:15:00 -0400

A recent statement from the Senate Finance committee outlined how small business health insurance exchanges, tax credits, and grants for workplace wellness as part of health reform would all make quality coverage more available and affordable for small businesses. In this guest post, San Diego small business owner Vince Mudd explains why he -- and the workers he insures -- can't wait. Mudd is CEO of San Diego Office Interiors, a design-build interiors company and the president of International Realty and Development.

Through his involvement in the regional Chamber of Commerce, the San Diego Regional Economic Development Corporation, Campanile Foundation at San Diego State University, and State Compensation Insurance Fund, he has worked to ensure that health related issues -- and their impacts on small business -- are understood by policy makers, business people and the public.

Many politicians and pundits claim that efforts to reform our health system are moving too quickly. Yet for millions of small business owners like me, health reform cannot happen soon enough.

For 15 years, I have not only provided access to health insurance for my 45 employees and their family members, but also paid 100 percent of their premiums. I do this because I believe that when employees do not have to spend time dealing with the "problem" of health insurance, they are more productive. My employees live healthier lives. This benefits them, their families, and ultimately my business and society.

Despite these mutual gains, providing health insurance to my employees is simply unsustainable. Last year my small business premiums skyrocketed 18 percent. I wish this were surprising. But the truth is my premiums have risen significantly every one of the 15 years I have been buying coverage for my workers. Unfortunately, my health-care-related stress does not end there. Every year I pay tens of thousands of dollars in medical riders on other business-related policies, like liability and property insurance, adding even more to my health care costs. I want to focus on my business, not health care. The status quo makes this impossible.

Unlike other aspects of my business, I am powerless in the face rising health care costs. I have limited options, none satisfactory. I can stop paying my employees' premiums, cut back on the generosity of the benefits I offer, or change insurance companies every year in search of a "better deal." (To be clear, there is no such thing as a "better deal" in the world of small business health insurance.) These choices feel forced and out of balance, especially as we try to grow our economy in these tumultuous times. No business owner should have to choose between a healthy workforce and a successful business. No American should have to choose between a job they love and their health.

Reforms that will relieve me and my colleagues from the stranglehold of an unworkable small business insurance market and rising health care costs are within reach. Proposals in Congress would prevent insurers from charging me more if one of my workers gets sick and would allow me to easily compare and purchase insurance online without limiting myself to the choices offered by my local broker. Most importantly, health reform will provide small business owners with something that is often elusive today -- a choice of quality insurance products. Increased choice and competition are two reasons I think that an alternative to private insurance -- like a public health insurance option -- could be helpful to small business owners. Given the opportunity, I do not know if I would choose to enroll in either a public health insurance option or co-op. I do know, however, that I would like that choice. Finally, health care reform will begin to slow the rate of system-wide health care cost growth, bringing health care cost increases closer to changes in economy-wide productivity, making health insurance more affordable over time.

Detractors say it is impossible to provide health insurance to every American without costing the system even more than it spends to date. This is not an accurate statement. The fact is that every person paying for health insurance is already, in effect, "paying for" the erratic and dysfunctional care being received by the non-payers. There is so much waste and duplication in the existing system. Reform will address it.

I also believe that as health reform goes into effect, we will see savings in our auto insurance (check your care insurance policy and premium statement, you are probably paying five to seven percent of your premium value for "medical.") We'll also see savings on other insurance products that have a medical component -- boat, RV, home owners, professional liability, general liability and others.

Health reform will bring about improvements that will allow me to continue to provide insurance to my workers and grow my business. Small business owners do not want a free ride. We want to share in the responsibility for a healthy workforce and a prosperous economy. But we need help. Act now. We have waited long enough.

HEALTH REFORM: Sebelius Says Americans Want Peace of Mind

Meredith Hughes — Tue, 04 Aug 2009 17:20:00 -0400

In a The Washington Post op-ed today, Health and Human Services Secretary Kathleen Sebelius reminded us why we're talking about health reform in the first place -- because Americans want peace of mind.

Health care is not supposed to be a guessing game. Americans who have coverage should not have to wonder -- am I going to be dropped from my plan if I get sick? What happens if I lose my job? No one should be one illness away from bankruptcy. No one should have to choose between food and shelter and medicine for themselves or their children.

The HHS Secretary says that in the current system, health insurance companies have all the power. They can deny coverage for pre-existing conditions, cherry-pick who gets covered, offer bare bones coverage plans, or charge sky-high premiums. For Sebelius, peace of mind means putting power and choice back in the hands of consumers. In a system that promotes health care coverage choice, "insurance companies... will know that if they don't deliver a great value, their customers will flee."

Sebelius mentions a phenomenon we've written about before. Graduating from college is a great moment, but it's also a scary one. She writes how proud she was of her two sons when they graduated, but at the same time, she was worried that they lost their health care coverage. Peace of mind means graduates don't have to worry about getting sick in the time it takes for them to find their first job.

Sebelius also talks about health reform as an engine for economic growth. Small businesses are an incredible source of job growth and innovation. Sebelius asks -- how many potential entrepreneurs are out there right now, dreaming of ideas for new businesses, but are stuck because of our current health care system? Some might be afraid to leave their current employers. With health care costs constantly climbing, what if they can't afford health care coverage for their family? Right now, small businesses are already struggling to afford health insurance for their workers, or dropping coverage entirely.

Sebelius said that health care costs would only get worse -- health care costs are expected to eat up 34 percent of our GDP by 2040. She concludes,

The urgency behind reform has nothing to do with the schedule of Congress and everything to do with the needs of the American people. Nor should we let ourselves be distracted by attacks that try to use the complexity of health reform to freeze Americans in inaction. We've learned over the past 20 years that "socialized medicine" and "government-run health care" are code words for "don't change anything." With some insurers raising premiums by more than 25 percent and 14,000 people losing their health insurance every day, Americans want to hear something more from their leaders than "wait and see" and "more of the same." People have enough to worry about these days. Americans deserve the peace of mind that only health care reform can provide.

COST: Small Businesses, Big Health Care Problems

Meredith Hughes — Tue, 03 Feb 2009 18:33:00 -0500

For small businesses the economic hits just keep coming, and as the New York Times reminds us, the hardest hits are often from health care.

The Times' Kevin Sack profiles several small business owners faced with a difficult choice: cut health care benefits or close their doors. Amberly Allen, who runs her own direct-mail firm, spends 17 percent of her firm's payroll on employee health benefits. Thomas L. Fritts, who owns a sporting goods store in Illinois, saw his company's health care costs rise 30 percent last year while his business's sales plummeted 60 percent.

Small business owners are shifting a greater share of health care costs onto their employees. In the past two years, for businesses with fewer than 200 workers, the percentage of employees enrolled in a plan with an annual deductible of $1,000 or more jumped from 16 percent in 2006 to 35 percent in 2008. See the chart below from the 2008 Kaiser HRET survey:

Previously, we've looked at the Business Case for Health Reform in conjunction with the Committee for Economic Development and Better Health Care Together. According to Lois Quam of the consulting firm Piper Jaffray, problems with health care cost in the U.S. hurt small businesses the most, to the point that "health care has become an barrier to entrepreneurship and job creation." Removing that barrier through comprehensive health reform makes sense for small businesses and our economy as whole. Tomorrow the House Small Business Committee will hear testimony on "Health Care Reform in a Struggling Economy: What is on the Horizon for Small Business."

POLITICS: The $64,000 -- Er, $5,800 -- Question

Joanne Kenen — Thu, 16 Oct 2008 18:43:00 -0400

For the health care cognoscenti, the most puzzling moment of last night's debate was probably when John McCain said, "The average cost of a health care insurance plan in America today is $5,800."

Where'd he get that? The figure most commonly cited—and we've heard it before on the campaign trail this year—is $12,680 for a family plan. That comes from a Kaiser Family Foundation survey. That $5,000 tax credit McCain promises doesn't go quite as far in paying for a $12,000 plan.

For a minute we wondered if McCain had just misspoken, that he was confusing the cost of a family plan with the cost of covering an individual (about $4,700, according to the same Kaiser data). Or maybe he was time-traveling (family coverage cost about $5,800 a decade ago).

The folks at the Center for American Progress suggest that McCain was probably talking not about the comprehensive employer-sponsored insurance that most privately-insured people get, but premiums in the individual market. According to the insurance trade group AHIP, family policies ranged from $2,325 to $9,200, with the average around $5800 in 2006-07. Obtaining coverage in the individual market can be challenging for anyone with a pre-existing condition, or who is older. And many of these policies have less comprehensive benefits or more cost-sharing than the large-group insurance.

A lot of the rest of the debate was familiar health care ground. We checked a bunch of the fact-check sites this morning and found some ongoing skepticism about Obama's promise to cut health care costs by $2,500. Several sites also pointed out that McCain keeps charging that small businesses (and we refuse to write about the world's most famous plumber here) would face a fine under Obama if they don't cover. Small business, in contrast, would get a tax credit to help pay for workers' insurance. But it is fair to note that Obama hasn't yet clearly defined "small" business, nor has he detailed how big fines would be for larger businesses. As the Clintons learned, it may well be wiser to let those gaps be filled in by Congress...

Here are links to some of the articles and fact check sites if you want to check them out yourself:

HEALTH POLITICS: Big Business Sees Flaws in McCain Health Proposals

Joanne Kenen — Tue, 07 Oct 2008 19:53:00 -0400

Turns out it's not just Barack Obama and liberal Democrats finding fault with John McCain's health care proposals. According to today's New York Times, rather than thinking John McCain's health care proposals are cool, business is rather cool toward John McCain's health care plan.

Big Business and Small Business alike told the NYT's Kevin Sack that McCain's plan would accelerate the erosion of employer-sponsored health insurance that still covers 62 percent of Americans under age 65. They didn't think it would do much to cover the uninsured, and they were skeptical of his contention that his approach would stimulate competition and bring down cost. To the contrary, groups like the Chamber of Commerce said they thought that the way McCain has structured his free market approach that emphasizes families using tax credits to help pay for coverage through the individual market would be very hard on small businesses and old-line manufacturers.

The whole question of whether McCain is onto something in trying to abolish the tax breaks worker get for employer-sponsored insurance is complex. The tax breaks are regressive, helping higher income people more than lower, and people who don't get insurance through their job don't get the tax break. (Ruth Marcus in today's Washington Post writes about the reasons for abolishing the employer tax exclusion). But other health reform proposals that would abolish or modify the tax break do it as part of larger reforms that would expand coverage and strengthen consumer protections in the individual market. McCain, as these business groups make clear, doesn't.

Of course, the business groups clearly explained what they are against. We hope there's a sequel to this article explaining what they are for....And how they are going to help us get there.

REFORM: Taking Care of (Small) Business

Paul Testa — Thu, 18 Sep 2008 21:53:00 -0400

The director of New America's Health Policy Program, Len Nichols, testified today before the House Committee on Small Business at a hearing on "Making Health Care Reform Work for Small Business." We'll post his full written testimony soon. You can see Len's testimony below, and watch highlights from the rest of the hearing here.

Len praised Chairwoman Nydia Velázquez and her co-sponsors on the CHOICE Act, as well the co-sponsors of the SHOP Act, for taking a bipartisan approach to health reform for small business and proving we can do better than the partisanship of the ‘93–‘94 efforts.

The hearing's witnesses were asked to provide insights into how we can structure a system to work better for small businesses. Three common themes developed from the testimonies. They are:

The current system doesn't work for small businesses. Loading fees and administrative costs are much higher (and risk pools are much smaller) in the small-group market creating a disadvantage for small businesses against larger domestic firms and growing international competition. Small businesses are engines for growth and innovation. They should be in the business of producing new jobs and increasing productivity—not necessarily worrying about health insurance.
Think about creating a marketplace that could work for all Americans. The insurance market reforms that will help small business are the same measures that will help all Americans. Both the SHOP and CHOICE Acts take some important steps to create a marketplace that is accessible, competitive, and fair. The key Len argued, was removing the incentives for risk selection and underwriting so that insurers make money by delivering high value per health care dollar and having better health services. He suggested an individual requirement to purchase health insurance could help accomplish this and make a market that works for all Americans.
Subsidize workers not firms. Len and other witnesses noted that we can get more bang for our subsidy buck by targeting low-income workers rather than their employers. This is because subsidizing firms would inevitably direct some portion of the subsidy to employers with high wage workers (like law firms or consultancies). However, these firms would likely offer health benefits even without the subsidy. In addition, further subsidizing employer-sponsored insurance at a time when health care costs create an economic disadvantage for our employers in a competitive global economy seems counterproductive to our nation's overall economic goals.

Len also posited that no health reform proposal could be sustainable without finding a way to bend the cost curve to deliver more value per health care dollar. To hear more about ways to deliver higher quality care at lower costs, check out New America's event tomorrow: Health Care Quality: A Reform Issue For Every American.

IN THE STATES: Alabama Boost Small Business Health Coverage

Joanne Kenen — Thu, 12 Jun 2008 21:32:00 -0400

Alabama 's Republican Gov. Bob Riley has signed a law that will expand the tax deductions small businesses can take for employee health care costs. Supporters say the goal is to keep people covered—and take enough strain off small businesses that they can create more jobs.

The measure, described in the Alabama Press-Register, would allow owners of businesses with 25 or fewer employees to deduct from their state income taxes 150 percent of their costs for employee health insurance premiums, up from 100 percent. Additionally, small business workers who make $50,000 or less annually can deduct 150 percent of their health insurance costs.

Riley said the new law will encourage firms to hire more workers, which will help the state's overall economy. Alabama has about a 15 percent uninsured rate, just below the national 16 percent rate.

The state seems to have put the uninsured on its radar screen. Earlier this spring, we wrote about a public-private sector initiative to cover all 5,000 uninsured kids in the city of Birmingham.

Modernizing the Tax Law for Small Businesses

Annette Nellen — Sun, 13 Apr 2008 16:59:00 -0400

On April 10, 2008, the House Small Business Committee held a hearing - “Modernizing the Tax Code: Updating the Internal Revenue Code to Help Small Businesses Stimulate the Economy." The Committee also issued its own report - “Seven Ways to Stimulate the Economy by Updating the Internal Revenue Code." In addition to having witness testimony online in written form, the Committee has videos on YouTube about the hearing. This can all be accessed at this summary of the hearing.

I think the ideas presented by witnesses and in the Committee's report fall into two categories:

Tweaks to the federal tax law to make compliance and doing business easier for small businesses.
Changes that reflect the fact that most of the federal tax law was written before we entered our global, interconnected, knowledge-based economy and society and thus is in need of modernization.

Examples of Category 1 suggestions:

Repeal the AMT
Make the 2001 and 2003 tax cuts permanent
Allow greater choice of tax year for non-corporate businesses
Increase meals deduction for small businesses

Examples of Category 2 suggestions:

Allow non-resident aliens to be shareholders in S corporations
Stop treating cell phones and PDAs as listed property for depreciation purposes since these are not luxury items, but necessities of operating a business; detailed recordkeeping of use is not productive
Create a simpler tax systems, even with less incentives, due to the significant compliance costs small businesses face
Simplify the home office deduction to be a standardized deduction
Shorten some depreciation lives to be more in line with today's technology

The focus of the hearing was improving tax rules for small business to stimulate the economy, not just to modernize the tax law. However, there were several good ideas that remind us how out-of-date the tax law is (such as treating cell phones as questionable business items and giving personal computers a 5-year depreciation life).

What are your ideas to modernize the tax law to better help small businesses succeed in today's economy?

COVERAGE: Health Costs Squeezing Small Businesses -- And Their Workers

Joanne Kenen — Wed, 09 Apr 2008 15:40:00 -0400

We've known for years that small companies face a struggle to offer health care to their workers, or pass on more of the costs to the employees. But, with health costs increasing every year, these struggles are even more pronounced. More bad news; the plans they offer are also of a slightly lower quality, Jane Sarasohn-Kahn at Health Populi tells us.

Small companies don't have the bargaining clout of a huge corporation, and with fewer workers, they can't spread the risk as well. Federal legislation to allow them to band together has been stuck for years, victim in part of deep disagreement about the role states should have in regulating insurers or requiring specific benefits. But a new study from the Kauffman-RAND Institute for Entrepreneurship Public Policy (KRI) sheds light on coverage trends among big and small firms between 2000 and 2005.

The report found that in 2005, overall, the average firm spent 7 percent to 10 percent of payroll on health insurance. But the smaller firms spent more. The smallest offering firms (fewer than 25 employees) shouldered the highest overall burden, spending, on average, 11 percent of payroll on health insurance. Moreover, in 2005, half of all small businesses offering insurance spent more than 10 percent of payroll on it.

People who worked at small firms that offered health insurance paid more out of pocket too—1.9 percent of earnings compared to an employee at a business with 100 or more employees spending 1.3 percent.

But as our colleague Sarah Axeen reminds us, as health costs continue to rise, only some of the increase is shifted on to workers (through increased out-of-pocket spending, for example). The employers shoulder the remainder. Since cost increases cannot be completely shifted on to workers in the short-run (because of factors like union contracts, minimum wage laws, and the unpredictability of the increases) employers are bearing the burden through lower profits and reduced international competitiveness. For small businesses, with razor-thin profit margins, this competitive disadvantage is felt all the more acutely.

To summarize: health insurance is becoming unaffordable, especially in the small business setting, leading to even more uninsured workers and families. As Health Populi put it, "As health insurance costs continue to increase, a growing number of employers face that global competitive advantage that is unique to American business: covering health care." We agree. These trends strengthen the case for rethinking how we link insurance to the workplace, and improving the individual marketplace so it is efficient, equitable, and affordable. We need to cover everybody in a sustainable system because our global economic competitiveness is not just about trade policy. It's about health policy.

COVERAGE: Bipartisan Bill Addresses Small Business' Concerns

Elizabeth Carpenter — Wed, 02 Apr 2008 23:04:00 -0400

Left, right and center know that more than 80 percent of small businesses owners say finding affordable health care is a challenge. But lawmakers have been stalemated for years about a solution. Four senators took a bipartisan step forward today offering a bill called SHOP - the Small Business Health Options Program.

Senators Richard Durbin (D-Il), Olympia Snowe (R-ME), Blanche Lincoln (D-AR), and Norm Coleman (R-MN) introduced the latest policy proposal designed to increase access to affordable, quality health insurance for small businesses. Just 59 percent of small businesses offered any health coverage to their workers in 2007, and fewer than half of very small businesses (9 workers or less) did.

Under the Small Business Health Options Program or SHOP:

States would be required, over time, to eliminate medical underwriting (i.e. charging sick people higher premiums) in their small group markets.
A new national small group marketplace would allow small businesses to access nationwide plans in addition to state specific packages.
Small employers who choose to offer insurance would be awarded tax credits based on firm size and their contribution on behalf of their employees. NOTE: Businesses would not be eligible for the tax credits if their state fails to enact additional insurance market reforms (limits on how much insurance premiums can vary) specified in the legislation.

As many of you may remember, state benefit mandates were a serious point of contention during the Association Health Plan (AHP) discussion in 2006 (and numerous similar debates stretching back years). Under SHOP, state plans would follow their own state's benefit mandates, but the national ones would offer a benefit package to be developed by the Institute of Medicine.

More than half of our nation's uninsured are self employed or work in firms with less than 100 employees. Small employers don't have access to the economies of scale, robust risk pools, and choice of insurance products that large employers enjoy.

We are always happy to see bipartisan action on the health reform front and look forward to working with the small business community to develop a sustainable system of coverage for all Americans.