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Committee Addresses Health Care Coverage for Small Businesses

On April 6, the Senate Finance Committee held a hearing to examine proposals that would make health insurance more affordable for small businesses.

Explaining that the majority of Americans obtain health insurance through their employer, Chair Charles Grassley (R-IA) stated, “We encourage employers to provide that coverage through a tax deduction. While most employers do, the fact remains that for many employers that is not enough of an incentive. The majority of Americans who were uninsured in 2004 were full-time, full-year workers. Another 30 percent worked at least part-time. So 80 percent of the uninsured had some connection to the workforce…I think we need to understand why the current incentives are not working. I also want to better understand what differentiates large and small businesses in the provision of health care. Is it really just as simple as health care coverage for 1,000 employees is cheaper than for 10 employees or is the answer more complex?”

Ranking Member Max Baucus (D-MT) said that the employer-based health care system “is struggling under rising health costs and an aging America,” adding, “This is particularly true for small employers. Administrative costs are a greater burden for small businesses than for big businesses. Small employers run a greater risk of being priced out of affordable coverage when even one worker falls ill. In Montana, only about 40 percent of the small businesses are able to offer coverage to their workers. These small businesses simply don’t have the wherewithal to insure their employees as large corporations do.”

Sen. Richard Durbin (D-IL) presented his legislation (S. 637) that would create a Small Employers Health Benefits Plan (SEHBP) modeled after the Federal Employees Health Benefits Program. He explained that the SEHBP would “allow small businesses to band together nationwide and choose from plans that would bid coverage in the pool…Plans participating in SEHBP would be subjected to strict regulatory and solvency standards, and would be audited annually by the Office of Personnel Management. Plans in SEHBP will be required to offer state-mandated benefits. Finally, small employers would receive an annual tax credit to defray part of the employer contribution for low-income workers.”

Voicing his opposition to S. 637, Sen. Jim DeMint (R-SC) stated, “Aside from the obvious problem that this would create an enormous tax increase for the American people, the Durbin proposal if adopted would eliminate competition in the healthcare market and prevent Americans from accessing the health benefits they truly need.” He announced his sponsorship of the Health Savings Account Affordability Act (S. 2549), which would “allow small business owners across the nation to provide tax-free contributions to their employees that could be used to purchase health insurance that is affordable, flexible, and portable. This would help level the playing field for those who currently do not have access to employer healthcare plans, including the self-employed, unemployed, and workers for companies that don’t offer health insurance.”

Testifying on behalf of the Small Business Health Plan (SBHP) Coalition, Joseph Rossman expressed his support for the Health Insurance Marketplace Modernization Act (S. 1955), which the Senate Health, Education, Labor and Pensions Committee approved on March 15 (see The Source, 3/17/06). He said that the bill “is the most viable proposal currently before the U.S. Senate, and will put small business workers on a level playing field with employees of large corporations,” adding, “Right now, small business workers are second-class citizens when it comes to health benefits. On average, workers in firms with less than 10 employees pay 17 percent more for a given health benefit than workers employed in a large company. This is because small businesses don’t have access to the type of economies of scale, bargaining power and administrative savings that corporate and union plans now have. The SBHP legislation will help rectify this inequity by leveling the playing field between workers in small and large businesses.”

Len Nichols, director of the Health Policy Program at the New America Foundation, stated his opposition to S. 1955 because SBHPs would be exempted from state coverage mandates, would be unlikely to achieve economies of scale and bring down insurance costs, and would allow health insurance premiums to be based on health status and claims within business classes. Instead, he argued that S. 637 “not only creates a viable pool that will likely serve all participants in the small group market at least as well as they are served today, it sets the stage for the next steps towards a reformed health care system, one that can use bargaining power, information systems and consumer choice to achieve efficiencies in service and care delivery through extensive use of pay for performance and comparative technology assessment that could make it possible for us to afford to cover all Americans someday and forever.”

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