Senate mulls small biz healthcare reform

FSB Online (Washington, D.C.) -- On Thursday the Senate Finance Committee considered options to expand health care coverage for small business employees. Half the nation's 47 million uninsured workers are employed by small businesses, according to a committee press release, and coverage offered to small business employees is declining rapidly.

The hearing covered a smorgasbord of ideas: making coverage more portable, creating multi-state pooling arrangements (also known as association health plans), reducing the cost of individual market coverage for sole proprietors, and creating health care tax credits for businesses or individuals.

More from FSB

Help wanted for HR firm A CEO and rodeo queen King of the mountain bike

Current Issue

In a recent Discover Card suvey of 1,000 U.S. small businesses with fewer than five employees, 75% of respondents provided no health coverage. About a third of businesses that did offer health benefits were thinking about ending coverage because of rising costs.

The dearth of health insurance for small business employees has emerged as a major national issue. Presidential candidates from both parties have released health care reform proposals, and several states have tried their own experiments. That momentum is putting the issue front and center in Washington.

Employers embrace "medical tourism"

Skyrocketing health insurance costs hurt small businesses disproportionately, says Linda Blumberg, a health care expert at the Urban Institute in Washington, D.C. (urban.org) "If a small firm has even one sick worker it has a very significant impact on the average cost," says Blumberg, who testified at Thursday's hearing.

The hearing examined whether insurance regulations should be changed so that smaller companies can band together to buy insurance as a group. In theory, such association health plans should drive down premiums by spreading risk across a larger pool of workers. But critics argue that member companies with healthier employees would be likely to seek lower cost options, increasing coverage cost for the remaining companies in the group.

Insurance companies have an obvious incentive to segment customers in this way. In December 2006, for example, Pacific Health Advantage, a California health insurance purchasing pool with 6,200 member businesses, shut its doors after Blue Shield pulled out, citing financial losses.

Massachusetts is retrying the experiment with its Connector Program, which offers pooled coverage to small companies. In an effort to discourage companies from leaving the plan, Massachussetts bars local insurers from offering similar plans. And because the plan automatically deducts premiums from employee paychecks, workers get a pretax benefit that helps defray costs. But Blumberg says even that doesn't go far enough to subsidize the costs for the lowest paid employees.

Can I tell my employees not to smoke?

Local plans are 'better than nothing," says John Arensmeyer, founder of the Small Business Majority (smallbusinessmajority.org), an advocacy group based in San Francisco. But he argues that that meaningful reform must include all companies nationally. Arensmeyer predicts little progress on national healthcare reform until after the presidential election.

Most of the major candidates have floated healthcare proposals this year. Democratic senator Hillary Clinton's $110 billion plan would require all Americans to get insurance, offering tax breaks to small companies and subsidies for low-income individuals.

Senator Barack Obama (D. Ill.) favors a national health care plan similar to the insurance plan for federal employees. Former Democratic senator John Edwards's plan would weave together insurance pools, tax credits and an expanded Medicare program.

When it comes to healthcare reform, Republican candidates generally favor tax credits over government subsidies. In addition, New York mayor Rudy Giuliani wants to expand health savings accounts. Former Massachusetts governor Mitt Romney wants to drive down premiums by deregulating the private insurance market. And Arizona senator John McCain would allow insurers to operate across state lines.