Small business insurance a hotly debated part of reform conversation

Business groups are weighing in on small business insurance, but consensus is limited

Some of the most vocal members of the healthcare reform debate are small business owners and advocacy groups concerned about the cost of small business insurance.

There is little consensus among small business advocates, though. Some, like Maine Republican Senator Susan Collins, are concerned that the Senate's healthcare reform bill would do little to stem the rapidly rising costs of providing health insurance to small business employees.

But others like Ken Huber, senior vice president of the employee-benefit group for Baltimore-based PSA Insurance & Financial Services, say the Senate option is the best for small businesses because its mandates are more manageable for small business owners. Huber, quoted in the Charlotte Business Journal, said that businesses should start planning ahead for changes in insurance policy.

Waiting until a bill had been signed into law would be "a dangerous thing" for small business owners, he suggested.

Under the Senate proposal, businesses over 50 employees would have to pay a $750-per-worker penalty if the health insurance it offered was too unaffordable or did not cover employees adequately. "Adequate coverage" in the Senate bill is defined as coverage with a 60 percent actuarial value, meaning that 60 percent of the costs of healthcare would be paid by insurance companies.

A late-November report from the nonpartisan Congressional Budget Office said that small groups - businesses with 50 or fewer workers - would not see a significant difference in their health insurance costs after a reform bill is passed. The reason, says the CBO report, is that "the great majority of policies sold in [the small group] market under current law have an actuarial value of more than 60 percent." The same is true for most large group plans, making "the effect on premiums in that market ... negligible."

Secretary of Health and Human Services Kathleen Sebelius cited the CBO's research in a statement released late this week. Healthcare reform will "help businesses prosper and ensure workers have the affordable, quality health care they need," she said.

Her statement pointed to lower administrative costs, accomplished with the creation of health insurance exchanges, as a benefit of reform. According to the CBO, small businesses - especially very small ones - will enjoy the greatest savings from administrative efficiencies, due to "economies of scale and relative standardization of benefits" in the exchanges.

And an integral part of healthcare reform would be tax credits offered to small businesses to make health insurance more affordable. In the current Senate bill, companies with fewer than 25 employees and average annual wages of less than $40,000 would be eligible for the credits, which would offset insurance costs by as much as 50 percent.

Senators Mary Landrieu, a Louisiana Democrat, and Olympia Snowe, another Maine Republican, support an extension of the tax credit program. They hope to raise both the maximum number of employees and average wage amount allowed, a move that Snowe said would enable owners to "invest more in jobs and in their businesses."

At present, Landrieu and Snowe say, only 12 percent of small businesses are eligible for the tax credits. Employees of those firms would enjoy "a net reduction in the cost of insurance ...of 8 percent to 11 percent relative to that under current law," the CBO suggests.

Even in the overall market, small business insurance costs would not change materially after reform is passed. "The change in the average premium per person resulting from the legislation could range from an increase of 1 percent to a reduction of 2 percent in 2016," the CBO says.

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Posted: December 4, 2009

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