Sticker Shock for Small Business from Health Reform

The proposals emerging from the Senate Finance Committee for health care reform promise to put a stake through the heart of the entire effort.

The stakes are high for President Obama’s speech on health care reform, but the reports that have been coming out about the Finance Committee’s version contain a number of ideas that are sure to give many people pause, including the same small business owners and uninsured people who were supposed to benefit from the plans.

Dean Zerbe, a former Senate Finance Committee tax counsel who is now with the tax advisory firm alliantgroup, wrote an opinion piece for Forbes.com on some of the implications for small business. Among the proposals in the plan circulated by Senate Finance Committee Chairman Max Baucus, D-Mont., is a requirement for employers with more than 50 full-time employees who work 30 or more hours per week to provide health coverage for their employees, or pay a fee for each employee who receives a tax credit for health insurance. The fees would cost up to $400 per employee.

Organizations with 200 or more employees would be required to automatically enroll them in an employer-sponsored health plan. There is a tax credit available for small businesses with fewer than 25 employees who earn up to $40,000 on average. But the credit would be for two years only, and would cover up to just 35 percent of the cost.

The cost could be high for individuals as well. The Wall Street Journal reported today that the plan could cost families up to $3,800 per year if they fail to buy health insurance. People who earn between 100 and 300 percent of the federal poverty level would have to pay fees ranging from $750 to $1,500 annually. Taxpayers whose incomes exceed 300 percent of the poverty level would have to pay between $950 and $3,800 per year if they don’t get health insurance.

Clearly the administration is determined to make sure that people get health insurance and that employers provide it, or penalize them heavily if they don’t. Subsidies will be available, but given the heavy pressure to keep the costs of the legislation down and prevent the budget deficit from exploding further, those subsidies are bound to be strictly circumscribed and subject to close scrutiny by the IRS.

Baucus said Wednesday that he doesn’t think the public option has enough votes to pass in the Senate, even though Obama is expected to call for the inclusion of such a plan in his address to a joint session of Congress on Wednesday evening. Baucus said he intends to introduce his bill next week, whether or not it wins Republican support. The measure will include a plan for creating insurance co-ops, an idea that is likely to take years to implement and may not even get off the ground in many states.

At this point, the health care reform effort is threatening to collapse from a surfeit of bad ideas and an overly complex and coercive system, just as it did 16 years ago. The days when presidential candidates campaigned on pledges to avoid mandates and open up Congress’s own health plan to allow ordinary people to buy into it seem to be long gone now. The mandates, penalties and requirements, along with the partisan and factional disputes about the plan, threaten to sink it the same way they did back in the Clinton administration. The lessons of the past often go unlearned.