Outside editorial: Health care solution hurts small business

Posted: Wednesday, July 22, 2009

Lawmakers are racing to complete a bill that improves the nation's health-care system before the momentum for reform runs out. The need for this legislation is clear, as is the need to move quickly.

But reform should not place an unfair burden on one of the most vital and endangered sectors of our economy - small business.

The bill unveiled by House Democrats last week is a sweeping, 1,000-page blueprint containing scores of provisions that will change the way we pay for medicines and medical treatment. Some have more merit than others.

The proposal to impose a penalty of 8 percent of payroll on all but the smallest businesses is particularly onerous and unworkable - especially in South Florida where small businesses are the backbone of the area's economy.

In the first place, it's a job killer. To understand why, it is necessary to understand both the nature of small businesses and the essential role they play in the American economy.

According to the Small Business Administration, the nation's 6 million small employers represent 99.7 percent of the total number of businesses that provide jobs, and 50.2 percent of private-sector employment. Small businesses create about 70 percent of new jobs.

Although this includes all businesses with fewer than 500 employees, the typical operation is far smaller. According to SBA figures, 89 percent have fewer than 20 employees, and 98 percent fewer than 100.

The bill's "pay or play" option offers owners with payrolls exceeding $400,000 two unpalatable choices: Either pay the 8 percent penalty, or pay part of the premium for all full-time employees.

For many, this is a lose-lose proposition. A survey by the National Federation of Independent Business found that 20 percent of its respondents would simply shut down if they were faced with this choice. They couldn't afford it. One out of four said they would replace full-time workers with part-time workers in order to avoid having to pay anything.

The level of the proposed penalty is a second problem.

Small employers, like everyone else in America, will have to do their part to support healthcare reform, but the 8 percent figure is too burdensome.

According to NFIB, a typical member employs five people and reports median gross sales of $350,000.

For many of these employers, the option of paying for insurance instead of paying the government penalty would result in paying more in health premiums for each worker than for the employer's portion of the Social Security tax.

Many employers earn relatively little from their businesses, not only making the proposed new fee a problem, but the difference between breaking even or going under.

According to NFIB, 14 percent of small employers have household incomes of $50,000 or less. And 34 percent have a household income of $75,000 or less. For these businesses in particular there is a built-in unfairness in asking owners to subsidize employees who earn close to the same amount as the owner.

And for households that earn $350,000 or more, there is a double whammy in the legislation if they own a small business. The House Democratic bill proposes a surtax on their personal earnings, in addition to payments to cover health insurance that would have to come all or in part from profits.

The best part of the Obama administration's reform efforts involves the drive to improve the effectiveness and delivery of services and save costs. A significant number of healthcare providers has signed on.

Cost containment is essential to success.

Employers who have conscientiously tried to provide insurance for their workers have had to pay more in return for less. They're getting killed by skyrocketing premiums. They will welcome reform that brings costs down to earth.

It's not fair for some employers to pay for workplace insurance while others don't. A mandate that does not address rising costs and forces employers to provide a benefit they can't afford is not the answer.

Lawmakers need to come up with a reform blueprint that offers a solution, not a penalty.

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