Health Reform Fit For Small Business

Posted by: John Tozzi on May 05, 2009

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.

Reader Comments

Alex

May 6, 2009 01:36 AM

This is a very good move by the government. This move will encourage a lot of people to come forward to buy insurance and secure their future.

Doug

May 6, 2009 11:19 AM

This would be a tremendous help. We currently pay 100% of our employees and their families health insurance and would welcome the tax credits.

David

May 6, 2009 11:44 AM

This statistical "smoothing" of the premiums does little to reduce TOTAL cost of healthcare in society. It simply shifts more of the burden from genetically inferior and/or unhealthy lifestyle folks to the genetically superior and/or healthy lifestyle folks. It moves us closer to socialized medicine and further away from personal responsibility.

Carmen

May 6, 2009 11:53 AM

This is one of the best moves yet under this new administration. It's the small businesses that generate a large % of the jobs as well as create new opportunities, products, etc. Thankfully we are still able to provide health insurance for our employees but if the costs continue to rise then at some point in the future we will be forced to discontinue coverage. We stand behind the Small Business Health Options Program!

Sam

May 6, 2009 12:01 PM

I am a business owner, provide health insurance for my employees. I pay about 75% of the TOTAL premium.
Point 1 and 2 SEEM attractive (remember the banks thought the stimulus money was attractive until they learned the details and all the "strings" attached).
I have an issue with point 3. I am 55 years old and have seen my rates increase because of my age. Why shouldn't they? I am sure statistically older people collect more benefits than younger people. Would you really want the government coming into your business and tell you you have to charge each of your customers the same irregardless of the cost of producing or servicing the customer. Someone has to pay for the medical costs incurred by the insurance company. If the premium cost is not increased as you get older and you use more of the services, then the burden will be shifted to the younger groups in higher rates to them. Doesn't seem fair to me and remember I am in that older group.

Steve

May 6, 2009 12:05 PM

Why are businesses part of the health insurance equation at all? How did this all start? I don't have to be involved in my employee's home or car insurance. Just start by making all health insurance 100% deductable on personal tax filings. Let the person purchase their own coverage. Allow the employer to make deductable contributions to the employee if they choose to. The employee owns the plan so its portable - dump COBRA. Everybody is happy and it is simple.

Richard

May 6, 2009 12:18 PM

This proposal has some good ideas but your sponsors I question their real willingness to help the small business owners of the country. The real health reform is in tort reform. These pools are only temporary solutions to the health premium problem. What happens when the pool starts to develope claims and rates are increased, the healthy leave for better rates. If you think that any insurance company will set rates without the ability to increase somewhere for it's losses, you have drank from the Obama Koolaid pitcher.
Any organization that represents small business should be pushing to allow them to deduct their health insurance premiums as a business expense on their tax forms. When you set a percent of contributions to health insurance to get a deduction on taxes you leave a large group of people out. I like the KISS method, push for premiums deductible as business expense and push tort reform as these will help and not allow the nationalization of health care.

Larry

May 6, 2009 12:37 PM

I tried providing 100% of my employee and spouse health coverage. After paying out many thousands of dollars for it, I found that the coverage benefits that were actually paid by the insurance company were practically zero. We found that the "Insurance" company made all decisions about what was actually paid with no input from us or our employees. If we had put the same amount of money into Health Savings Accounts, the employees could have paid almost, if not all, of their health related expenses and would have had money left over. Even if we had provided catastrophic coverage from the same account, they would have had much more coverage than they actually got under the regular plan. My question is, What are the insurance companies doing with the extra premiums they receive. More transparency is what is really needed right now.

Pete

May 6, 2009 12:41 PM

I agree it is silly to have business part of the health insurance equation. However making it simply a deduction will leave most people unable to afford health insurance due to high cost.

Cost is a major factor in health care decisions. Somehow the government needs to be involved to help lower costs. Here are some ideas:

1. Reward doctors that improve their patients health, rather than simply treat it.

2. Create an administrative pool for all insurance. Currently admin costs at insurance companies take nearly 30% of premiums. Medicare on the other hand takes less than 5% of premiums to administer. This leaves an extra 25% to reduce costs and reward providers.

3. Require drug prices to be stabilized. Drugs should not cost more than the average charge to Canada, Australia and Western Europe. At present we pay nearly double for our prescription drugs.

4. Provide a tax credit an a declining income basis to help individuals pay for health care insurance (through a government administrative pool). The cost of this tax credit would start as a surcharge to employers and migrate overtime as a tax to employees. The amount of the tax would be determined by some sort of formula based on previous year costs, and untouchable by politicians except once every ten years to reaffirm the plan.

Bob

May 6, 2009 01:12 PM

The NFIB and other groups have been trying to get Legislation passed allowing the crossing of state lines for insurance pools for years.

This has always been blocked by the Dems to protect the unions.

This would be amazing if they changed their votes now to support this measure.

It would certainly help my opinion of Congress be more positive

Rick

May 6, 2009 01:28 PM

One of my employees had a small cut on his knuckle, something a butterfly would have worked on but he insisted on going to the hospital.
2 stitchs for $675 dollors!
How can that cost so much?

Ron

May 6, 2009 01:41 PM

If the government is truly concerned about the rising cost of healthcare then why can I only deduct healthcare costs that exceed 7.5% of my adjusted gross income on my income taxes (10% for AMT purposes)? Why not allow people to deduct 100% of all of thier healthcare costs as an above-the-line deduction?

John

May 6, 2009 02:10 PM

Health insurance is a mystery to me and I am in the insurance business. I have a 2 person group that has almost tripled in 4 years. We are currently paying 3700 a month for 3 people because one of the members has an autoimmune disease that has been nonsystematic for 10 years. Our old company was going to be 4400 per month. The insurance companies will not give out claim in formation(to get new qutoes even to me the administrator). There is no way our insurance should be that expensive but when a hospital charges someone with an emergency appendectomy $30,000 for a one day stay in the hospital, I don't know. How about transparency from the medical profession also? This answer is not going to be easy or cheaper, I am certain of that.

Steve

May 6, 2009 02:53 PM

Furthermore: Look at the total "hit" an uninsured person takes by an example where my son had to have a CT scan for a head injury:
Billed radiology cost by Louisville hospital: $1700; Courtesy reduction for what they thought was an uninsured person: $700, net $1000 bill; Ahhh, but wait, I did in fact have insurance: Insurance allowed: $324, final charge: $324.

People without insurance are hit twice: The "un-negotiated" price plus the bill straight out of their pocket.

Kristin Farry

May 6, 2009 03:31 PM

Does this plan extend the HIPAA portability provision to these small business pools? If not, it won't help those with "pre-existing conditions" because our pre-existing conditions won't be covered by the new policy or by policies we get later. This is a major problem for some of us--we are willing to pay for the insurance, but we can't get full coverage because of a pre-existing condition. I may have to shut down a perfectly good company later this year and take a job to get portable health insurance!

Rick

May 6, 2009 06:02 PM

Steve,
Your idea is way too practical.
We can't have a system that everyone would understand because it would put too many people out of work.
You need to have more consideration for the insurance brokers, accountants, lawyers, and all the paper pushers!

Duane

May 6, 2009 06:41 PM

Ah but Steve, look at the premium savings by the uninsured person too. They never forked over $600/month for two years before they bonked their head. Insurance is partly a buying group/Sam's club discount type of enterprise. Half the health insurance problem is it's not used for catastrophic problems, but everyday cuts, scrapes,colds and regular checkups! Too often at little to no copay etc. HSA's are more of an answer. Do you expect free or discounted oil changes and planned maintenance for you car on your auto policy. Is every car owner entitled to car care in the USA? Health insurance is more like prepaid care than insurance, that is the problem.

Ray

May 6, 2009 07:10 PM

This will never get passed under the current RADICAL SOCIALIST administration and Congressional leadership because they would not have enough CONTROL. That's what they are all about: CONTROLLING EVERYTHING! They could care less about The People. Anyone who thinks this has a prayer is dreaming. We small business owners are the enemy of BIG LABOR and we are now bugs under their feet since they and the likes of ACORN have bought and paid for the White House and Congress. Health Insurance does not matter, as we will be lucky to survive the next 4 years. God Help Us!

Ray

May 6, 2009 07:17 PM

Pete,

Name anything that the GUBMENT ever got involved that lowered cost. What you are describing is the equal of socialized medicine. Hasn't worked yet - -- - why would it now?

Ray

May 6, 2009 07:21 PM

Carmen,

Please be advised that the "New Administration" had nothing to do with this, and he won't - ever. He is nothing more than a pawn on BIG LABOR's chess board.

Mel

May 6, 2009 08:54 PM

The plan would definitely help employees and reduce cost. However, the President nor Congress are interested in neither. They want nationalized government controlled health care and will move in that direction either in phases or all at once if they believe the public will stand for it. They have fought too long for control of the Executive and Legislative branch to pass up on this opportunity.

Larry

May 7, 2009 12:14 PM

My wife and I were forced out of buying health insurance several years ago. As owners and operators of our small business, we got too old to be considered a good risk (late 50s) and our insurance took a 3X increase in one year. We couldn't afford the premium so didn't accept the "offer". We tried to get COBRA which is a sick joke anyway and were denied because we had declined an "offer" of insurance. We were able to get into a high deductible catastrophic plan with an HSA and put the same as our old premium into it. We paid our insurance premium out of it and all of our health, dental and vision costs out of it. After a year we still had money in the account. Needlessly we were sold on that plan. After we became eligible for medicare we were no longer eligible for the HSA but it was no longer a problem. Again, What do the insurance companies do with the left over premiums? They sure have nice office buildings etc. I feel that the consumers need to have more responsibility and control over their own health care decisions.

Brian

May 7, 2009 03:39 PM

First, Ray, you are a crazy person...Health care is an issue that effects so many policy areas from illegal immigration, to union contract negotiation, tort reform, veterans affairs, big business (auto makers to HMO's), small business, Medicare/Medicaid/Social Security, the list goes on and on. This is an issue that we must and will address. 15 years ago there was not the political will on either side of the isle; today there is broad support for major reform. This is a start but some variation of the models of Europe, Canada, or Japan among others is where we will end up. Health care reform will help to keep us economically competitive with the rest of the industrialized world for the next 100+ years.

Steve

May 7, 2009 03:42 PM

Hi Duane. Really my point was the very large difference in cost the hospital has in place. It is just another facet of this huge mess. I don't expect a thing for free. (Only my customers do!)

I am a small business owner neck deep in this mess and frankly, I am disgusted with having to deal with all the paperwork and regulations. Then, for thanks, I can be fined and yanked around if I accidently do something wrong. I am really ready to shove all this and go to an HSA for myself and forget it.

I would much rather provide a company benefit where I give a contribution to the employee to pay toward their own personally choosen, portable, health insurance (which is tax deductable for them). It would be voluntary on my company's part just like every other benefit I offer. The competion for a good employee would keep my benefits up just like it does for the wage offered. Just get me out of the forced government servantude in this area. It has nothing to do with "business" and it should return to being a personal responsibility.

Jason Holmes

May 7, 2009 04:07 PM

I am a health insurance agent in Arizona, and if any small business owner has questions on their specific situation please email me and I would be happy to direct you in the right direction.

This is an interesting concept that is proposed however, is what will eventually happen to that pool is that all of the unhealth people will stay in this pool to get the lower rates and all of the healthy people will leave and get their own plan becuase the rates will be lower. It is a good inital plan, but not one for the future.

Johnmayer

May 26, 2009 03:53 AM

If you are uninsured and does not have insurance, you should check out the website http://UninsuredAmerica.blogspot.com - John Mayer, California

Matthew Simon

August 11, 2009 11:14 AM

The self-employed and small businesses in Ontario, Canada are exempt from paying medicare premiums.

We have a single payer system with the cost paid through a 1.95% payroll levy and the balance paid through income taxes.

Canadians don't pay 'premiums' and EVERYBODY is covered from cradle to grave. Contrary to what most Americans are hearing -- our health care is every bit as good -- well trained doctors, same equipment.

It's a single payer system -- a common computer system, minimal fraud, no bureaucrats.

If I'm sick -- I get treated. Simple.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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