Small businesses are sick of rising health care costs. Will the government ease their pain?

As a climber, Jonathan Lantz is used to uphill battles. But Lantz, who is president of the La Sportiva climbing shoe company, said the cost of providing his employees health care has gotten ridiculously steep.

“It started to spike two years ago,” Lantz told SNEWS®. Kaiser Permanente informed Lantz that his company would no longer receive the discount it had been getting due to the rising costs of health care. He said that last year La Sportiva paid about $320 per person per month for health care coverage. “But they’re going to raise it another $150 for next year. That’s quite a substantial increase,” said Lantz.

Bob Lachniet, president of Fitness4Home Superstore in Arizona, helps subsidize insurance for his six full-time employees on a case-by-case basis, but does not offer all of them a plan, primarily due to costs.

“It’s certainly cost-prohibitive,” said Lachniet. “We had an employee who has since left the industry who had four kids, and we were spending $10,000 a year on his insurance. For a small company like ours that’s a massive bill.”

Small businesses such as La Sportiva and Fitness4Home say they desperately need health care reform legislation that eases their financial burden. For businesses with fewer than 25 employees, the median cost of health insurance rose 43.5 percent between 2000 and 2005, according to the Kauffman-Rand Institute for Entrepreneurship Public Policy in Santa Monica, Calif. According to a poll by the National Federation of Independent Business (www.nfib.com), almost 60 percent of small business owners reported that it was difficult for them to keep up with health care costs.

This fall, Congress is slogging through the process of blending various bills and proposals to form comprehensive health reform legislation. Several items up for debate could greatly impact small business owners including, of course, specialty retailers in both outdoor and fitness as well as many of their suppliers. To help you track the latest news, SNEWS is reviewing what is being discussed that is most important to you:

Employer mandate

In a speech to a joint session of Congress on Sept. 9, President Barack Obama put forth his plan for health care reform, which included requirements that every American have health coverage and that every business provide coverage for its employees.

“If some businesses don’t provide workers health care, it forces the rest of us to pick up the tab when their workers get sick, and gives those businesses an unfair advantage over their competitors,” said Obama. “And unless everybody does their part, many of the insurance reforms we seek — especially requiring insurance companies to cover preexisting conditions — just can’t be achieved.”

On July 14, the House had introduced a bill titled, America’s Affordable Health Choices Act of 2009, also known as H.R. 3200. This bill and a version of the Senate Finance Committee bill introduced by Sen. Max Baucus, D-Mont., on Sept. 22 require employers with payrolls of $500,000 or more to provide health insurance or pay a penalty that ranges from 2 percent of payrolls from $500,000 to $585,000 to 8 percent for payrolls over $750,000. Those with payrolls less than $500,000 would be exempt from providing coverage.

Citing statistics from its 2007 Specialty Retailer Operation report, the Outdoor Industry Association stated on its website (www.outdoorindustry.org): “While the 2007 report indicates many retailers would have payrolls below the $500,000 threshold and be exempt, the industry’s largest retailers would almost certainly be covered by the employer mandate. Stores with more than $2 million in sales and 9,000 square feet averaged approximately 50 full-time employees, according to the OIA study. That would easily put them over the $500,000 payroll threshold.”

H.R. 3200 also requires employers to offer health plans not only for individuals, but also for employees’ family members. The employer would be required to pay at least 72.5 percent of the premium for the employee and 65 percent for family members. The Senate bill requires employers to contribute at least 50 percent of premiums or pay a penalty determined by the size of the company’s payroll.

Some company executives told SNEWS that they actually don’t mind the concept of an employer mandate because they are already dedicated to the idea of assisting employees to make their lives easier.

“It’s hard for a small company to afford it, and it definitely affects our bottom line, but it’s very important,” said Chas Fisher, president of Nikwax, which saw its health care costs rise more than 20 percent last year. “It’s a great benefit for our people, and a strong aspect of our company is that we try to make people happy.”

“We’re already providing insurance, so the idea of a mandatory health insurance part of the bill coming into play doesn’t really affect us,” said Lantz of La Sportiva.

But some small business owners are opposed to the employer mandate. Lachniet of Fitness4Home Superstore said he is not in favor of the idea. “Do I like the government dictating to me as a small business owner what I have to offer our employees? No, I don’t like that at all. I don’t think the government should have that right.”

Many companies have formed alliances to oppose an employer mandate, including members of The National Federation of Independent Business, one of the country’s largest small business associations. Another group opposed to the employer mandate is the Small Business Coalition for Affordable Health Care (www.smallbusinesshealthcarecoalition.com). This organization has the support of the NFIB as well as the Outdoor Industry Association.

“In January, NFIB put out research on the implications if employers were required to pay 50 percent of the premium dollars, and that had an effect of 1.6 million jobs lost across the country,” said Michelle Dimarob, NFIB’s manager of legislative affairs. “That looked at businesses of all sizes, and the most jobs were lost in small businesses with 500 or fewer employees.”

Dimarob said the employer mandate hits like a one-two punch. “First, the employer has to find a way to take money from the business to comply with the mandate. The second punch is on employees,” she said, explaining that companies would lay off workers and mechanize their operations to stay under a certain number of employees.

While NFIB opposes an employer mandate, the idea has the support of another coalition,

The Main Street Alliance (www.mainstreetalliance.org). Founded in 2008, the Main Street Alliance is a national network of small business coalitions. It includes 15 states and 8,000 member companies, from small bakeries to auto mechanics to retail stores and small manufacturers.

“We recognize if we are to rise to this challenge, everybody is going to have to pitch in. We support the idea of a fair employer contribution as long as there are real affordability protections, particularly for the smallest businesses,” said Sam Blair, director of the national Main Street Alliance. “Even the bills that do include an employer contribution, like the House bill, provide an exception for the vast majority of small businesses.”

Small business tax credits

Blair said that tax credits could also help offset costs for businesses if there is an employer mandate. H.R. 3200 allows businesses with 25 or fewer employees a subsidy for 50 percent of the cost of employee health insurance. Businesses with an annual salary per worker of $20,000 or less would get this full subsidy, and the credit phases out at $40,000.

OIA research shows that many outdoor specialty retailers would benefit from the tax credits because 70 percent of their employees make between $10 and $12 an hour. Also, according to the OIA 2007 Specialty Retailer Operational Report, outdoor specialty stores had an average number of 12.9 full-time employees for one store and 4.2 full-timers for stores with less than $1 million in sales.

The Baucus bill in the Senate also includes tax credits. It proposes that the smallest companies with the lowest average earnings receive a tax credit equal to half of the average total premium cost for the insurance in the employer’s state. This credit will be phased down as the size of the company and average earnings increase. The employee and earnings phase-outs work together, until the credit is fully phased-out.

Health insurance exchange

One aspect of health care reform that just about everybody agrees on is the idea of providing businesses access to cheaper health insurance plans. Bills in the House and Senate include the creation of health exchanges, which would allow individuals and companies to shop for local, regional and national plans. The Small Business Coalition for Affordable Health Care has criticized the House bill because it initially allows only companies with 20 or fewer people to participate, while larger companies would have to shop in the small-group market, which is more expensive.

The Baucus bill in the Senate states that businesses with up to 50 employees can buy into the exchanges. Plus, it would allow states the option to expand that to businesses with 100 employees. Also, according to this bill, the exchanges would be open to businesses of all sizes by 2022.

Karen Tumulty, a senior editor for Time magazine, in an opinion column in the Sept. 16 issue, wrote that opening the exchanges to all companies is an important idea. “Why is this important?” she writes. “Because the more people you have covered in the exchanges, the greater clout they will have. And smaller businesses, which are far less likely to offer coverage to their workers, are going to find it difficult without that purchasing power.” Click here to see more from Tumulty on Obama’s health care reform speech. 

While the NFIB and other business alliances, including the OIA, have concerns about health exchange proposals, they do think it’s a step in the right direction. Dimarob of NFIB said the ultimate goal of health care reform should be to make the premium costs for health care plans more predictable for small businesses. “The Senate finance legislation provides for interstate sale of insurance, it has a workable exchange to simplify the purchase of insurance, and has national plans that cross state lines. Those are critical components in bringing about greater premium predictability, better choice and better success,” she said.

Blair said the Main Street Alliance also likes the idea of a health insurance exchange. “Our business owners have been very frustrated with the way they have been treated by insurance companies that raise their rates by double digits year after year without justification or without providing more services — or, in fact, providing less,” he said.

The public option

While the business community generally supports the health exchange, there’s much less agreement concerning the much-publicized “public option.” President Obama and H.R. 3200 call for a government-run health care option that would negotiate payment rates with providers. While vocal opponents of the public option claim it’s a Trojan horse to usher in an eventual government takeover of the health care system, some members of the business community have separate concerns. They just don’t think the government can manage a health care program effectively.

“Looking at something like Medicare as an example of a government program, it’s lacking innovations, it’s clunky and basically going insolvent. Those aren’t things we can put out there again in another federally run program,” Amanda Austin, NFIB’s director of federal public policy, said on The Newshour with Jim Lehrer, responding to Obama’s Sept. 9 speech. “What we need to do is look for solutions for the most broken marketplace, which is the individual and small group market where the small employers purchase today.”

Blair and members of the Main Street Alliance feel differently. “We support a public option to put downward pressure on costs and shift the dynamic in the marketplace, so the competition is no longer about how we can slice and dice the market, and deny coverage to make profits, and replace it with competition based on providing a quality service at prices people can afford,” said Blair. “The public plan makes sense because it puts another option on the table, and also makes sense in containing costs.” He cites a July report from the Congressional Budget Office that the public option could actually save $110 billion over 10 years.

Still not enough

There are some business owners who think that none of the aforementioned proposals will really fix the problem for small businesses or the public in general.

“I don’t think the current legislation is doing nearly enough. Unless you fundamentally overhaul the system, you won’t see significant change,” said Joe Hyer, owner of retailer Alpine Experience, a specialty outdoor shop in Olympia, Wash., with 15 full-time employees in its two stores. “The biggest barrier to real reform is corporate America and the business community,” he said. “After World War II, America’s corporations said to the government, ‘We will take care of our employees and deal with health care,’ and they did. Starting in the ’70s that eroded to the point that virtually no company offers the level of benefits they used to. So they’ve abandoned that pledge. I don’t think it should be an employer mandate; it should be a government mandate, and it should be a single-payer system.” (In a single-payer system, one entity, such as the government, acts as administrator or payer. Basically, government-run health care.)

While Dimarob and her fellow members of the NFIB definitely do not support a single-payer system, they would agree that the entire health care system must be reformed radically to effect lasting change for small businesses. Without dramatic reform, the government will “just be tinkering around the edges,” said Dimarob.

“We absolutely need health care reform,” said Blair of the Main Street Alliance. “If current trends continue, health care costs for employers could double or triple over the next 10 years.”

Resources:

>> To compare the elements of the various health care bills and proposals, click here. 

>> Click here to see Slate.com’s online guide for keeping up with health care reform.

–Marcus Woolf

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