As the health reform debate grew increasingly rancorous last year, both political parties sought support from the nation’s millions of small businesses, an influential sector that represents 99.7% of U.S. employers and, in California, provides more than half of the state’s jobs.
Republicans stressed that the reform would force small businesses to grapple with new uncertainty and “job-killing employer mandates.” Meanwhile, Democrats and the Obama administration touted their legislation as a salve for employers’ rising health costs, with small businesses often spending more on plan administration and their employees paying health plan premiums up to 18% higher than their counterparts working for larger businesses. Since the law’s passage, the White House has organized several high-profile events focusing on immediate benefits for small businesses.
Yet, rather than champion reform, many small businesses have expressed skepticism or outright oppose the new law, contending that its provisionsÂ are insufficient in the face of sudden rate hikes and have created additional challenges.
The Law’s Intended Benefits
Beyond general measures intended to benefit all employers — such as provisions designed to reduce health costs and expand health coverage for low-income workers — the reform law targets small businesses with new tax credits and special protections.
Beginning this year, small businesses that employ fewer than 25 full-time workers and meet certain criteria will be eligible for a 35% federal credit on premiums. According to the Council of Economic Advisors, about four million small businesses nationwide could qualify for the tax credit, which would be phased out by 2016.
Meanwhile, small businesses with fewer than 50 full-time employees would be exempt from new coverage mandates after new health exchanges come online in 2014, in hopes of reducing their health spending and improving competitiveness.
As conceived, the reform law could have a considerably positive impact on California employers. About 43% of the state’s uninsured residents work for businesses with fewer than 10 employees, and more than 4.5 million Californians in 2007 worked for companies with fewer than 50 employees. The tax credits could be worth more than $4.4 billion to California employers over 10 years, according to a report from UC-Berkeley’s Center for Labor Research and Education.
In practice, the credits are presenting unanticipated challenges. For instance, small businesses are not permitted to count any family members they employ toward the credits. Also, the National Center for Policy Analysis suggests that the credit could have an adverse effect on hiring practices, as the credit’s value diminishes as small employers grow from 13 to 25 employees.
Meanwhile, many small-business owners say any relief from the credits pales in light of rising health costs, as payers across the nation push for premium hikes. Most major insurers that serve California’s small businesses already announced significant rate increases. For example, Blue Shield of California will increase average rates by 18%, although some small businesses could experience rate hikes of up to 76%.
The insurers argue the hikes are necessary given rising spending in the wake of the recession, while small-business owners contend that their new tax credits essentially are going to pay down higher premiums. Despite complaints, regulators in many states lack the power to curb the rate hikes, although AB 2578 — which passed the California Assembly last week and would require insurers to receive approval for increases in charges — would bring that authority to the Golden State.
Debate Over Potential Consequences
Meanwhile, trade associations and policy analysts are split on reform’s effect on small businesses. Dan Danner, president and CEO of conservative-leaning National Federation of Independent Business — which has joined a multistate lawsuit against the reform — warns that the “law is death by a thousand cuts” for small-business owners. Danner says that small businesses also now must deal with additional paperwork and taxes.
John Goodman of NCPA cautions that a new tax on health insurers under the law will be passed onto small businesses and their employees in the form of higher rates.
However, the liberal-leaning Small Business Majority continues to back reform, and CEO John Arensmeyer says the credits are a “big piece of an overall solution.” Jonathan Gruber, an MIT economics professor who has consulted for HHS, also is optimistic on the effect of credits on lowering costs and ensuring that small businesses offer coverage. According to Gruber, he doesn’t know what else the government could do “besides provide coverage for free.”
Here’s a look at what else is making reform-related news around the nation.
Selling the Law
- Several advocacy groups are mounting campaigns to promote the benefits of the new reform law, the New York Times reports. Families USA has scheduled “road shows” in a number of cities, in which CMS and HHS officials will host presentations on key aspects of the overhaul. Ron Pollack, executive director of Families USA, said the junkets will be “media-centric,” with participants doing radio and television interviews and meeting with newspapers’ editorial boards. The campaigns come as polls indicate that U.S. residents continue to be “deeply split” on the overhaul, with 43% approving of the law and 47% disapproving of it, according to a CBS News survey released last month (Stolberg, New York Times, 6/6).
- Democrats and the Obama administration hosted more than 100 events on Tuesday to promote the new reform law, Politico reports. The administration scheduled the meetings to coincide with the scheduled release on Thursday of the first 80,000 $250 checks that aim to offset prescription drug costs for beneficiaries who reach the so-called “doughnut hole” in Medicare prescription drug coverage (Allen, Politico, 6/7).
- Major U.S. pharmaceutical companies for the first time have disclosed company-specific spending on drug samples, which was required under the new federal health reform law, the Wall Street Journal reports. The companies in 2007 gave out 240 million drug samples valued at about $3 billion, according to data submitted to Congress. The new reform law also requires pharmaceutical companies to disclose how much they spend on physician gifts (Hobson, “Health Blog,” Wall Street Journal, 6/4).
- After battling throughout the health reform debate, the insurance industry and the Obama administration will “need to switch from confrontation to collaboration” in order to successfully implement the new health reform law, the New York Times reports. Obama and congressional Democrats must demonstrate they can “translate [the reform law’s] promise into reality for voters, by reining in health costs and making insurance available to everyone at an affordable price,” according to the Times. Meanwhile, the future “of the health insurance industry depends on the government — on regulations being written by federal officials and on hundreds of billions of dollars in federal subsidies to the insurance companies to cover low- and middle-income people,” the Times adds (Pear, New York Times, 6/3).
- A recent Government Accountability Office report found that Medicare Advantage plans might have drawn healthy beneficiaries into low-premium plans and then subjected them to unexpectedly high out-of-pocket costs, The Hill reports. The report, which was requested by Democratic leaders of the House Energy and Commerce and Ways and Means committees, highlights a practice that Democrats say the new health reform law will prevent (Pecquet, The Hill, 6/1).
White House Efforts
- White House Office of Management and Budget Director Peter Orszag on his blog on June 2 defended the new health reform law after Douglas Elmendorf, director of the Congressional Budget Office, warned that the legislation does little to control unsustainable health spending, The Hill reports. Although Orszag acknowledged that more action is necessary to solve the country’s fiscal problems, he said the reform law would reduce the national budget deficit by $1 trillion. Orszag added, “The bottom line is that we are on a long journey toward fiscal sustainability — but that should not diminish the importance and potential of the [new reform law]” (Pecquet, The Hill, 6/2).
- Although the new health reform law has “slipped from the headlines” of the nation’s newspapers, the “gargantuan chore” of implementing its provisions is keeping policymakers and bureaucrats in Washington, D.C., “busier than ever,” the Washington Post reports. According to the Post, implementing the new law remains one of the Obama administration’s main priorities, with top-level White House officials “in the driver’s seat.” In addition to the new rules, several new secondary agencies need to be established to oversee the execution of the new rules and provisions, but only one — the Office of Consumer Information and Insurance Oversight — so far is running, the Post reports (Aizenman, Washington Post, 6/3).
- Republicans are seizing on comments by Donald Berwick, President Obama’s nominee for CMS administrator, to revive their criticism of the health reform law, the Wall Street Journal reports. Republicans have attacked Berwick over his praise for Britain’s government-run National Health Service and have used past writings to portray Berwick as a proponent of rationing care. GOP lawmakers also “plan to use [Berwick’s] Senate confirmation hearing … to advance their case against the Democrats’ health-care overhaul,” the Journal reports. HHS Secretary Kathleen Sebelius last week defended Berwick as part of “an aggressive defense” planned by the administration to counter Republican criticism of the nominee (Adamy, Wall Street Journal, 6/4).
In the States
- Virginia Attorney General Ken Cuccinelli (R) on Monday rebutted HHS assertions that the state lacks standing to challenge the new national health reform law and questioned the constitutionality of the individual insurance mandate included in the law, the Washington Post reports. In a 41-page memorandum, Cuccinelli argued that a federal judge should allow the state’s lawsuit against the reform law to proceed. A federal judge in the Eastern District of Virginia will hear oral arguments on the motion to dismiss Virginia’s lawsuit on July 1.Â (Helderman, Washington Post, 6/8).
- Georgia Gov. Sonny Perdue (R) last week signed into law a bill (SB 411) stating that no Georgia resident can be forced by a law or regulation to “participate in any health care system,” the Atlanta Political Buzz Examiner reports. The measure initially dealt solely with allowing insurers to create incentive programs rewarding state residents for good health and involvement in health prevention measures. After passage of the federal health reform law, which contains a mandate requiring U.S. residents to purchase insurance or face a financial penalty, state Sen. Judson Hill (R) added an amendment to the legislation prohibiting mandatory participation in any health care system (Kochanska, Atlanta Political Buzz Examiner, 6/3).
- A Tennessee measure (HB 3433) allowing residents to opt out of the federal reform law failed in the state House Budget Subcommittee by one vote on June 2. A companion bill was approved by the state Senate in February. State Attorney General Bob Cooper (D) questioned the constitutionality of the House proposal and a related measure requiring his office to mount a legal challenge to the reform law, characterizing the proposals as violating the state constitution’s separation of powers (Sisk, AP/Tennessean, 6/3).
- A provision of the new health reform law that takes effect in September could cause more than one million U.S. residents to lose their insurance coverage, Politico reports. Under the provision, insurance companies no longer can apply broad annual caps on how much they pay out on health policies, which, according to employer groups, could eliminate a niche “mini-med” market dominated by part-time workers and retail and restaurant employees. If strictly implemented, the provision could cause plans to become unaffordable, leaving the group without insurance coverage until 2014 when the new exchanges are implemented and tax credits become available (Haberkorn, Politico, 6/8).
- A Virginia-based insurance company, nHealth, says uncertainties created by the reform law will force it out of business by the end of the year, possibly making the two-year-old firm the “first victim” of the overhaul, Politico reports. James Slabaugh, nHealth’s executive vice president, said, “The uncertainties in the regulatory climate coupled with new demands imposed by national health care reforms have made it challenging to sustain the level of sales required to remain viable over the long run.” Slabaugh said the company has stopped accepting new group customers and expects to halt business by Dec. 31 (Kliff, Politico, 6/7).