Health Care Analysis: H.R. 3962 

The Pelosi Health Care Bill and Small Business

Winners or Losers?

By Karen Kerrigan

At a White House event on October 29, President Barack Obama told a small business audience that health care bills crafted in the House and Senate had been "written with the interests of Americans like you and your employees in mind."  Really??

After a read of the 1990-page House bill, it's hard to see how the President comes to this conclusion.  Small business owners have been pushing for reforms that reduce costs, make health coverage more affordable, and encourage greater choice of plans in the marketplace.  The trillion dollar-plus House bill (H.R. 3962), to be voted on this week, fails on all counts.

Tax Hikes Kill Jobs and Hurts Small Business Investment:  H.R. 3962 raises taxes on smaller enterprises in order to fund a federal government takeover of our health care system.  So, at a time when we need such businesses to be creating more jobs (or "saving" them for that matter), this legislation imposes a massive tax hike on the very enterprises that we are counting on to pull our economy out of the recession. 

President Obama believes that the "rich" entrepreneurs targeted for this tax can handle the hit (a 5.4% surtax on joint filers earning over $1 million, and $500,000 for singles), yet these Subchapter S or limited liability companies are critical to our economic recovery.  Small businesses cannot create jobs out of thin air - they need what limited profits they are earning in order to do so.

With government taking more of their resources, small businesses will create fewer jobs, and will likely cut additional ones given tough economic conditions on top of these tough policies from Washington.  Unfortunately, our jobless "recovery" will remain that way with job-killing tax hikes like those in H.R. 3962.  For an Administration so concerned with providing access to capital and credit to small businesses, support for measures that confiscate their resources is rather mystifying.

On top of the surtax on "wealthy" small businesses and individuals ($461 billion), H.R. 3962 includes an 8% payroll tax ($135 billion) on businesses with more than $750,000 in total payroll that do not provide insurance, with lower penalties on firms between $500,000 to $750,000.  The bill imposes a 2.5% tax on the uninsured ($33 billion), and a new tax on medical devices ($20 billion).  This massive tax hike on the private sector would be destructive and counterproductive even in the best of economic times - what are supporters of H.R. 3962 thinking?      

Are most small businesses really "exempt"?  Under the House legislation, small businesses with payrolls of less than $500,000 are exempt from "play-or-pay."   Unfortunately, businesses and the self-employed that fall under this threshold will get nailed by the higher costs that accompany new regulations governing "acceptable coverage" - that is, the federal government will decide the type of plan that all individuals and businesses must purchase.  Benefit packages included in H.R. 3962 are richer than many currently offered by small employers.  More coverage requirements and mandates/regulations on health insurance plans translate into higher costs for small business owners.

So much for the promise that people and businesses can keep their current coverage.  The assertion is false -plain and simple. Individuals and businesses will be forced to buy health plans that meet requirements established by a federal government health czar.

The Message from Washington: Don't Grow    Exemption thresholds like those proposed in H.R. 3962 send small firms one message - don't grow or create jobs.  Employers will look for strategies and adopt business models that keep them under the "play-or-pay" thresholds - cut jobs or outsource, for example. The economy and workers will suffer.  Business owners will be forced to make a choice regarding the maintenance of insurance for their workforce, or pay the penalty for not providing coverage -- this is the sad, unintended consequence of H.R. 3962.  Rather than encouraging and incentiving business owners to provide insurance, the bill discourages businesses from doing the right thing.

But what about the tax credits for small business?  Supporters of H.R. 3962 continue to point to tax credits in the bill to help small businesses.  The 50% tax credit is miniscule and temporary.  The program is aimed at "low-wage" small businesses, and available to firms with 10 or fewer employees and $20,000 or less in average payrolls.  These credits phase-out if the small business has 25 or more employees, or if the average wages are $40,000 or more.  They are available on a "rolling basis" for the first two years that an employer offers qualified coverage.

All small businesses need help and incentives to provide and keep health coverage. The tax credits offered in H.R. 3962 will be wholly ineffective in helping most small businesses find and keep affordable, quality health coverage.

H.R. 3962 is not a bill that will help small businesses with health coverage costs.  The public option will eventually lead to limited choices and higher costs.  The massive spending associated with this new entitlement will lead to higher taxes down the road. 

Small business owners are big losers under H.R. 3962.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council (SBE Council), a national advocacy and research organization dedicated to protecting small business and promoting entrepreneurship.