Health Insurance Reform: Easing the pain for small business

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Questions about the ballooning cost of health insurance, particularly as they relate to small business, have joined the national hue and cry over such issues as pension plans and home ownership costs. According to the U.S. Census Bureau, 45 million Americans lack health insurance coverage. Workers who once could count on their employers for substantial contributions to their medical insurance coverage now find themselves on shaky ground as corporations buck against contributing to coverage in the face of escalating payrolls. Caught up in the debate are the large number of people who work independently as entrepreneurs, or who work for small businesses that can ill afford health insurance coverage.

“A generation of small businesses has been pleading for a legislative remedy to the burgeoning health care crisis. Today, more than 45 million Americans do not have health insurance and more than 60 percent of them are employed by a small business,” says Joe Rossmann, fringe benefits vice president at Associated Builders and Contractors, a national trade association representing contractors, subcontractors, material suppliers and related firms.

Administration after administration has toyed with the notion of universal health care and insurance, only to be slammed with the reality of budgetary restraints. Citing a report by the National Federation of Independent Businesses (NFIB), the National Association of Realtors says the cost of health plans skyrocketed to about $722 per person in 2002, up from $494 per person in 2001 and $337 in 2000. The association, along with such organizations as the NFIB and Associated Builders and Contractors, is pressing for health insurance reform. The NFIB, which represents some 600,000 small businesses, says the cost and availability of health insurance is the No. 1 issue for small business owners.

In November, U.S. senators on both sides of the aisle introduced legislation with a view toward reform. Their Health Insurance Marketplace Modernation and Affordability Act of 2005 is the eighth attempt to provide salve to Americans working in small businesses that cannot afford to give them health insurance coverage. The bill, S.-1955, provides for the establishment of small business health plans (SBHPs) that allow small businesses to form collectives in order to buy insurance at a lower rate.

Under the proposed legislation, sponsored by Sen. Michael B. Enzi of Wyoming, small businesses that form collectives would be subject to the same federal and state regulations as large corporations but would be freed from the red tape of “multiple state-mandated coverage requirements,” thus making it easier for them to negotiate jointly and manage health insurance expenses as a group.

In terms of the pooling of risk, economies of scale and market clout, SBHPs are similar to the so-called association health plans, or AHPs, provided for in separate proposed legislation. However, SBHP advocates say, the AHP bills in their current form may allow some association plans to play by a set of rules different from those governing the rest of the small group insurance marketplace, which could lead to adverse selection and market disruption. The current AHP proposals also would shift primary oversight over many association plans away from the states and to the federal government, they note.

Critics of Enzi’s bill counter that the proposed small business plans would scale down their benefit packages and possibly promote discrimination by “picking only healthy workers.” They also argue that the plans will not be properly regulated and that plan organizers will be able to charge their members whatever they want.

Jack Farris, president of the NFIB, says a bill in favor of small businesses is “encouraging,” but notes that in the past similar initiatives passed by the House have never made it through the Senate.  The bill awaits action in Enzi’s committee.