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CCH® BENEFITS — 01/22/10

Health Care Reform Bills Could Improve Access, Choice, And Affordability For Small Firms’ Workers: Urban Institute

from Spencer’s Benefits Reports: The health insurance exchanges, insurance market reforms, and subsidies for low-income workers in current health care reform proposals in the House and Senate offer small employers and their workers the potential for improved access, choice, and affordability of health insurance, according to a recent report prepared by the Urban Institute and funded by the Robert Wood Johnson Foundation. In addition, small groups purchasing health insurance coverage through a health insurance exchange also would experience a significant drop in the year-to-year variability in premiums.

The report, What Would Health Care Reform Mean for Small Employers and Their Workers?, also concluded that neither of the two bills’ tax provisions would impose “substantial new financial burdens on small businesses.”

According to the Urban Institute, it is widely acknowledged that small employers and their workers face major obstacles in obtaining affordable health insurance. High administrative costs and limited risk-spreading ability significantly boost insurance premiums for these small employers and, since their employees typically earn lower wages than workers in larger firms, small firm employees cannot afford to pay the premiums. Consequently, health insurance is offered by fewer than one-fifth of the very smallest employers (those with fewer than ten employees) with at least half of their employees earning a low wage.

“Empirical economic research has provided strong evidence that there is an implicit tradeoff between cash wages and health insurance benefits. Workers actually pay for the cost of their employers’ contributions to their health insurance by receiving wages below what they would have received had not employer health insurance been offered,” the study noted. “The lower wages of small-firm workers imply that they are far less able to to pay for health insurance through wage reductions; consequently, their employers are less likely to offer them such benefits.”

Taxes Impact Few Businesses

In the House bill, a 5.4% surcharge on families with incomes of more than $1 million and individuals with incomes of more than $500,000 is proposed. According to analyses conducted by the joint Urban Institute-Brookings Institution Tax Policy Center, only 0.2% of all tax “units” and 0.9% of tax units with business income potentially would be affected if the surtax became effective, as proposed, in 2011. Those figures would rise to 0.5% of all tax units and 1.6% of all tax units with business income in 2019. The Senate proposal to increase the Medicare Part A hospital insurance tax potentially would apply to 1.5% of all tax units and 3.4% of all tax units with business income in 2013, the proposed first year of implementation, and to 2.4% of all tax units and 5.1% of all tax units with business income in 2019.

For all practical purposes, the proposed tax assessment/penalty that would be imposed on employers that do not offer health insurance to their employees would affect very few employers, the Urban Institute researchers concluded based on available data. According to Census Bureau data on U.S. businesses, 87% of the more than 6 million firms in the U.S. in 2006 had annual payrolls of less than $500,000, and that percentage would increase by 2013. These small firms would face no tax assessment (or penalty) for not providing health insurance to their workers.

Another 4% of businesses in 2006 had annual payrolls that fell between $500,000 and $750,000, and would have been subject to a reduced tax assessment, had it been in place in 2006. The 9% of firms with payrolls exceeding $750,000 (the very largest firms) in 2006, which would have made them subject to the full tax assessment had it been in place represented 77% of total employment that year. Because the larger firms typically offer health insurance, they would not face a tax assessment for not offering health insurance.

For more information, visit http://www.healthpolicycenter.org.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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