The Reid health bill (H.R. 3590) leaves small businesses, and particularly small business owners, largely out of the picture. Small businesses, and particularly small businesses that currently do not offer health insurance coverage, will not get much break from this bill. Reid’s bill outlines a “small business tax credit”, which only lasts for two years and largely excludes small business owners, small businesses with high-average payrolls, and firms with 25 or more workers. After all exclusions, essentially the only eligible firms are those firms with 10 or fewer workers as well as those with low-income workers—the least likely to offer coverage even with a significant price reduction.
Reid’s bill, even with these “cost-reducing” tax credits, will not address the many uncertainties small businesses face in deciding whether to offer health insurance coverage to its workers. Small businesses—and particularly small business owners—most often find it difficult to predict year-to-year profits as well as health insurance costs. This is compounded for many small businesses with the fear of having to withdraw coverage in future years. Moreover, most small businesses will not find it worthwhile to begin offering even with the credits. In 2007, only 2.5 percent of total small employers in Maine actually purchased health insurance coverage through the “public option” offered through the state health insurance exchange, even with full knowledge of the program and its “benefits”.
In addition, small businesses, particularly the smallest companies, do not have the capacity to take on the administrative complexities of managing health insurance—a legitimate concern especially for a firm with 10 or fewer workers that would otherwise have to hire an additional worker just to handle the burdensome administrative functions of handling the health insurance plans.
Last, small companies, especially those with 10 or fewer workers, do not need to offer health insurance as a benefit for employment. These companies have little overall incentive to provide costly health insurance coverage as their labor force mix tends to weigh heavily on low-wage, low-skilled workers—along with a relatively high-degree turnover among workers since a lot are temporary or part-time workers. To the extent that any small company relies on seasonal workers in particular the tax credits will remain unhelpful (Sec. 1421(d)(5)(A)and(B)).
While Reid’s bill attempts to respond to legitimate concerns for small businesses—and small business owners—the impact is highly uncertain and provisions such as the “small business tax credits” will likely remain ineffective at helping small businesses. The exclusion of “non-elective contributions”, or contributions of an employer relating to a salary reduction, will make it even more difficult for small businesses to absorb the additional cost of offering coverage to workers—especially if it cannot pass the burden along to workers without the fear of facing penalties (Sec. 1421(e)(3)). Thus, if health insurance costs continue to increase, as many expect will happen, then these changes will remain deleterious for small employers wanting to offer coverage to workers as well as those that continue to offer coverage.