House Committee on Small Business chairwoman Nydia Velázquez, D-N.Y., has written to the chairmen of two other House committees asking for changes in health care reform legislation to reduce the burden on small businesses.

The letter, to Henry Waxman, D-Calif., chairman of the House Committee on Energy and Commerce, and Frank Pallone, D-N.J., chairman of the Health Subcommittee, requests some modifications in H.R. 3200, “America’s Affordable Health Choices Act of 2009.” House Democrats introduced the bill earlier this month, but the various committees have been hashing out changes as they struggle to reach some consensus (see House Democrats Introduce Health Insurance Bill). President Obama has already given up on seeing the bill passed before the August recess in either chamber of Congress.

Velázquez asked the chairmen to make more small businesses exempt from a requirement to pay a penalty if they do not offer health insurance to employees.

Employers with annual payrolls that do not exceed $250,000 would be exempt from the requirement to provide health insurance to their workers. For employers with over $250,000 in annual payroll, the penalty for not offering health insurance would be 2 percent, rising up to the full 8 percent penalty for firms with annual payrolls above $400,000.

Velázquez argued that the penalty would be onerous for too many businesses. “While the exemption was designed to protect small firms who may not be able to afford the 8 percent payment, most small business would be subject to the employer mandate and a payroll fee,” she wrote.

She cited the 2006 census, which found that the average annual payroll for employers with one to four employees was $286,987, while the average annual payroll of employers with 10 to 19 employees was $429,877. However, instead of simply raising the annual payroll threshold, Velázquez suggested that the legislation instead base a small business’s ability to contribute on “average gross revenue” coupled with a mechanism to differentiate between industries. She noted that the Small Business Administration already uses a similar system by combining revenue with the North American Industry Classification System to define a “small business” and determine eligibility for SBA programs.

For small businesses that want to buy insurance, Velázquez also urged the committee chairmen to widen their eligibility to participate in the Health Insurance Exchange. H.R. 3200 only provides small businesses with 20 or fewer employees (over a two-year period) guaranteed access to the new Health Insurance Exchange.

“Many small firms could be excluded due to this limitation,” wrote Velázquez. “Small businesses purchasing coverage outside of the exchange will be exposed to a volatile market, with little competition and potential for increased premiums. Without access to the exchange, these small businesses will have fewer choices for affordable coverage and little incentive to continue offering it.”

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