Small business wished for reform, but not this

  • Article by: CHEN MAY YEE , Star Tribune
  • Updated: December 14, 2009 - 6:38 AM

Small business owners fear bigger insurance bills and government penalties if they don't play along with expanded health care coverage.

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Robin Kocina, photographed at Kocina Branding and Marketing Co. in Burnsville.

Photo: Carlos Gonzalez, Star Tribune

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Joe Glenn has waited years for Washington to do something about the health care mess. The owner of Glenn Metalcraft Inc. in Princeton, Minn., has watched health insurance premiums rise relentlessly and has always found shopping for health insurance to cover his employees "chaotic at best."

Yet Glenn is not celebrating as Congress stands at the brink of passing health care legislation. He thinks the pending bills have too many mandates and too little cost control. Public insurance option? No, thanks.

Glenn's response is typical among the nation's millions of small-business owners, many of whom would face sweeping new requirements as Congress and President Obama try to expand health insurance coverage in the United States.

It's not surprising that these independent-minded people would be suspicious of new government regulation. But the business critique exposes what is widely viewed as one of the weaknesses of the proposed legislation: Too little focus on controlling the nation's soaring health care costs.

The small-business conundrum also illustrates a broader truism that explains why presidents as far back as Harry Truman failed to pass health care legislation: Reform creates winners and losers. Lower costs for patients can come on the backs of payment cuts to doctors and hospitals. Premium subsidies for the poor could mean higher premiums for the rich. And ensuring better benefits for employees and their families can translate into bigger bills for employers.

That last one has many business owners steaming.

"We think it's a terrible approach," said Mike Hickey, Minnesota director for the National Federation of Independent Business (NFIB), which has 13,000 members in the state, with 115,990 employees. "It's detrimental to the economy and small businesses during a very bad recession."

'Pa or play'

Employers' biggest beef concerns a mandate contained in the House bill, which would require all but the smallest employers to provide health insurance or pay a penalty -- the "pay-or-play" assessment. The Senate bill does not have a mandate per se but imposes fines on employers whose workers wind up getting government subsidies.

Lawmakers who worked on the legislation argue that some form of mandate is the only way the United States can approach universal coverage while fairly spreading the burden.

"The employer mandate is an important prong in our shared-responsibility idea in health care," said Aaron Albright, a spokesman for the House Education and Labor Committee. "Employers should cover employees, individuals should have insurance and government should ensure that it's affordable."

Any mandate wouldn't come into force until 2013, when the economy should be stronger, Albright added.

Advocates also say the bills contain provisions designed to help small business. New insurance exchanges allowing individuals and small employers to join larger pools to buy insurance should help smooth out premium spikes. A requirement that insurers take all comers, regardless of pre-existing conditions, would also help employees who aren't in group plans.

Very small employers in particular have something to gain: Both bills provide companies with fewer than 25 employees and average annual wages of less than $40,000 with a tax credit for employee coverage.

Yet, invariably, people focus on the specifics they dislike. "When you're opposing 20 things, it's kind of hard to support three things," said Hickey.

Robin Kocina, president of Kocina Branding and Marketing Companies in Burnsville, is a case in point. She has 40 employees and a total annual payroll of about $3 million. That makes her exempt from the Senate's employer requirement but not the House's.

Several years ago, Kocina paid 100 percent of employees' health premiums. Faced with steep increases, the company cut that to 50 percent for newer employees. Kocina price-shops every year, rotating among Medica, Blue Cross and HealthPartners. "After salaries, health care is the biggest expense," she said.

If the House version prevails, Kocina will have to raise the company's share of premiums to 72 percent from the current 50 percent. She'll also have to pay 65 percent of family premiums; the company currently does not cover dependents.

Instead of mandates, she supports allowing small businesses to join pools and to buy insurance across state lines.

"The big issue was cost and [the employer mandate] is going to make costs go up," she said.

(While employers such as Kocina will be required to pay a bigger share of premiums, actual premiums in the small group and large group market would stay the same or fall slightly if legislation passes, according to a recent analysis by the Congressional Budget Office.)

Kocina's skepticism is widely shared in the business community. The U.S. Chamber of Commerce, which has 3 million members of all sizes, says the House bill would "raise costs, kill jobs and threaten coverage." It opposes the Senate bill too. The Twin Cities-based Buyers Health Care Action Group, which includes some of Minnesota's biggest employers, frets that mandates would mean more paperwork.

Meanwhile, the Minnesota Chamber of Commerce opposes the employer mandate, the public option and a proposed tax on medical devices.

A stake in reform

Small businesses have their own peculiar challenges, which give them an especially keen interest in health care reform. Because their risk pools are tiny, their premiums can fluctuate wildly. If just one employee gets cancer or has a high-risk pregnancy, premiums can shoot up for everybody by more than 20 percent.

A recent study by the National Small Business Association found that 61 percent of 370 small-business owners surveyed thought it was important for Congress to enact some kind of health reform in the next year. Sixty-one percent said they planned no salary increases for employees, 31 percent said they had held off hiring staff and 26 percent said they had held off on growth -- all because of health care costs.

The Senate and House bills include a long list of measures to contain costs: computerizing medical records and claims, cutting Medicare payments, investing in prevention and trying new payment models that reward quality and not just quantity.

But these benefits seem intangible compared to the reality of a mandate.

"Health insurance is part of [employee] compensation. You can't instantly increase your productivity. You can't take it out of rent," said Peter Terry, owner of Terry's Ace Hardware stores in Rosemount and Hastings.

Terry has 45 employees and offers health insurance to 17 who are full-time. He covers 50 percent of premiums for those employees; some managers also get family coverage. If he has to pay more for health insurance, something else will have to give.

"It's going to come out of the whole payroll budget somehow," Terry said.

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