Health care reform raises concerns with small business owners

By Jenny Munro, The Greenville News

March 28, 2010

Health care reform legislation was signed into law this past week and businesses – large and small – are still trying to determine how they would be affected by the changes.

Many small business owners and their trade groups fear the fallout could cost more money, reduce hiring and delay the economic recovery that is now underway.

But others see the changes as a plus for small businesses that have been concerned for years about the affordability of health care.

Some companies are waiting for more details about specific parts of the huge overhaul of the entire health care system before they can figure out how they will be affected and how they will have to respond to meet the requirements.

Before the bill was passed last Sunday, Caterpillar Inc., which has five facilities in South Carolina, sent a letter to U.S. Rep. Nancy Pelosi, speaker of the U.S. House of Representatives, and House Republican Leader John Boehner of Ohio, saying the legislation could cost the company more than $100 million in the first year.

The Illinois-based company had urged lawmakers to vote against the plan “because of the substantial cost burdens it would place on our shareholders, employees and retirees.” It said it was most concerned about provisions that would expand Medicare taxes and mandate insurance coverage.

Members of the National Federation of Independent Business are “overwhelmingly concerned about lower healthcare costs and whether the legislation is going to cost me more to do business,” said Michelle Dimarob, a NFIB lobbyist. “I have never seen our members more motivated or more concerned.”

That can be seen on the local level: Tim Justice, owner of 20-employee Rescom Construction in Greenville, fears the outcome of the legislation.

“I think most business people are scared it’s going to cause our recovery to slow down,” he said. “We as business owners are being put in a position that we will say, ‘We better not expand because I don’t know what it means.’”

However, Frank Knapp, president of the state Small Business Chamber of Commerce, sees the legislation as a positive.

Small businesses will benefit, he said, adding he sees no downside for companies with fewer than 50 employees. South Carolina has about 103,000 small businesses with 100 or fewer employees and about 3,000 larger businesses.

“It’s going to be a tremendous benefit” to small business, he said. It gives small businesses and their employees more options but “there is no mandate to offer insurance” for companies with fewer than 50 employees. Currently less than 40 percent of South Carolina businesses with fewer than 50 employees offer health insurance coverage.

Medium-sized businesses could be affected by some of the provisions, Knapp said. For example, businesses with more than 50 employees that don’t offer coverage would be fined if any employee relies on government subsidies to buy coverage.

In 2009, 46 percent of U.S. businesses with three to nine employees offered health insurance benefits, according to a Kaiser/HRET survey of employer-sponsored benefits in 2009. Of companies with 10 to 24 employees, 72 percent offered insurance coverage. The survey showed 87 percent of companies with 25 to 49 employees offered health insurance. Of those with 50 to 199 employees, 95 percent offered healthcare insurance. Averaged together, of small firms with between 3 and 199 employees, 59 percent provide some type of healthcare coverage.

The vast majority of companies with 200 or more employees offer healthcare coverage – 98 percent, according to the Kaiser/HRET survey.

Michelin North America, a self-insurer which outsources the administration of its health coverage, already “goes above and beyond the law” and will continue to offer strong health protection, said Lynn Mann, company spokeswoman.

She said Michelin, South Carolina’s largest manufacturing employer, already covers employee children with pre-existing conditions.

Also, “today we cover students up to the age of 25,” she said. “We are unsure of the specifics of the legislation” and are trying to determine if the new age limit of 26 applies to students only or to young people who are working and have access to company-provided insurance elsewhere.

She said the company also is awaiting details on the removal of any life-time caps on medical care. Michelin needs to know if it applies to retirees as well as active employees and if it includes dental as well as major medical costs.

BMW Manufacturing Co. is studying the new legislation to determine when and how the company will be affected.

“Obviously, there are aspects that will be coming in the days and months ahead and some that are years in the future,” said company spokesman Bobby Hitt. “There’s a lot of activity going on.”

Justice said that “right now my feeling is that I’m very nervous about the unknown. Right now, we know what’s going on.”

He said health care is definitely expensive, but “I don’t know if it’s going to cause our premiums to go up or down. I don’t know what it will do on the income tax side.”

Justice said he’s heard that capital gains taxes would increase 4 percent to help pay for the reform. That would be a major problem to businesses that use that to expand. And he’s concerned about increasing coverage.

“There are a lot of people without health care. Many have pre-existing conditions. Insurance companies won’t have any option but to raise premiums,” he said, adding that he’s concerned about whether the country can afford this legislation. “Primarily, it’s the fear of the unknown.”

Many of the provisions of the healthcare legislation will not become effective until 2014. That’s the date employers with more than 50 employees must offer health insurance benefits or pay penalties. Also in 2014, small businesses, the self-employed and those who don’t have work-provided health insurance can obtain benefits through the Small Business Health Options Program, also known as exchanges.

By 2018, high-end health plans with premiums of more than $10,200 for an individual or $27,500 per family – not including vision and dental – would be subjected to a tax. According to Kaiser Family Foundation, the average cost of a family plan in 2009 was $13,375, with employers paying $9,860 of the total.

Dimarob said healthcare reform will be expensive. For example, a 10 percent excise tax will be placed on all facilities that provide sun-tanning services, she said.

The cost of healthcare coverage remains the No. 1 issue for the organization and its members as it has been since 1986, she said.

“We’ve seen in looking at this bill that health insurance will be more expensive,” she said. “This will change the complexion of health care.”

Knapp said a major beneficiary of the new legislation and its immediate benefits could be sole proprietors and other small businesses that can’t afford to offer health care coverage to their employees. They often can’t obtain insurance because they are not part of a group. Also, either the owner or the employees could have existing medical conditions, he said.

“They will have an immediate opportunity to join a high-risk pool,” he said. That pool already exists in South Carolina, but premiums are expensive. With the legislation, “the federal government will subsidize those pools” with up to $5 billion nationwide to drive down premiums.

“That is a positive,” Knapp said.

Also, about 90 percent of the small businesses with fewer than 25 employees that offer health care coverage will be eligible for tax credits of up to 35 percent of the premium, he said, something “that has never been done before” in South Carolina.

He said there’s plenty of fine print that people don’t yet understand. He doesn’t know whether rates could be raised mid-year because of changes in the pool being covered.

“There is no downside,” he said. “It is a positive effort to make health insurance more affordable for small business.”

In addition, the legislation will help early retirees by creating a temporary re-insurance program until the insurance exchanges are up and running to help offset the costs of premiums of retirees between the ages of 55 and 64. Medicare becomes available at age 65. This benefit becomes available 90 days after enactment of the law.

Knapp said it was important to phase in requirements and benefits because the reform is too large to do all at once. But the immediate benefits for small businesses are a help.

“If we didn’t have reform, we would have small businesses dropping their coverage like flies” as premiums increase, he said.

Justice said that healthcare reform was needed, but he’d rather see it come a piece at a time. Purchasing insurance across state lines would help because it would increase competition. Tort reform is needed to ensure that doctors’ aren’t wiped out by a lawsuit or by carrying malpractice insurance.

Dimarob said the health exchanges will be a benefit because they will make health insurance more affordable for individuals not in the employer-based insurance system – but that doesn’t come until 2014. Waste needs to be driven out of the system and costs associated with hospitals, doctors and prescription drugs need to be driven down. Companies should be allowed to pool together to buy insurance, she said.

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