A Health Care Push Me-Pull You for Small Biz

Democrats say small-business owners will be big winners under health care reform. But most groups that represent small businesses say, please, don’t do us any more favors.

The legislation passed by the House on Sunday night aims to make health insurance more affordable for small businesses by creating more competition among plans through new state-based insurance exchanges. Some small businesses—those with fewer than 25 employees and average wages of under $50,000—will be eligible for tax credits to pay up to 35 percent of their insurance costs.

(To read more about the winners and losers in the health reform bill, click here.)

In his victory speech after the House passed the bill, President Obama said health care reform will benefit “every small-business owner forced to choose between insuring employees and staying open for business.”

The status quo was unacceptable, said the Main Street Alliance, a group that supported the president's health care reform effort even though it didn’t include its top priority, a government-run option in the insurance exchanges.

“If we failed to pass real health reform, small business would continue to face off-the-charts rate increases and routine discrimination,” read a letter to Congress from small-business owners who belong the alliance.

The tax credits in the bill will make insurance more affordable, the exchanges will give small businesses “better coverage options and real bargaining power,” and the insurance market reforms will end discrimination against small firms that employ workers with health issues, the letter states.

John Arensmeyer, CEO of Small Business Majority, an organization that tends to side with Democrats, also thinks the bill will help small firms.

“This long-needed legislation will allow small-business owners to focus on running their businesses instead of worrying about whether they’ll have to drop coverage or lay off employees if they get hit with an especially onerous rate hike,” Arensmeyer said. “Entrepreneurs will be able to strike out on their own without the fear of being denied health insurance because of their age, health status or preexisting condition.”

But most of Washington’s small-business organizations contend the bill will make health insurance more expensive, not less, and will impose additional costs on small employers through new taxes and government mandates.

“This isn’t a health care bill—this is a tax bill wrapped up in health care paper,” said Susan Eckerly, senior vice president of the National Federation of Independent Business.

The bill will impose new taxes on insurance plans, pharmaceutical companies, and medical-device makers, costs that NFIB and many other small-business groups expect will be passed along to insurance customers. Individuals who make more than $200,000—including many small-business owners—will have to pay higher Medicare payroll taxes and a new 3.8 percent tax on unearned income such as dividends and interest.

The tax credits aren’t enough to make up for these tax hikes because many small businesses won’t qualify for these breaks, many business groups contend. Plus, the tax credits are temporary.

And if you employ more than 50 workers, you can’t drop health insurance just because you can no longer afford it. Beginning in 2014, businesses with more than 50 workers will have to pay a $2,000-a-worker penalty if any of their employees obtains government-subsidized insurance on their own through an exchange. A firm’s first 30 employees are subtracted from this penalty payment calculation, however.

“Small-business owners got tiny scraps from this legislation, which in no way make up for the crushing taxes and burdens they will face if the bill is fully implemented,” said Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council.

Many business groups will now work to repeal the parts they don’t like. That includes opposing the reelection of members of Congress who voted for the bill.

“Make no mistake, small businesses won’t forget those who voted against small business,” Eckerly said. “And they will make their voices heard when they vote in November.”

That effort will be aided by the deep pockets of the U.S. Chamber of Commerce, which plans its largest “voter education” campaign ever this year. The Chamber will use “all available avenues”—including legal challenges—to make the health care reform bill less harmful to businesses, said CEO and president Tom Donohue.

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Kent Hoover is the Washington bureau chief for bizjournals.