Small business owners fear new health care burden

From afar, Nathan Carnahan has monitored the health-care debate unfolding in Washington. He confesses uncertainty about how it will play out, and fears government mandates could add to his firm’s cost of doing business.

As members of Congress fan out into their districts to lead discussions on health care, small businesses are bracing for profound changes in the role they play in the country’s health care system.

Carnahan’s employer, Rack N Road, sells and installs automobile racks. Last year, the Sacramento firm shuttered two of its 10 stores and laid off employees. To further cut costs, the company even closed its corporate office ? forcing its executives to work from home.

“I still don’t know how it will impact the business,” Carnahan, the company’s director of human resources, said of pending health-care legislation. “There’s still so much out there that’s unknown.”

Carnahan wonders whether the plan that emerges will require his company to provide health coverage to 42 part-time employees. “Would it break us? Probably not. But it would make life much more difficult,” Carnahan said.

The company pays about $15,000 monthly to provide medical, dental and vision coverage to 25 full-time employees across its eight locations in California, Washington and Utah. It doesn’t provide coverage to its 42 part-time staffers because of the substantial cost, Carnahan said.

The Obama administration is proposing a sweeping overhaul to address the country’s 46 million people without insurance, nearly 7 million of them in California. Under proposed legislation, businesses would be expected to shoulder some of the burden.

While the majority of Americans in 2007 ? about 61 percent ? already received health insurance through their employers, an estimated 37 million people from working families remained uninsured, because their companies did not provide health coverage, they couldn’t qualify for coverage or they couldn’t afford their share of premiums, according to the Kaiser Family Foundation.

What’s more, financial woes and the rising cost of premiums have prompted more companies to drop health benefits or require employees to pay a greater share of the premiums.

“I don’t know the solution. That’s why the politicians are in their role. I hope they find a solution,” Carnahan said. “Whatever it is, someone’s going to have to pay for it.”

The three leading federal proposals include provisions requiring most employers to provide health coverage to their workers. In addition, firms would have to pay for the bulk of an employee’s health premiums; those that don’t would be subject to penalties.

House Democrats have proposed a so-called “pay or play” proposal that would require companies to pay 72.5 percent of the cost of single-coverage premiums and 65 percent for families. Companies that refuse would be required to contribute 8 percent of their total payroll into a health care trust fund.

Talk of such mandates doesn’t sit well with Carnahan and small business advocates who don’t want to be locked into specific obligations for health care.

“For business reasons, we need the flexibility,” Carnahan said. “We don’t want our hands tied.”

While the smallest companies would remain exempt from providing insurance, business groups argue that the government’s plan to mandate that everyone be insured could put pressure on firms to furnish policies.

Advocates of health care overhaul agree that companies, particularly small businesses, are under increasing pressure in a tight economy. “We’ve seen health premiums rise dramatically, hurting businesses and hurting workers,” said Ken Jacobs, a health care specialist and chairman of UC Berkeley’s Labor Center.

“Overall, small businesses pay higher prices for health care coverage than do their large-business counterparts. They don’t have the bargaining power that large companies do,” Jacobs said.

But Jacobs argues that small businesses could reap benefits from the proposed legislation. He noted that small businesses would be provided subsidies to help provide health coverage to their employees.

Virtually all of the country’s largest companies ? those that employ at least 200 workers ? already provide health coverage. But only 62 percent of smaller companies do, according to the Kaiser foundation.

Groups representing small businesses say the health care system needs reform to control costs, not to impose additional burdens on private enterprise.

“I think it’s a responsibility for everyone to play some role. But we want to be careful about what we load on to employers right now,” said Amanda Austin, director of federal policy for the National Federation of Independent Businesses. The federation’s 400,000 members include some of the country’s smallest businesses, including mom-and-pop shops such as dry cleaners and neighborhood bookstores.

“If you look at what’s the biggest concern of small businesses right now, it’s the cost of the coverage,” Austin said. “We have to figure out how to bring down the cost. We can go round and round and argue whether small businesses should do their part … but in the end, it’s the cost of it.”

The U.S. Chamber of Commerce is lobbying hard against the health care legislation, particularly the language proposed by House Democrats.

James Gelfand, the chamber’s senior manager for health policy, argued that passing on the cost to businesses will do little to bring down the price tag for health care. “It won’t solve the problems, and people have the right to be worried,” he said.

“There’s one thing we agree with the president on: The reason people aren’t insured is because health care costs too much,” Gelfand said.

Companies now have no legal obligation to provide their workers with health insurance, although San Francisco and Massachusetts have instituted pay-or-play provisos to fund universal health care programs.

Even without a legal mandate, however, many small businesses do provide at least some level of benefits.

Jim Pagluica, vice president of All Business Machines, a small Sacramento distribution firm, called it “a moral obligation” to provide health care to his handful of employees.

For the first three years, his company offered no health benefits. Later, it provided bare-bones, catastrophic coverage that cost the company $21,000 annually for its eight employees, he said. That policy required employees to cover most routine services out of pocket.

Recently, the company decided to provide comprehensive health insurance to its employees, more than doubling its health care expenditures to $46,000 a year.

“Those who have insurance are paying for those who don’t have insurance,” Pagluica said. “Something has to be fixed.”

Pagluica, a Republican, spent a recent afternoon with other Sacramento business people expressing concerns during a meeting convened by Rep. Doris Matsui, a Democrat.

Pagluica told the congresswoman that rising health care costs are adding to the struggles of many small firms. Something has to be done, he said, to tame the high cost.

That sentiment is shared by Carnahan of Rack N Road, who said the cost of doing business keeps rising, and health care is one of the main reasons. “We don’t want to have to shut our doors,” he said.

While the firm provides health insurance for full-time workers, part-timers are on their own.

Phillip Sherman, 26, had no health insurance when he began with the company three years ago as a part-timer. He’s thankful he now has coverage as a full-time employee.

Five years ago, he got into a scuffle with a mugger. Friends rushed Sherman to the hospital with a broken nose. He said the hospital charged him about $4,000, an amount he couldn’t afford.

It took initiative and research, Sherman said, to find a county program for the low-income and uninsured to pare his out-of-pocket expenses to $1,000.

“I value my health insurance a lot,” he said. “It’s given me a peace of mind.”

(c) 2009, Sacramento Bee Source: McClatchy-Tribune Information Services.