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Small businesses want, fear health care reform

Small-business owners are begging for changes to the health care system, but they believe they have the most to lose when and if reform materializes.
/ Source: contributor

Small-business owners are worried that some of the proposed cures to rising health care costs could be more painful than they are worth.

Oh, they want reform all right. For many of them, costs have soared over the past year even as the Great Recession has eaten into their revenues.

They’re just afraid of what they'll get. And they are even more apprehensive that nobody in Washington is listening to their concerns.

“Decisions are going to be made and there are going to be consequences, some intended and some unintended,” said Sandy Abalos, managing partner with Abalos & Associates, a small Phoenix-based CPA firm. “Congress can’t be experts on this. They need everybody’s voices. Leaving it up to lawmakers, that in itself is frightening.”

The Senate Finance Committee on Wednesday unveiled its long-awaited version of a bill intended to refashion the nation. The proposed 10-year fix has an $856 billion price tag and aims in part to make insurance more affordable for workers at small companies.

Small-business owners have been begging for changes to the health care system, but they believe they have the most to lose when and if reform materializes. Without the lobbying power of giant industries like health care and the auto industry, many are convinced they’ll end up being saddled with the biggest burden, despite promises from President Barack Obama to keep costs down.

Insurers “overcharge small-business owners because they have no leverage,” Obama said last Wednesday in a major address to Congress on health care reform.

David Hauser, a small-business owner from Needham, Mass., feels he is on a health care insurance coverage treadmill.

Costs to cover his 45 employees keep escalating faster than inflation every year, and he’s forced to come up with new ways to continue coverage, from switching insurers to adding new types of plans to raising the amount workers contribute.

His telecommunications company, Grasshopper, with annual revenues of more than $10 million, spent more than $250,000 on health coverage last year. He has had to raise his employees’ premium contributions by 5 percent over last year.

“In the past we ate that cost, but it’s become too high for us to do that,” he said.

Hauser said he doesn’t like any of the proposed reform plans on the table. He opposes any mandates on small-business owners and doesn’t want the government running any health plans.

Peter Goicouria, a principal with MGE Architects in Miami, is a little more open to the reform plans he’s hearing from the Obama administration, but he also has his reservations.

His firm provides coverage for its 30 employees, but the costs keep rising. Last year, health care expenses were 14 percent of the company’s overall expenses. This year they’re running at 17 percent.

“Right now we’re spending more on health insurance than rent, about $22,000 a year,” he said. “I can’t say we’re not going to do this anymore, but on the other hand, we’re caught in a tight squeeze.”

Goicouria is open to a public insurance plan even though he questions the government’s ability to run it. He’s interested in Obama’s proposals to cover all the uninsured, but only if there’s relief for firms like his when it comes to costs.

The lack of consensus has much to do with the dearth of options being discussed, said Jeffrey Cornwall, director of the Center for Entrepreneurship at Belmont University. Proposals making the rounds in Congress, including a public health care option, don’t make entrepreneurs happy. Not doing anything also spells doom, he said.

“Small-business owners have the most to lose,” he said. “If it continues the way it’s going, they’re scared to death, and should be, because of runaway costs. And if the only other option is a public option, they know full well that they’ll end up paying for it through taxes.”

For many entrepreneurs, health care insurance is personal.

Unlike CEOs of large companies, they have to go out in the market and purchase insurance for themselves and their workers, and they have to make the decisions every year if they’re going to continue to be able to afford the coverage.

Many small firms can’t, so they don't offer it. Only 47 percent of small businesses provide health insurance to their workers, according to a 2007 survey of National Federation of Independent Business members.

Owners ranked health care costs as their primary concern. More than 80 percent of those surveyed who offer coverage said finding affordable plans for themselves and their workers is a challenge.

A Kaiser Family Foundation survey released Tuesday showed that premiums have more than doubled in the last decade for U.S. workers who get family health insurance through their companies.

It's more than just a problem for workers, though, said Scott Shane, professor of Entrepreneurial Studies at the Weatherhead School of Management at Case Western Reserve University.

“There’s evidence that the absence of universal health coverage is hurting the entrepreneurial sector, keeping some from opening businesses and weighing down small business by making them less competitive,” he said.

And it’s not an issue that just materialized this year. “We’ve been calling for broad reform since 2004,” said Molly Brogan, a spokeswoman for the National Small Business Association, which has posted its recommendations for reform on its Web site.

Brogan said the group has yet to endorse any plan in Congress, but her members are most concerned with any government mandates that would force them to provide coverage. “Many of them are struggling to stay open” she said.

Under the legislation, firms with 50 full-time workers or more would be required to pay a fee for each employee that's not covered and receive a tax credit for those who are.

Stephanie Cathcart, a spokeswoman for the National Federation of Independent Business, said her organization supports health care reform but the proposals in Congress are all “harmful to small business.”

The NFIB has top 10 list of why the health care bill in the House (H.R. 3200) is the wrong approach for small firms. Here are the top two:

Employer mandate: Research shows an employer mandate could cost 1.6 million jobs with more than 1 million of those jobs lost in the small-business sector.

Payroll tax penalty: No matter how profitable or unprofitable a business might be in a given year, businesses are forced to pay this tax. The legislation requires that all employers with a payroll of $500,000 or more pay a payroll tax of up to 8 percent if they do not provide “qualified” health insurance to their employees. If an employer chooses to add a worker or increase wages, the tax rate on that employer may continue to go up. Simply put, this is a tax on job growth.

A study released in June by the Small Business Majority advocacy group showed that without reform “178,000 small-business jobs will be lost in 2018 as a result of health care costs. Depending on the level of support provided to small businesses to help meet their health care obligations, however, the report shows that 128,000 of these jobs can be preserved, reducing potential unemployment by as much as 72 percent.”

Despite the worries, small-business owners still are glad that the issue is clearly on Washington's radar. “We do need health insurance reform, that’s undeniable,” said Abalos, who offers a high deductible, health savings account plan to her 16 employees and had to reduce the amount she contributes to the plan in January.

But what concerns Abalos is that things may be changing too quickly and small-business owners don’t have a seat at the table.

Some entrepreneurs are doing what they can to get their voices heard. Terry Neese, owner of a recruiting firm in Oklahoma City and a distinguished fellow at the National Center for Policy Analysis, recently wrote an opinion piece on health care reform for the Washington Times blasting taxes and mandates.

Health care costs for her 12 employees climb 12 percent to 20 percent every year, Neese said, but “I don’t want anyone telling me what to do or I’ll go and work for someone else.”

That’s the kind of entrepreneurial spirit that’s going to make it tough for politicians to get wide support from small-business owners for any plan without specific measures to cut health care costs, not just mandate that everyone be covered, stressed Belmont University’s Cornwall.

“They don’t believe this can be fixed with a Band-Aid,” he said. “The only thing that can help is to find a way to drive down costs, but those discussions aren’t even on the table.”

That type of discussion would make Grasshopper’s Hauser very happy.

“The current proposed plans don’t fix the medical system. It’s just a way of shifting costs from one to another,” he said.

He’s all for bringing entrepreneurship into the health care system.

“I would like to see a conversation around understanding costs,” he added. “How can I buy medical services the same way as I buy my cable service or go to Wal-Mart? I should know what the costs are, what I’m getting and how much competitors charge.”