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Unhealthy Costs

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In September, the U.S. Census Bureau released the latest numbers on health insurance coverage, and the situation for workers and small businesses is bleak.

According to the Census report, not only did the percentage of people without health insurance coverage increase but the percentage of people covered by employment-based health insurance decreased last year, from 59.8 percent in 2005 to 59.5 percent.

For the Hispanic population, the news gets worse: The U.S. Current Population Survey (2001-2005) shows that in 2004, 65.7 percent of Anglos had employer-provided coverage, compared to 49.9 percent of African Americans, and just 41.1 percent of Hispanics.

"More workers and their families are losing employer-sponsored health insurance," says Sara Collins, assistant vice-president of the Commonwealth Fund, a nonpartisan foundation that studies the U.S. health care industry. "Most of the increase in the number of uninsured Americans was due to a decline in workplace coverage. Although the individual market is a last resort for those shut out of employer-sponsored coverage, it is by no means a safe or secure haven for everyone."

One obvious reason for this is the skyrocketing costs of health care. According to the Kaiser Family Foundation, health insurance premiums rose 9.2 percent in 2005 and have increased about a 70 percent over the last five years.

These annual increases hurt small businesses even more. A study by the Commonwealth Fund finds employees in smaller firms pay, on average, 18 percent more in health insurance premiums for the same benefits than do employees in the largest firms. The report cited "the inefficiencies of the small-employer market: a result of the higher administrative costs from marketing, medical underwriting, greater risk, and other factors associated with small size."

For entrepreneurs and small-business owners trying to stay afloat, health insurance is often a first thing on the chopping block when budget cuts are necessary. So, while many may want to offer benefits, options are limited.

"Most small employers offer sound business reasons for offering health benefits to workers: it helps with employee recruitment and retention, and increases productivity. More than three-quarters report that offering health benefits is 'the right thing to do,'" according to a study by the Employee Benefits Research Institute.

But the costs get in the way.

The Kaiser report found that many small firms are choosing to drop coverage or pass on costs to their employees.

Additionally, a July 2006 SurePayroll survey of small-business owners revealed that nearly 11 percent of respondents who offer health care benefits say they may not do so in 2007, depending on costs. Of those that don't offer a plan now, 44 percent have no intention of offering benefits in the coming year.

"If you think that we have health insurance issues now, imagine if 350,000 small businesses stopped offering health insurance in 2007," SurePayroll President Michael Alter said in a statement. "The alarm on small-business health care has been sounding for quite a while, and legislators keep hitting the snooze button."

Many small businesses and their advocates have been looking for some sort of legislation to help companies find affordable solutions.

Rep. Nydia Velazquez, D-New York, ranking member on the House Small Business Committee, and a number of her colleagues on the committee have been working on initiatives that would enable small businesses to use their buying power to purchase affordable health care, says her spokeswoman Kate Davis (see Legislative Update).

"It is important to involve all relevant parties, including the insurance companies, small businesses, and state governors to formulate a solution to the health care crisis currently facing this nation's small businesses," Ms. Davis says.

Dealing with the crisis is especially relevant for Hispanic companies since many of them fall into the small-business category. Michael Barrera, president and CEO of the U.S. Hispanic Chamber of Commerce, says, like most business groups, health insurance is a major issue for all of his constituents.

"The Latino business owners are having the same issues. As health insurance rates grow, a lot of the [Hispanic] businesses are small businesses, and the microbusinesses are going to be hit the hardest," he says. "Employers are being asked to pay more. The general costs of doing business are increasing if they raise the minimum wage and regulation costs continue to rise, especially for small businesses and then you add health care.

"Also, it can be a double cost," he adds. "Because if you lose employees due to no health insurance, then you have to spend money to hire and train replacements."

Mr. Barrera says that he thought the bipartisan effort made by Representative Velazquez and Republican House member John Boehner of Ohio was a promising start.

"We'd like to see associated health plans, which would allow business to purchase health insurance across state lines," he says. "There is a lot more regulation with state-by-state plans, and if you have a national plan, you can drive the rates down."

When the 109th Congress closed in September, having not come to a consensus on how to deal with the insurance issue, some state governments forged ahead, looking for ways to create go-betweens for businesses and workers.

For example, Arizona has had an established state-sponsored health care program for single- and small-business owners since 1986. The Healthcare Group of Arizona covers more than 23,000 members as of July, up 94 percent from two years ago with 48 percent of that growth occurring within the past 12 months.

In California, a bill introduced by the Senate to create a single-payer, state-run health care system was vetoed in October by Gov. Arnold Schwarzenegger, who said the plan would hurt business. Another bill that would have required companies with more than 10,000 employees to create a payroll set-aside for health benefits was also vetoed.

Lloyd Chapman, president of the American Small Business League, says his nonprofit group is looking to states, and not Washington, to help address the insurance mess.

"Our members have expressed concern regarding health care and hope some piece of legislation can be created that takes the burden off the individual and can pool together multiple small businesses to help create a less expensive group option," he says. "I feel this can be accomplished at a state level as opposed to a federal level."

Other business groups, such as the National Federation of Independent Businesses, a small-business advocacy group, are pushing solutions composed of a mixture of health savings accounts (HSAs), tax credits for small-business health care purchases, and multi-state association health plans, which would create larger insurance pools, such as those mentioned by Mr. Chapman.

These options, in addition to high-risk pools for entrepreneurs, reinsurance in small group markets, and allowing small employers to buy into the federal employees' health benefit plans, have graced House and Senate desks, but none have found unanimous support.

One alternative, health savings accounts, was created by the Medicare Prescription Drug and Modernization Act in 2003, and has garnered support among business advocates as a work-around. Essentially, HSAs allow employees to set aside pre-tax dollars to use on health care, kind of like a health IRA. In conjunction with a high-deductible plan, this reduces some of the premium costs to employers, and puts more responsibility in the hands of employees.

Not everyone favors HSAs. The Commonwealth Fund, for one, says the plans are not a cure-all, and that they place an undue burden on families to pay for their health care.

"The fact is that HSAs won't help the uninsured or low-wage workers, a group for whom tax benefits are of little value," says Commonwealth Fund President Karen Davis, in a September letter. "A 2005 Fund report showed that 55 percent of the uninsured are in a zero percent tax bracket."

This is in addition to the concern that people covered under high-deductible plans might avoid getting medical care due to the cost. A bleak situation indeed, unless small businesses gain more options for health insurance.

Adds Mr. Barrera, "For small businesses to remain competitive, they need to have incentives. The true engine of any business is its employees, and the engine runs better when you have happy employees."

Legislative Update
As with most legislation drafted in the House or Senate, many proposals will never see the light of day in Congress. However, the contentiousness of the partisan, pre-election sparring in Washington is making casualties of several issues such as affordable small-business health care. The following are just a few proposals introduced in the House or Senate within the last year some have had more success than others:

H.R. 525, the Small Business Health Fairness Act of 2005
Introduced by Rep. Sam Johnson
(R-TX), 135 co-sponsors
"To amend title I of the Employee Retirement Income Security Act of 1974 to improve access and choice for entrepreneurs with small businesses with respect to medical care for their employees."
• Passed the House in 2005, but still in committee in the Senate. There are similar Senate bills, but those too, have seen no action.

S.1955, Health Insurance Marketplace Modernization and Affordability Act
Introduced by Sen. Michael Enzi,
(R-WY), Seven co-sponsors
"A bill to amend title I of the Employee Retirement Security Act of 1974 and the Public Health Service Act to expand health care access and reduce costs through the creation of small business health plans and through modernization of the health insurance marketplace."
•Bill was marked up in committee then returned to the calendar at the end of July.

UPDATE: Neither bill has been sent to conference (where House and Senate compare bills and come to a consensus) in the 109th Congress or any of the previous two congresses when similar bills were introduced.

S. 1329, the Small Business Health Care Act of 2005
Introduced by Sen. Evan Bayh (D-IN), No co-sponsors
"A bill to amend the Internal Revenue Code of 1986 to provide for a tax credit for offering employer-based health insurance coverage and to provide for the establishment of health insurance purchasing pools."
•Read twice then referred to the Senate Finance Committee.

H.R. 5288, the Small Business Health Plans Act of 2006
Introduced by Rep. Thomas Allen
(D-ME), 26 co-sponsors
"To establish a small business health benefits program." (Would allow for small businesses to purchase health insurance through a program operated by Health and Human Services, similar to how the federal government provides insurance for its employees.)
•Referred to House Subcommittee on Employer-Employee Relations.

H.R. 2073, Small Business Health Insurance Promotion Act
Introduced by Rep. John Barrow
(D-GA), 107 co-sponsors
"To amend the Internal Revenue Code of 1986 to provide tax subsidies to encourage small employers to offer affordable health coverage to their employees through qualified health pooling arrangements, to encourage the establishment and operation of these arrangements, and for other purposes."
(Offering self-employed individuals or any small business owner with 50 employees or less, a tax credit equal to 50 percent of the employer's cost of health insurance coverage.)
•Referred to several House subcommittees, but yet to receive a hearing.

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