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The Truth About Small Businesses and Health Insurance Reform

Small businesses are among those who benefit most from America's Affordable Health Choices Act.

WHY SMALL BUSINESSES NEED HELP

  • LESS THAN HALF INSURE WORKERS:  Only 45 percent of America's smallest firms can afford to offer health care benefits.  In fact, 60% of America's uninsured - or 28 million--are small business owners, workers, and their families. 
  • COSTS GOING UP:  Insurance costs for small businesses have increased 129 percent since 2000.
  • WORKERS PAY MORE:  Small business workers pay an average of 18% more in premiums than those in large firms for the same benefits.  Their deductibles are more than double.
  • HIGHER ADMINISTRATIVE COSTS:  Up to 25 percent of the cost of premiums for some small business health plans, compared to 10 percent for large firms.

GIVING SMALL BUSINESSES ACCESS TO AFFORDABLE, RELIABLE COVERAGE
UNDER BILL, SMALL BUSINESSES CAN NOW BUY POLICIES THAT NO LONGER:

  • Exclude coverage based on pre-existing conditions
  • Selectively refuse to renew coverage
  • Charge different premiums based on gender, occupation, or pre-existing conditions
  • Set unreasonable out-of-pocket spending limits that drive families deeply into debt

ADVANTAGES OF NEW HEALTH INSURANCE EXCHANGE FOR SMALL BUSINESSES

  • Affordable large group rates
  • Stable pricing from year to year
  • Lower administrative costs
  • Choice of plans for employees

ACCESS OF SMALL BUSINESSES TO THE HEALTH INSURANCE EXCHANGE

  • In first years, the Health Insurance Exchange is targeted to serve employees of small businesses and the uninsured
  • Small businesses will be able to participate in the Exchange as follows (under Rep. Dina Titus's amendment adopted by the Education & Labor Committee):
    • In year 1, firms with up to 15 employees will be eligible to enter the Exchange
    • In year 2, firms with up to 25 employees will be eligible to enter
    • In year 3, firms with 50 employees will be the minimum size eligible to enter
  • Small Business Benefit Arrangements are authorized to help small businesses work together  to navigate the Exchange (under Rep. Phil Hare's' amendment adopted by the Education and Labor Committee).

TAX CREDITS TO HELP SMALL BUSINESSES PROVIDE COVERAGE

  • A PERMANENT TAX CREDIT FOR SMALL BUSINESSES to help them offer coverage to their employees - which phases out as employers' size and average wages increase
  • TAX CREDITS OF UP TO 50% OF THE COSTS of providing  health insurance to their employees for small businesses with 25 or fewer employees  and average wages of less than $40,000

MOST SMALL BUSINESSES EXEMPT FROM SHARED RESPONSIBILITY REQUIREMENT
Just like auto insurance, everyone must be insured to make the system work.  The bill is built on the concept of shared responsibility.  Under the bill, individuals who are self-employed or unemployed would be required to purchase a plan if they don't qualify for other insurance.  Mid-sized and large businesses would be required to offer health coverage to their employees or pay an 8 percent payroll fee to help subsidize their coverage in the Exchange. 

In recognition that providing health insurance is unaffordable for many small businesses, the bill exempts most small businesses from the shared responsibility requirement and subjects others to a lower rate.  The following is a description of the provisions, as modified by the Blue Dog-Waxman agreement announced on July 29.

SMALL BUSINESSES GET EXEMPTIONS

  • Payrolls of $500,000 or below are completely exempt
  • Payrolls between $500,000 and $750,000 face a graduated fee if no coverage is provided

96% OF SMALL BUSINESS OWNERS NOT SUBJECT TO HEALTH CARE SURCHARGE
Under the bill, the wealthiest 1.2% of Americans would pay a surcharge on income over certain levels to help make health insurance affordable for small businesses and the middle class.  For small business owners, the surcharge is only on net profits (or what you take out of the business) --receipts minus expenditures (payroll, capital expenses, etc.)--above $280,000 (for single filers) and $350,000 (for married filers).

96% OF SMALL BUSINESSES PAY NOTHING

  • The nonpartisan Joint Committee on Taxation estimates that only 4.1% of small business owners would net that much and therefore pay the surcharge, using the broadest definition of a small business owner (i.e., any individual with as little as $1 in small business income)

OF THE REMAINING 4%:

  • Half earn less than one-third of their income from small businesses - not what we think of as truly “small business owners”
  • Only 1.1% would pay the top rate --among them, hedge fund managers, private equity fund managers, lawyers, and lobbyists making millions of dollars a year