Obama Says Small Businesses to Benefit from Health Reform

Pres. Obama addressed small business health care concerns

WASHINGTON - As lawmakers continue to debate and stumble on the first major health care overhaul in over a generation, President Obama discussed in his weekly address Saturday morning the impact of health reform on small business.

“Because they lack the bargaining power that large businesses have and face higher administrative costs per person, small businesses pay up to 18 percent more for the very same health insurance plans — costs that eat into their profits and get passed on to their employees,” said President Obama. “As a result, small businesses are much less likely to offer health insurance.”

The President emphasized the health insurance plan that is beginning to emerge from Congress. “Small businesses will be able to purchase health insurance through an ‘insurance exchange,’ a marketplace where they can compare the price, quality and services of a wide variety of plans, many of which will provide better coverage at lower costs than the plans they have now.  They can then pick the one that works best for them and their employees.”

“Small businesses that choose to insure their employees will also receive a tax credit to help them pay for it,” continued the President. “If a small business chooses not to provide coverage, its employees can purchase high quality, affordable coverage through the insurance exchange on their own.  Low-income workers – folks who are more likely to be working at small businesses – will qualify for a subsidy to help them cover the costs.”

Secretary of State Hillary Clinton, who herself tried to push health care reform in the early 90s, said on the Sunday talk show Meet the Press that small businesses have been losing in their efforts to provide health care to their employees. "The chances that small business will pay for health care over the next five, ten, fifteen years is diminishing," she said. "If I remember correctly, in '93 and '94 sixty one percent of small businesses provided some kind of health insurance for the employees. It's down to thirty-eight percent."

According to a report by the Small Business Majority, a nonprofit advocacy organization focused on launching health care reform, small business profits will shrink over time because of rising health care costs that firms cannot fully pass on to workers.

Annual Small Business Profits Lost Due to Healthcare Costs

Another study, by the White House Council of Economic Advisers, argues that by increasing the affordability of small businesses health care, small businesses are helped against “job lock”, where workers must remain at their jobs in big businesses because of their concern about being covered for pre-existing medical conditions.

The study went on to say that Medicare recipients of age groups between 65 and 69 show substantially more mobility in joining small firms. The study concludes that by having health care coverage for lower income groups and likely small business workers, “Entrepreneurial activity would likely increase, individuals who would not otherwise work for small firms will have increased incentives to do so, and individuals will be more likely to move to jobs that provide better matches to their skills and needs.”

Shift in Medicare Aged Recipients to Work for Smaller Firms

Bills in the House and the Senate call for significant tax credits to small firms that provide health insurance for the first time or continue to provide health benefits. For small businesses that do not provide health insurance, their employees would be qualified for health insurance subsidies.

The report gives an example of a plan that is being considered in Congress. It states, “the House Tri-Committee bill would allow firms with fewer than 25 employees and with an average annual wage of less than $40,000 to receive a credit. The magnitude of the credit would be greatest for firms with fewer than 10 employees whose average annual wage is less than $20,000, with the credit equal to half of the firm’s contribution for health insurance in this case. Thus a firm with 8 employees that paid $20,000 per worker in wages and $8,000 per worker in health insurance premiums would receive a tax credit of $32,000. Firms with 10 to 19 employees with average annual wages between $20,000 and $40,000 would also receive a tax credit.”

But BusinessWeek recaps that the House plan would require employers with $250,000 in payroll or more provide health care for employees. Such “companies would have to contribute 72.5% of their workers' premiums (or 65% for family coverage). Those that don't would face a payroll tax, starting at 2% for companies with a payroll of $250,000 and increasing on a sliding scale to 8% for those with more than $400,000. The House plan would offer small employers with low-wage workers a tax credit toward premium costs that would phase out for companies with higher wages and more workers. Some employers could let their workers buy insurance through the exchange.”

Representative Cathy McMorris Rodgers of Washington State gave the GOP rebuttal address to the President’s remarks in a videostream, saying that the nation could not afford the health care reform proposals that were “bankrolled by a small-business tax.” Rodgers argued that rather than thrive, businesses would evaporate because they would not be able to meet payroll expenses.

The National Federation of Independent Business, a small business advocacy lobbyist, also opposes the House’s version of health care reform. In a quote to BusinessWeek, the lobbyist for NFIB, Michelle Dimarob, summarized why. “This bill is going to make it worse than the status quo,” she said.

A video of the President’s July 25th remarks on Small Business and Health Care is below.