Company benefits DO NOT merit the financial burdens bestowed upon the small business owners in providing mandatory health insurance to their employees. Yet the government of the United States has made it obligatory that small businesses purchase and provide health care insurance coverage for their employees. The purpose of this paper is to develop a debate concerning the issue of Government Mandated Health Insurance with the view that it is not only burdensome to small businesses, but to also show that it is unjust and tantamount to forced charity.
Small businesses remain the backbone of the American economy creating new jobs and employing nearly half of the private sector workforce, besides they represent 99.9% of all businesses in the country. In the past decade, statistics indicate that small businesses have created 70% of all jobs within the private sector. Technically, there is no employer mandate within the health insurance for small businesses, yet, employers with more than 50 employees must provide health insurance or otherwise be liable to a fine of $2000 per worker annually for workers who receive Federal subsidies towards purchasing health insurance. The legislation will therefore have massive impact on the behavior of small businesses especially those with between 50 and 199 workers. Under the scheme, taxes will be imposed to help offset the cost of individual employees who receive premium subsidies thereby creating a situation in which companies will be expected to react to the overall cost increases so as to remain competitive.
Government Mandated Health Insurance for Small Businesses
Under the scheme, all residents of the United States will be required to subscribe to a minimum amount of health insurance coverage as specified by the government or otherwise be liable to a penalty. Consequently, although employers will not be required to offer health insurance coverage to employees, many businesses, small, medium and large enterprises that fail to provide health coverage will have to pay a penalty. The legislation also provides for small businesses to poll with other similar businesses to get cheaper premiums.
GAO (1) estimates that an estimated 70% of America’s estimated 50 million uninsured full time workers and their dependants are full time employees. Of these, only 39% of workers in firms with between three and 24 workers are covered under the job-sponsored insurance. Workers of companies with fewer than 200 employees pay an average of $4,204 for family health insurance comparative to the $3,182 paid by workers for firms exceeding the 200 employee threshold. The fact that small businesses have smaller risk pools means that they are expected to pay higher and less stable premiums besides the administrative costs remains invariably high. Besides, the pooling system brings about the issue of ‘community rating’ in which insurance companies will charge same premiums for every employee within the small business irrespective of their age and health. In its bid to balance, the business may be required to pay significantly higher premiums as it attempts to cross-subsidize for their employees who are either older or sicker.
Higher Health Care Costs
Government Mandated Health Insurance will inevitably lead to higher health care costs since it does nothing to bend down the cost curve faced by small businesses in relation to the provision of health insurance coverage. Beside, the endless mandates, fees, regulations and taxes will lead to an increase in premium prices especially within the fully insured market which has an estimated 88% of all workers covered under the small businesses health insurance. Estimates indicate that an estimated 54.5% of the total premium tax on health insurers which would be paid by small business workers and their dependents will be covered by employer groups’ policies. Additionally, Kofman and Pollitz, (6) observes that the new health insurance scheme will cause firms with 50 employees or fewer to either not offer coverage or drop it altogether suppose they currently offer it.
As a result of the ever increasing health care costs, small businesses providing mandatory health insurance will be required to increase their spending on insurance premiums thereby leaving them with less money to either hire more employees or give raises. Other opponents contend that the government mandate has nothing to do with health coverage hence it none the less only imposes hurdles and pile of paperwork on an already over burdened and over-regulated small business owners. By the year 2014, all businesses with more than 50 employees are at risk of being penalized if they fail to offer health insurance to their employees. States are expected to set up Small Business Health Options Programs (SHOP) thereby purchasing pools in which small businesses will be expected to pool together to buy insurance, (Archambault 1). Small businesses are defined as those with no more than 100 employees although the legislation stipulates that states can limit the pools of companies to those with 50 or fewer employees by the year 2016.
Penalties and Incentives
The government has also introduced a number of penalties for employers with more than 50 employees who do not offer health insurance to their employees. Employers will have to pay a monthly fee of $2,000 for every full employee who is a full timer and receives a premium subsidy due to his or her participation in an exchange. Additionally, even in cases in which the small business insures, suppose one or more of the business’ employees chooses not to participate in the company’s insurance plan and instead opts for an exchange plan which allows them to receive a premium credit, the employer can still be penalized up to $3000 for every employee who receives the subsidy.
Companies with 25 employees or fewer and with an average pay of up to $40,000 are eligible for tax credit to purchase insurance. However, the businesses are required to pay at least half of the total premium cost or rather 50 percent of a benchmark premium to qualify. Besides, full credits will be available to the smallest firms with the lowest paid workers of 10 or fewer employees earning an average yearly wages of less than $25,000. Generally, tax breaks which are estimated to affect about 12% of employees covered by small group insurance are designed to last for the first two years in which a company buys insurance via its state exchange. The breaks are designed to lower the cost of insuring employees between 8 and 10% as estimated by the Congressional Budget Office.
Through the SHOP provisions, the government proposes a series of subsidies to aid small businesses in paying premiums. The provision is to induce small businesses into purchasing insurance for their employees since it makes them eligible for a tax credit of up to 50 percent of the total cost paid towards employee’s health insurance. It is however noteworthy to state that the tax credit is to be paid out for two years. The Congressional Budget Office estimates that the tax credit will impact an estimated 12% of businesses with 25 or fewer employees.
However, Archambault (1) document that the new health insurance scheme will not effectively address the many uncertainties that small businesses face when deciding whether to offer coverage to its workers. Besides, the clause remains ineffective since after all considerations and exclusions, only a few firms with 10 or fewer employees and those with very low income who will nonetheless qualify for premium subsidies within the state exchanges, will have their employers eligible for ‘small business tax credit.’ In 2005, the government passed the Small Business Health Fairness Act of 2005 in which it sought to make “health insurance more affordable for small businesses by allowing them to band together, through associations, to negotiate for better options with insurers and to achieve costs savings through exemptions from state laws,”(Kofman and Pollitz 7).
Temporary Reinsurance Program
Small businesses which provide insurance coverage to retirees aged between 55 and 64 who are otherwise ineligible for Medicare are covered under the temporary reinsurance program. Although the program is designed to reduce employers’ tax burden by reimbursing employers or insurers 80 percent of retiree claim between $15,000 and $90,000, it however remains burdensome to these businesses as individuals in this category are not only unproductive, but have increased healthcare costs. Proponents view the health care act as plausible for example, the white house notes that the ‘proposal does not require that small business provide coverage to their employees’ but it seeks to “….make it easier for them to provide coverage if they choose to do so…” (Pickert 1).
Burdensome to Small Businesses
The Government Mandated Insurance Benefits will basically increase health insurance premiums paid by employers thereby burdening small businesses, (Chernew, Frick and McLaughlin 454). Both proponents and opponents agree that mandated health benefits increase premium hence depending on the benefit and how it is defined, the increase cost of the monthly premiums will increase from less than 1% to excess of 5%. A national survey indicate the strain of the health insurance scheme on small businesses with the yearly increment in premiums leading to a decrease in premium contributions by small employers as costs continue to soar.
Small business groups further contend that, they would be required to pay below-cost reimbursement rates; hence doctors and hospitals would be expected to charge private insurers so as to make up the difference thereby increasing the overall insurance cost. Besides, in cases where small business owners fail to get the cheapest acceptable insurance available, which in most cases would be the public option, cost shifting could occur making them loose out. Balancing between public and private insurance options may therefore be necessary for both small and large companies, (Pickert 1).
The National Federation of Independent Business (NFIB) further affirms that, the government mandated health insurance could lead to the loss of as many as one million small-business jobs. This is because, the legislation would require businesses not only to provide health insurance coverage to workers, but also to shoulder a substantial portion of its premiums or be liable to paying a penalty to the government. Proponents note that the fears are unwarranted since the bill stipulates that, small businesses with less than $500,000 in annual payroll or an estimated 80% of all companies would be exempt from these rules, (Whitehouse 1). Nonetheless, the loss of jobs would result as employers would terminate those with no insurance plans, those with medical history and recurrent medical issues, or those with a record of expensive personal insurance policies.
Analysis and Recommendations
The pools that are praised in the government mandated health insurance plans will only have a slight effect on the company’s health insurance cost. A prediction by the Congressional Budget Office notes that, small group premiums are expected to fall by between 1 and 4 percent although prior to this, they will rise considerably. Small business owners and their workers face multiple hardships in their quest to finding quality insurance, (Chernew, Frick and McLaughlin 456). Not only are the small businesses charged per person, they also have the least amount of choice in terms of the insurance plan to adopt hence are the most likely to be uninsured.
From the moral perspective, Jill and Nolen, (1) contend that the government has no moral justification in forcing employers to provide health insurance to their employees. He notes that, the mandate is equivalent to extending favors and benefits to a cross-section of its citizens while confiscating property or restriction the rights of others, in this case small business owners. Making it mandatory to cover the small business’ employees is equivalent to extending benefits to some while burdening others. Besides, it is common knowledge that the costs of such benefits in the long run exceeds the costs of purchasing the benefits directly owing to the additional bureaucratic overhead necessary for the administration of such programs, (Ruby 1).
Small businesses have limited capacity in managing the administrative complexities that will be necessary in implementing the health insurance program. Small businesses will therefore be burdened as they would be expected to hire additional workers thereby incurring higher external accounting expenses so as to be able to effectively handle not only the enhanced compliance regulations on the health insurance plans, but also the resulting stricter tax compliance legislations resulting from B2B transactions, (Ligon 1).
Small businesses will be the biggest losers owing to the inefficiency of the government in managing its affairs. Himmelstein, Thorne, Warren, Woolhandler (743) contend that, there is not a single government agency or division that runs efficiently hence a sensitive and complex issue such as health insurance and healthcare should not be fully controlled by the government. Besides, the health insurance will ultimately be paid by others hence expenses for healthcare would be paid with higher taxes which will further be shielded by small businesses. Under the government mandated health insurance, although private insurance would still exist, all its aspects of operation would be government controlled. Hence, health insurance would more or less be reduced to a public utility.
Since small businesses are profit oriented, their earnings will decrease since insurance companies being profit oriented will draw up higher plans. Besides generally, the fact that some employees of small businesses are uninsured does not mean that they are unable to receive health care. Chernew, Frick and McLaughlin (454) notes that, small business owners should not be burdened by their employee’s insurance since there are nonprofit and government run health service providers which carter for those who lack insurance.
Research also indicate that, while the tax penalty payable by small businesses who do not offer health insurance to their workers would be lower and some tax subsidies available, the cost of hiring workers by small businesses would generally be higher. Small businesses would therefore be forced to reduce hiring and cut back significantly on wages and other benefits which would not only affect their general profitability, but the entire economy as a whole.
The government should not compromise the rights of small business owners by engaging in legal plunder. He contend that why should a group of people rather have other pay for their consumption; in the case of health insurance, rather than work hard and be able to purchase the plans themselves. Researches also indicate that, although cross-sections of employees in small businesses can afford medical insurance, they nonetheless do not want to pay it themselves. This kind of selfishness nonetheless leads to systematic thievery leading to unwarranted burden for small businesses. Himmelstein, Thorne, Warren, Woolhandler (743) further notes that prosperity for the nation in general and small businesses in particular can only be possible if more people are self reliant. However, if people leave productive endeavors to rely on government sponsored largess, then production wanes hence benefits are provided to some citizens at the expense of others.
According to Himmelstein, Thorne, Warren, Woolhandler (741), Government mandated health insurance for small businesses is unjust and is tantamount to forced charity. Besides, businesses he notes are profit oriented rather than charity organizations hence the program is a form of false philanthropy. The program will overburden small upcoming businesses thereby thwarting future prosperity besides; the program will ensure that medical care decline across the nation.
Owing to the multiple cons of the legislation, the legislation should focus on the measures that empower small businesses to band together so as to purchase health insurance for their employees so that they would have more access and choices to affordable options, (Chernew, Frick and McLaughlin 454). It is evident that the resulting changes are likely to produce upward pressure on health insurance premiums within the fully insured markets thereby disproportionately affecting small businesses. Moreover employees are also likely to bear the burden since the costs will be passed to them in forms of discontinued hiring, reduced wages and loss of employment. Small businesses therefore have to take measures to remain productive such as increasing hours for current employees, hiring low income and low skilled labor and opting for more seasonal or temporary workers.
The government mandated health insurance scheme will increase the overall Medicare taxes on both investment income and flow through. The tax will therefore perversely apply on flow through income thereby significantly affecting small businesses. Additionally, since wage thresholds on this tax increases will not be indexed on inflation, it will push small business owners into higher tax groups thereby leading to greater deterrence on investment thereby not only suppressing individual business owner’s growth, but also the overall economic growth, Kofman and Pollitz, (12).
Conclusively, it is evident that the new health care law will not only impose new compliance regulations, but would also call for employer mandated taxes, taxes on investment income and business ‘flow-through’ in addition to numerous indirect costs on small companies. Therefore, such constraints will dramatically affect small businesses per-employee costs, desire to take health insurance coverage for employees, business-level allocation of labor, productivity and in overall, their motivation to grow both in terms of income and employment.