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Small Business Health Care Costs Subject of Hearing

On March 2, the House Small Business Committee held a hearing to examine proposals aimed at reducing the rising health care costs for small businesses and their employees. Chair Donald Manzullo (R-IL) noted that 60 percent of uninsured Americans are small business owners, their employees, and their families. “Our small employers—the innovators and job creators of our economy—are drowning in escalating health insurance costs,” he said, adding, “It is a crisis that threatens to leave many more Americans without the security of basic health care, and Congress must act immediately to provide options to small employers to harness the surging costs.”

Ranking Member Nydia Velazquez (D-NY) agreed that “the number one challenge facing our nation’s small businesses today is their ability to access affordable health care.” However, she added, “While it seems that many recognize the problem, and acknowledge that small businesses need access to health care—they have been long on talk and short on action when it comes to providing the solutions to affordable health care.” Adding that Association Health Plans (AHPs) are “a common sense solution,” Rep. Velazquez asked, “Will AHPs actually pass into law in the 109th Congress, or will this be another Congress that goes down promising a lot and delivering little?”

Assistant Secretary for Planning and Evaluation at the Department of Health and Human Services Michael O’Grady discussed President Bush’s proposals for making health care more affordable. “The President’s budget invests $125.7 billion over 10 years to expand insurance coverage to millions of Americans through tax credits, state purchasing pools, tax deductions, and rebates to small employers contributing to HSAs [health savings accounts]. These investments are in addition to the President’s other health care proposals including Association Health Plans, medical liability reform, and the ‘Cover the Kids’ campaign that will also help expand coverage and reduce health care costs,” he said.

Under the small business HSA proposal, small businesses with fewer than 100 employees would be allowed a refundable tax credit of up to $200 for employer contributions to an HSA for individual coverage and $500 for family coverage. “In order to receive the credit, the employer would be required to maintain a high-deductible health plan accessible to all employees, but the employer would not be required to make contributions toward employees’ premiums. The tax credit would not be included in employer income and would not be subject to general business tax credit rules,” stated Mr. O’Grady. Additionally, the administration has proposed an above-the-line deduction for premiums paid by individuals to purchase an HSA-eligible high deductible health plan and a refundable tax credit for individuals under the age of 65 who are not enrolled in public or employer sponsored health plans.

Noting that AHPs “will allow small businesses to band together to purchase more affordable health insurance, ” Mr. O’Grady said that the “Congressional Budget Office (CBO) estimates that AHPs would allow small business to enjoy premium reductions of 13 percent on average with a range of between nine and 25 percent.”

Thomas Hanyes, executive director of The Coca-Cola Bottlers’ Association (CCBA) and president of the Association Healthcare Coalition, testified in support of a bill (H.R. 525) to create AHPs for small businesses, calling it a “critical component of federal policy changes aimed at expanding access to affordable health care coverage for small businesses.” Discussing CCBA’s experience, Mr. Hanyes said that historically CCBA has provided two AHP plans: one for small bottlers with fewer than 100 employees and one for large bottlers with more than 100 employees. “Until recently, CCBA’s AHP was able to significantly reduce the cost of insurance by combining over 60 small employers who participated in our fully pooled program with administrative costs of approximately 7%.” However, the program was disbanded in 2000 “due to the overwhelming complexity of state small group reform laws and regulations,” he said. “These well-meaning but counterproductive laws eliminated virtually all insurance companies from participating in multi-state arrangements due to their reluctance to navigate the myriad individual state premium and coverage requirements for small employers.”

While all other witnesses testified in support of AHPs, Scott Shalek, former board member of the National Association of Health Underwriters, opposed their creation because they are “exempt from state-mandated benefit laws and give AHPs a pricing advantage over the fully insured small group health insurance markets.” Mr. Shalek added, “We believe that all health insurance benefit mandates increase the cost of coverage and would prefer that small employer plans were exempted from such requirements. Unless Congress is willing to preempt state laws and exempt all small employer plans from state-mandated benefit laws, we feel that all plans in the small employer market, including AHPs, should play by the same rules to encourage competition and maintain a healthy, level playing field.”

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