Health Reform for Small Business: Burden or Blessing?

Can’t find it right now, but I recently got a piece of campaign mail that claims the health care reform act puts “onerous requirements on small business.” And the U.S. Chamber of Commerce is running an ad that slams a Colorado Congresswoman who voted for the act, “crushing small businesses with billions in penalties.”

Politifact pretty well debunks that claim by pointing out:

-       Businesses with fewer than 25 employees will not be required to offer health insurance or penalized for not doing so.

-       But if they do, many will be eligible for tax credits to offset the costs. Those credits are available now. Here’s more information from the IRS. 

Okay, there’s some paperwork involved. (Isn’t there always?) But on the whole, it seems to me that this bill should be a boon to small business.

If they aren’t providing health insurance to their employees now – and many of them aren’t – I don’t think it’s because they don’t want to. It’s because escalating prices have made it impossible.

In the group health insurance market, a company with a handful of employees doesn’t have the buying power of a mega-corporation. Also, a small risk pool is more vulnerable to the winds of fate.

Let’s consider a hypothetical employee named Bob, covered by a company health plan, who is stricken with a serious ailment that requires extensive medical treatment. If he’s one of 3,000 employees, his illness is barely a ripple in the pool. If he’s one of five, it’s a tidal wave that can swamp the whole system. When it comes time to renew the policy, the insurance carrier is likely to say, “Twenty percent of your employees wound up in the hospital last year. Your company is obviously a bad risk."

Case History 1 – My former employer

I saw the tidal wave in action at a place I used to work. It was a non-profit corporation with about 50 full-time staff. Health insurance was an employee benefit. If memory serves, the company paid the whole premium – or most of it – for employees, but we had to pay through the nose to put spouses and kids on the plan.

In the eight years I worked there, I think we had four different insurance carriers. Somebody would get sick, and our carrier would jack up the renewal rate by half. Management would say no, we’re not going to take that, and they’d go shopping for a new company. (I should point out that with a staff of 50, we didn’t have a human resources department to handle this sort of thing. The people who did the shopping and negotiating had to take time out from other duties.) After much time and effort, they’d get us a better deal – maybe only a 30 percent increase over the previous year.

One thing about a staff that small: we all knew each other’s business, and consequently, whenever there was a health insurance crisis, everybody knew whose illness or infirmity had caused it. So on top of having cancer or a kid with a head injury or a spouse in the ICU with congestive heart failure, that person had to walk around getting dirty looks from co-workers who were pissed off at the damage to their family budgets.

Case History 2 – My father’s business

Dad was a small business owner. My grandpa started the company, which eventually passed to his two kids. During my teenage years, Dad ran the place in partnership with my uncle. They had about a dozen employees.

At one time, the company had an employee health insurance program. But there came a day when the insurance provider didn’t want them any more. The way my dad remembers it, the owners had gotten too old, and I guess some of their employees were also getting long in the tooth. After some shopping around they decided, regretfully, to drop the benefit. Dad and Uncle had teacher wives who could get insurance at their jobs and add them as dependents. Employees of the family business had to fend for themselves.

Case History 3 – My Hairdresser

I’ve trusted my hair to the same beauty shop for twenty years. It’s a husband-wife partnership, now with several shops in different parts of town. Last time I was in for a cut, I asked the boss if he had a company health insurance plan.

He told me they did at one time. In the 1970s, when they were just starting up, they couldn’t even think of anything like that. In the ’80s, they were starting to do better, and thought offering an insurance benefit might be a way to keep good people on the payroll.

To the best of his recollection, their first plan cost about $300 a month. It insured his family (3 kids) and about three employees. Three to four years later, it had gone up to $1,300 a month.

That’s a 400% price increase in less than five years. Few small businesses could absorb that kind of price increase. Especially when it has nothing to do with supplies or production of whatever good or service your company is supposed to provide.

There are some 5 million small businesses in the United States, and I'm sure many have faced similar problems. I hope health care reform will even up the playing field, making it possible for these companies -- and their employees -- to focus on getting their real work done.