Health Reform Would Bury Small Business

Investor’s Business Daily, November 6, 2009

President Obama recently delivered a special address aimed at quelling small-business owners’ concerns about Democratic plans for health care reform.

The legislation, he assured, would “benefit millions of small businesses” and was “being written with the interests of Americans like you and your employees in mind.”

That’s a nice sentiment. But it’s not backed up by the facts. Several new studies show that ObamaCare will dramatically increase health costs for most small businesses.

One study relied on actuarial data from WellPoint, a large health insurer that provided customer data in 14 states where it operates Blue Cross plans. The report concluded that 70% of small businesses would experience higher health insurance premiums if the Democrats’ health plan passes.

For the average small employer in New York City, the increase in premiums would be modest — just 6%. But in Franklin County, Ohio, a typical small business would be hit with an 86% increase. Similarly sized businesses in Louisville, Ky., and Richmond, Va., would see their premiums go up 20% and 25%, respectively.

These findings align with the results of a different study, produced by Blue Cross Blue Shield and the consulting firm Oliver Wyman. It estimated that the average small business would experience a 19% jump in premiums within the first five years of ObamaCare’s passage.

A third study, from America’s Health Insurance Plans and PricewaterhouseCoopers, found that the reform bill approved by the Senate Finance Committee would result in a 28% increase in premiums for firms with fewer than 50 workers by 2019.

Simply put, the Democrats’ reform plans would raise the cost of insurance for small businesses. A quick look at the various elements of their legislative package shows why.

For starters, the Democrats’ proposal would require every insurance policy to cover a minimum set of benefits, even if the customer doesn’t want or need them. At the state level, such benefit mandates can increase the cost of a basic insurance plan by 20% to 50%.

Why? Insurers price their products based on how much they might have to pay out in claims. The more treatments an insurer is on the hook for, the more costly it is to cover each customer, and therefore the higher the premium.

The Democrats’ package would also institute a federal “guaranteed-issue” law, which would prohibit insurers from denying coverage to customers based on pre-existing conditions.

This reform is well-intentioned. But it ensures that many people will wait until they get sick to buy health insurance. Insurers’ risk pools will dry up until only those with chronic health problems remain. Companies will respond by jacking up premiums. Indeed, states that have implemented guaranteed-issue laws have seen premiums jump 227%.

Of course, rising health-insurance prices hurt all employers — big and small. But the bigger ones have the luxury of spreading those costs among many workers. They can also use their purchasing clout to negotiate lower rates with carriers.

Small businesses don’t have these advantages. That’s why, on average, they pay 18% higher premiums than their large counterparts, according to the Commonwealth Fund.

Even without the Democrats’ “reforms,” small-business health premiums were expected to go up, on average, by 15% over the next year. And to add insult to injury, the House would also impose a 5.4% surtax on individuals with annual incomes of more than $500,000 and families of more than $1 million.

The tax would not be adjusted for inflation, so more and more small-business owners would be ensnared by it each year.

Managers would likely compensate for these new costs by discontinuing health benefits, cutting wages, holding off on new hires or even laying off workers. Can the Democrats’ efforts really be called “reform” if they’d leave workers and businesses alike worse off?

The administration has dismissed accounts critical of its health reform plan out of hand. But the facts don’t lie. The Democrats’ reform package will make health insurance more expensive for small firms. If the president and his congressional allies are serious about defending the interests of small businesses, they need to get a new plan.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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