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National Small Business United presents Health Care Reform: The Small Business Perspective, July
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�Health Care Reform:
The Small Business
Perspective
A Resource Guide
Jiff National Small Business United
�Natio nal
Small Busin ess
Unite d
A
Resource Guide
July 1993
�National Small Business United presents
Health Care Reform:
The Small Business
Perspective
A Resource Guide
for policymakers and the media
July 1993
For more information call, Marcia Bradford or Duma Schnittka at (202) 293-8830.
�Foreword
For several years, health care reform has been the top priority and concern for the
membership of National Small Business United (NSBU). We have continually
researched the causes of the nation's health care crisis, studied the various proposals
that have been put forth by numerous groups and surveyed our membership about
their level of access to affordable health care. Through extensive debate and discussion,
with the input of small business owners throughout the nation, we have developed a
proposal designed to improve the health care system, provide coverage for all and
maintain the ability of small businesses to provide jobs and create economic growth.
This resource book has been prepared to provide policymakers, the media and all
other interested parties with background information about NSBU's concerns and
recommendations with regard to health care reform. We hope you will find it a useful
resource when researching the health care debate. We will provide periodical updates
to reflect any changes that develop.
An additional resource that we can offer is a database of small bsuiness owners
around the United States who are willing to discuss their experiences with the U.S.
health care system. This group ranges from business owners who provide heath care
coverage for all of their workers to those unable to obtain any type of affordable
coverage. To find out more about contacting these small business owners, call Marcia
Bradford at (202) 293-8830.
NSBU's perspective on health care reform is based on the following guidelines:
1.
NSBU believes that individual responsibility should be the cornerstone of any
health care reform effort.
2.
Within NSBU's membership are several models for small employer purchasing
cooperatives (health alliances or healtti care purchasing cooperatives). We
encourage the Clinton administration to build upon their examples for health care
refonn.
3.
Small businesses should have the right to organize their own health alliances
and to manage their own health care activities just as if they were large
businesses, operating under the federally established criteria and exempt from state
mandates.
4.
Provisions for private competing health alliances are important, so that choice
and competition can work to contain prices and costs for small businesses.
in
�5.
Prevention and primary care should be encouraged as part of any health care
reform effort instead of relying upon acute care only.
6.
Health care reform must incorporate incentives for streamlining the delivery
system, not just refinancing or containing costs. Otherwise, costs will simply
rebound in later years.
7.
Health care reform should be addressed in a way which views overall costs to
the system with as much emphasis as the need for universal coverage.
8.
Payroll taxes are a strong disincentive to hiring and to increasing wages. We
recommend that other broad based taxes (induding corporate, individual and
consumption taxes) should be considered, if necessary, to pay for increases in health
care spending.
9.
Medical malpractice reform is vital. Practice protocols can facilitate such reform
and help to reduce unnecessary care.
10.
Effortstocontain health care costs are essential and should be primarily
achieved by interactions between providers and payors at the local community
level rather than federally imposed restrictions.
11.
Federal and state governments must do a better job of containing their costs
through managed care andreducingadministrative burdens, while paying a more
appropriate share for the elderly and the poor through Medicare and Medicaid.
12.
A federal effort to include workers' compensation with health care reform
could be helpful and valuable to small business owners and their employees, but
there are concerns about how such a program might be implemented.
We feel confident that we are representing a broad spectrum of small businesses
with our views and proposals. It is our intention to pursue these goals as the health care
reform debate proceeds through the political process.
For more information, please contact Marcia Bradford or Diana Schnittka at
(202)293-5830.
Sincerely,
John C. Rennie
President
John Paul Galles
Executive Vice President
IV
�\
Table of Contents
\
�Table of Contents
I . A b o u t NSBU
V
>
>
>
>
About NSBU
NSBU 1993 Health Care Policy Subcommittee
NSBU 1993 Top Ten Issues
NSBU 1993 Board of Trustees
NSBU 1993 Regional AffiHates
1-1
1-2
1-3
1-6
1-9
IL NSBU M o d e l
> A Model for Health Care Reform
m.
H-l
NSBU Glossary
> Health Care Reform Options
I V . Discussion Points
> PayroUTax
> An Employer Mandate
> Individual Responsibility
> Health AlUances
V. NSBU Involvement
> NSBU Involvement in Health Care Reform
> NSBU Testimony on Health Care Reform
V Statement of Margaret Smith
before the Health Care Task Force
> Statement of Gary Kushner regarding
the Small Business Health Insurance Dilemma
> Example of Cost Containment
DI-l
IV-1
IV-2
IV-4
IV-5
V-l
V-2
V-3
V-10
V-15
VT. Media Coverage.
> Clippings
VI-1
V I I . Statistical Data
> Small Business and the Economy
> Chart Businesses Without Health Insurance
> NSBU Survey Results on Health Care
V H I . Notes
VII-l
VII-2
VH-S
�I. About NSBU
�About NSBU
National Small Business United (NSBU) is a private, nonprofit association
representing more than 65,000 small business owners throughout the United States.
Members are from each of the 50 states and from all service and industrial sectors.
NSBU membership also includes local, state and regional organizations.
Placing a major emphasis on small business advocacy, NSBU takes a bipartisan
approach in working with members of Congress and other elected officials. NSBU
strives to improve the economic climate for small business survival and growth.
NSBU has a strong history of grassroots activism and maintains an active
committee structure that depends on the participation of volunteer small business
owners. The 30-member volunteer board of trustees meets several times throughout the
year. The board sets polides and directs the Washington, D.C.-based staff.
Each year, small business leaders take part in the annual Leadership and Federal
Issues Retreat to discuss NSBU's legislative priorities. Legislative recommendations are
presented to Congress and the administration during the annual Small Business
Washington Presentation, a grassroots small business lobbying event that began in the
1940s.
Throughout the year, individual members testify about crucial issues affecting
small businesses. Priority issues indude health care reform, capital formation,
privatization, banking reform, taxes and other important topics. Members can share
first-hand experiences regarding their business, its problems and their concerns.
I - 1
�National Small Business United
1993 Health Care Policy
Subcommittee
Mr. Gary Kushner, Chair
Kushner & Company
Kalamazoo, MI
(616)342-1700
Ms. Mary Del Brady
Allegheny Health, Education &
Research Foundation (AHERF)
Pittsburgh, PA
(412)359-6922
Ms. Marcia Bystrom
Piper Jaffray.
Minneapolis, MN
(612)342-5876
Ms. Arlene Ezratty-Weis
Heart to Home
Great Neck, NY
(516)829-6390
Mr. John Hexter
Hexter and Associates, Inc.
Cleveland, OH
(216)442-5500
Mr. Raouf Ismail
Cambridge Aeroflo
Shirley, MA
(508)425-2346
Mr. Karl Krieger
TransTech, Inc.
Pittsburgh, PA
(412)243-3040
Mr. Sandy Lazarowicz
IQT Group, Inc.
Brook Park, OH
(216)676-6109
Mr. Bill Lindsay
Benefit Management & Design
Englewood, CO
(303)779-8407
Ms. Marijo McCarthy
Widett, Glazer, & McCarthy
Boston, MA
(617)742-0042
Mr. Leo McDonough
TEC/Pennsylvania Small Business United
Pittsburgh/ PA
(412)371-1500
Ms. Sharon Miller
Immediate Temporary Help
Midland, MI
(517)631-0080
Ms. Angie Nemet
Small Busincfss Network of N J.
Wharton, NJ
(201) 361-7016
Mr. David Pinkus
Small Business United of Texas
Austin, TX
(512)469-5590
Mr. John Polk
Council of Smaller Enterprises
Cleveland, OH
(216)621-3300
Ms. Betty Jo Toccoli
Total One Development Center
Los Angeles, CA 90066
(213)306-4540
Mr. Tom Van Cleave
Windmill City Travel, Inc.
Batavia, IL
(708)879-6700
I -2
�National Small Business United
1993 Top Ten Issues
1. Health Care Reform and Cost Containment
NSBU supports fundamental reform of our health care system. Such reform is
necessary to reduce costs and to improve access. Reform of the health care system
should place responsibility on the individual for having coverage, reform the insurance
market for small business, control costs through market forces and local review and
increase federal responsibility for the poor. NSBU opposes employer-based health
insurance mandates in the strongest possible terms. These solutions ignore the essential
problems in our health care system (mainly, its cost) while imposing devastating
burdens on small businesses.
2. Federal Deficit Reduction
The federal government should give utmost attention and priority to continued
reduction of its huge budget deficit; the spending constraints in the budget agreement
should be adhered to. It is time to realize that entitlement programs must be more
adequately addressed in order to achieve real deficit reduction. Also, NSBU
recommends the use of a presidential line-item veto, or enhanced redsion, until that
becomes possible. The federal government should make every effort to move toward a
budget surplus during the coming decade.
3. Capital Formation
NSBU favors innovative programs designed to encourage and reward capital
formation for small businesses. The current "credit crunch" hits small businesses harder
than anyone and will contribute greatly to any recessionary pressures. Among the ways
to increase small business access to capital is to reduce the tax rate for capital gains
(graduating the differential to provide incentives for long-term investment), strengthen
the Small Business Investment Company (SBIC) program, move toward securitization
of small business loans and encourage creative altemative institutions for small
business capital.
4. Banking Reform
Part of any reform of the banking system should address the very deep capital
needs of small businesses across the country. Many of the proposals currently before
1-3
�Congress would allow banks to branch freely across state lines and enter new lines of
commerce, such as insurance and travel agency business. Other types of large
corporations would be allowed to own banks, and the ability of banks to deal in
securities and other finandal services would be enhanced. As dedsion-making
authority is taken away from local communities and turned over to central offices in big
dties or based upon fixed formulae, the ability of small businesses to get loans
diminishes. At the very least, sweeping new banking reform should indude disdosure
provisions which would require banks to disdose to customers what portion of their
portfolios are invested in local small businesses. In this way, small businesses can
support banks which support them.
5. Tort Reform
The product liability insurance crisis has become a very serious problem for many
small businesses; insurance and legal costs are soaring beyond reach- NSBU has several
suggestions, induding a return to afault-basedstandard of liability, limitations on
non-economic damages, limits on attorney contingency fees, restriction of punitive
damages to cases of malidous or willful misconduct, et al. NSBU strongly supports
5. 687, introduced by Senator Rockefeller (D-WV) and designed to reform the product
liability system.
6. Revitalization of the SBA
NSBU supports the continuation of a strong, vital and independent Small Business
Administration (SBA). The SBA must become an effident, forceful champion of small
business causes within the administration. In addition, we must maintain a strong and
independent Chief Counsel for Advocacy.
7. Federal Regulations: Paperwork Reduction Act and
Regulatory Flexibility Act
NSBU is a long-time, primary supporter of a strong Paperwork Reduction Act and
has been supportive of efforts to reauthorize and strengthen the original act. Funding
for Office of Information and Regulatory Affairs (OIRA) expired at the end of 1989, and
the issue has been a political football ever since. NSBU believes that passage of S. 560,
sponsored by Sen. Sam Nunn (D-GA), is necessary to bring a degree of reason to the
federal regulatory process.
NSBU recommends that protection of small business under the Regulatory
Flexibility Act be strengthened. The IRS should be more effectively brought under the
requirements of the act, more effective judidary review should be implemented and the
indirect impact of regulations on small business should be considered!
1-4
�8. Privatization
Congress and the president should immediately undertake efforts to determine
which roles currently filled by the government could be carried out more effectively by
the private sector. Once determined, these roles should be shifted to the private sector
as thoroughly and quickly as possible, thereby lowering government spending and
taxes and increasing economic growth.
9. International Trade: Government Restructuring
A major contributing factor to the trade deficit is the lack of export interest among
American business, especially small business. Part of the problem is the lack of
governmental focus and encouragement of international trade. To this end, NSBU
recommends structural changes and definitions of roles within the federal government
as follows:
(1) U.S. Trade Representative (USTR): to negotiate and enforce trade policy. NSBU
supports the appointment of a small business representative in the Office of the USTR.
(2) International Trade Administrator (ITA, Department of Commerce): to provide
technical export and trade development assistance to small business.
(3) Small Business Administration (SBA): to promote existing trade programs to
the small business community and provide communication between other government
agendes and the small business community to increase utilization of these programs
and available information
10. Environmental and Energy Efficiency Project/Small
Business Assistance
NSBU has proposed a pilot project to respond to the needs of small businesses in
the areas of energy conservation, water conservation and environmental compliance.
In addition, further avenues for providing technical and finandal assistance for small
businesses trying to comply with environmental regulations need to be explored.
-5
�National Small Business United
1993 Board of Trustees
President
Mr. John C Rennie
Pacer Systems, Inc.
Billerica, MA
(508)667-8800
Fax (508)667-8873
Vice President
Mr. Ronald B. Cohen
Cohen & Company
Cleveland, OH
(216)579-1040
Fax (216)579-0111
Immediate Past President
Ms. Susan Hager
Hager Sharp Inc.
Washington, DC
(202)842-3600
Fax (202)842-4032
Secretary
Mr. Toby Malichi
Malichi Diversified, Ltd.
Indianapolis, IN
(317)237-4277
Fax (317)237-4278
Treasurer
Mr. Gary Kushner
Kushner & Company, Inc.
Kalamazoo, MI
(616)342-1700
Fax (616)342-1606
Executive Vice President
Mr. John Paul Galles
National Small Business United
Washington, DC
(202)293-8830
Fax (202)872-^8543
Legislative Counsel
Mr. Tom Cator
Mr. Allen Neece
Neece, Cator, Bamicle & Associates
Washington, DC
(202)887-5599
Fax (202)223-8608
Legal Counsel
Ms. Hope Eastman
Paley, Rothman, Goldstein,
Rosenberg & Cooper
Bethesda, MD
(301)656-7603 .
Fax (301)654-7354
Mr. George Abbott
Scott Foot Care Products
Omaha, NE
(402)493-3854
Fax (402)493-4710
Ms. Thelma Ablan
Stevenson & Associates
Chicago, IL
(312)335-0067
Fax (312)335-0068
Mr. Raymond Arth
Phoenix Products, Inc.
Avon Lake, OH
(216)933-8100
Fax (216)933-6252
Mr. B.F. Backlund
Bartonville Bank
Peoria, IL
(309)243-1040
Fax (309)243-1050
1-6
�Mr. Gary Baker
Baker Investment Group
Ann Arbor, MI
(313)971-3321
Fax (313)663-4333
Mr. John Hexter
Hexter & Associates, Inc.
Cleveland, OH
(216)442-5500
Fax(216)461-6638
Ms. Mary Del Brady
Allegheny Health Education Resource
Foundation (AHERF)
Pittsburgh, PA
(412)359-6922
Fax (412)359-6106
Mr. David T. Hodgin
American Holiday Resorts, Inc.
Scotts Valley, CA
(408)438-1000
Fax (408)438-2286
Ms. Beryl Digney
Oberdorfer Pump Inc.
Syracuse, NY
(315)437-0361
Fax (315)463-9561
Mr. Thomas Farrell
Advertising Development
& Speciality Co.
Pittsburgh, PA
(412)825-0778
Fax (412)825-9044
Mr. Rick Fumo
Arthur Andersen's Enterprise Group
Milwaukee, WI
(414)283-3283
Fax (414)283-3200
Mr. Kenneth Heller
NuTech Environmental Corp.
Denver, CO
(303)295-3702
Fax (303)295-6145
Ms. Laura Henderson
Prospect Associates, Ltd.
Rockville, MD
(301)468-6555
Fax (301)770-5164
Mr. Richard Herring
Gloucester Company, Inc.
Franklin, MA
(508)528-2200
Fax (508)520-3851
Mr. Joseph S. landiorio
landiorio & Digman
Waltham,MA
(617)890-5678
Fax (617)890-1150
Ms. Peggy Lescrenier
GAMMEX/RMI, Inc.
Middleto^WI
(608)831-4823
Fax (608)831-7902
Mr. Ron Lubbers
Yale & Seffinger, P.C
Denver, CO
(303)293-1200
Fax (303)293-2222
Mr. Thomas Meinholz
Triad Engineering Incorporated
Milwaukee, WI
(414)291-8840
Fax (414)291-8841
Ms. Sharon Miller
Immediate Temporary Help
Midland, MI
(517)631-0080
Fax (517)631-8632
Mr. Ralph Murray
IDL, Inc.
Pittsburgh, PA
(412)798-2500
Fax(412)793-1191
I -7
�Mr. William Pinkerton
Project Services International
Pittsburgh, PA
(412)747-0111
Fax (412)747-0114
Ms. Margaret Smith
Law Office of Margaret Smith
Los Altos, CA
(415)941-6812
Fax (415)941-1959
Mr. Arthur Sweet
California Small Business United
Canoga Park, CA
(818)884-0015
Fax (818)884-0017
M r . Thomas V a n Cleave
Windmill City Travel, Inc.
Batavia, IL
(708)879-6700
Fax (708)879-9589
Mr. Stevan A . Wolf
General Business Services
Westville,NJ
(609)456-0933
Fax (609)456-0937
Core Representatives:
Mr. Leo McDonough
TEC/Pennsylvania Small
Business United
Pittsburgh, PA
(412)371-1500
Fax (412)371-0460
Mr. John J. Polk
Council of Smaller Enterprises
Cleveland Growth Association
Cleveland, OH
(216)621-3300
Fax (216)621-6013
1-8
�National Small Business United
Regional Affiliates
Mr. Robert E. Bemier
Association of Small Business Development
Centers
Omaha, NE
(402)554-2521
Fax (402)554-3747
Mr. Richard Kaufman
California Small Business Association
Burbank, CA
(818)972-5318
Fax (818)972-5301
Mr. Van Billington
Retail Confectioners International
Glenview, IL
(708)724r-6120
Fax (708)724-2719
Mr. Neil G. Mabry
Small Business Council
Atlanta Chamber of Commerce
Atlanta, GA
(404)586-8522
Fax (404)586-8416
Ms. Eunice Conn
Independent Business Association of Illinois
c/o E.B. Conn Vending Inc
Nile^IL
(708)692-5733
Mr. Leo R. McDonough
SMC/Pennsylvania Small Business
Pittsburgh, PA
(412)371-1500
Fax (412)371-0460
Mr. Ira S. Feldman
Arizona Small Business United
c/o Toback & Company, P.C.
Phoenix, AZ 85012
(602)264-9011
Fax (602)266-3538
Mr. Peter F. McNeish
National Association of Small Business
Investment Companies
Alexandria, V A
(703)683-1601
Fax (703)683-1605
Mr. Rob Fowler
Indiana Chamber of Commerce
Small Business Council
Indianapolis, EN
(317)264-6883
Fax (317)264-6855
Ms. Mel Mitchell
Independent Business Association of Wisconsin
Madison, WI
(608)251-5546
Fax (608)251-5952
Ms. Hilda Heglund
Council of Small Business Executives
Milwaukee Chamber of Commerce
Milwaukee, WI
(414)273-3000
Fax (414)271-7753
Mr. David R. Pinkus
Small Business United of Texas
Austin, Texas
(512)469-5590
Fax (512)469-6306
1-9
�Mr. John Polk
Council of Smaller Enterprises
Greater Cleveland Growth Association
Cleveland, OH
(216)621-3300
Fax (216)621-6013
Mr. Mike Raabe
Small Business Profit Center
Greater Denver Chamber of Commerce
Denver, CO
(303)534-8500
Fax (303)534-3200
Mr. Kerry Stackpole
Smaller Business Association of New England
Waltham,MA
(617)890-9070
Fax (617)890-4567
Mr. Anthony R. Wilkinson
National Association of Government
Guaranteed Lenders, Inc.
Stillwater, OK
(405)377-4022
Fax (405)377-3931
Mr. Gary M. Woodbury
Small Business Association of Michigan
Lansing, MI
(517)482-8788
Fax (517)482-4205
Ms. Sheelah R. Yawitz
Missouri Merchants & Manufacturers Association
Chesterfield, MO
(314)537-1360
Fax (314)537-4901
I - 10
�H. NSBU Model
\
�A Model for
Health Care Reform
presented by National Small Business United
For several years, health care has been National Small Business United's (NSBU)
top legislative priority. There are two distinct needs of the small business community
regarding health care reform:
1) systemic cost control to end the upward spiral of health care costs and to reduce
the share of gross national product (GNP) going for health care.
2) reform of the market within which small businesses operate in order to purchase
insurance for their employees.
On January 29,1993, the NSBU board of trustees approved revisions to the NSBU
stand on health care reform. NSBU suggestions for reforming the health care system are
outlined below following a brief overview of the problem.
The Problem
I . Health Care Costs
The U.S. spends more per capita on health care than any other country in the
world—more than double what Japan spends and 40 percent more than Canada, which
is the second most expensive country.
Twenty five years ago, health care consumed 5.9 percent of the GNP; in 1992, that
number topped 14 percent for a total of $840 billion.
If this trend continues, we will see annual health care spending rise above $1
trillion by 1994.
Individual Responsibility:
Why do costs continue to escalate?
Most Americans have very low deductibles and copayments, and they have very
few personal incentives to check cost increases.
II - 1
�Insurance companies—except some of those that have a managed care
program—have no way to control expenditures and physician and patient choices.
Their high costs are passed on in the form of higher premiums.
High health care costs result mainly because most people never see their health care
bills. The combination of federal tax incentives and state mandates encourages
insurance-based financing of a broad range of benefits at fairly low levels of
deductibles. This arrangement keeps patients insulated and prevents them from
behaving like normal consumers, who would otherwise seek a lower price for the same
level of care. To achieve cost containment, we must increase consumer responsibility
and sensitivity in the health care market.
There are other reasons why health care costs continue to rise:
• Malpractice costs continue to escalate.
• Hospital capital expenditures continue to soar.
• Major medical developments, especially high technology advances, are
expensive.
There are good solutions to some of these cost problems, but not to all of them.
Cost Shifting
There are additional reasons for cost increases on the private sector, other than the
aggregate cost of health care. Three major groups finance the cost of health care in this
country:
1) the government
2) self-insured companies—generally big corporations
3) businesses which insure through traditional insurance companies—generally
small businesses
Together with individuals, these groups finance virtually all of the nation's health
care spending. When one of these groups pays less, the others must pay more to cover
the costs.
The federal government's system, which sets the amounts Medicare pays for
particular services, reduces the government's expenses for Medicare. However, it has
done nothing to lower the overall costs of health care and has actually driven up costs
for the privately insured. When providers cannot get adequate compensation from the
government, they simply raise the prices charged to everyone else.
Large, self-insured plans frequently have a great deal of clout in a given area and
can negotiate with providers to reduce the impact of this "cost shift" on themselves.
However, small employers have no ability to reduce this cost shift and must bear its full
brunt. This same cost-shifting scenario also occurs when providers dehver
uncompensated care, primarily to the uninsured. For these reasons, no part of the
II - 2
�business community is hit harder by the high costs of the uninsured than small
business.
II. Small Business Problems
Health care cost problems of small employers cannot simply be dealt with at the
macro level. There are unique equity problems faced by small businesses in financing
the care of their employees which goes to the heart of how health care should be
paid—whatever the cost may be. These issues revolve around how small employers
find and maintain adequate insurance coverage for their employees.
The insurance market for small employers is based upon individual underwriting.
All employees of small firms—and each of their dependents—are screened for past
and present health conditions. If individuals in these groups have health problems,
those conditions are routinely excluded from coverage. At the very least, dramatically
higher rates are charged for these employees (and sometimes to all employees).
Moreover, small employers with sick employees are frequently turned down for
coverage altogether. When an employee gets sick while a policy is already i n effect, the
employer is faced w i t h premium increases at renewal time, making the plan too
expensive. When this employer shops for a new plan, other insurance companies either
will not provide coverage or they will exclude from coverage the condition of the sick
employee. These employers are often faced with a Hobson's choice, which is the
discontinuing of coverage for a given individual in order to find coverage for everyone
else.
A survey from the late 1980s by the Health Insurance Association of America
(HIAA) estimated that employers with fewer than 25 employees pay about 30 percent
higher premiums than large employers. Additionally, a survey by the National
Association of Manufacturers (NAM) reports that the premiums for those small
employers have continued to rise at a rate 50 percent greater than the rate of increase
for all other employers. Therefore, the problem is not simply that all insurance is too
expensive; the problem is that small, marginal companies actually get a substantial and
discriminatory price hike.
The insurance industry attributes this disparity to the high acquisition and
administrative costs for small firms, combined with their relatively low renewal rates.
Insurers' marketing costs to small businesses are higher and must be continuous
because their book of small firm business is constantly revolving.
Small businesses higher-than-average premiums are a result of a circular process
called "churning." A small business often faces significant premium increases after the
first year of coverage. The premium hikes usually occur because pre-existing condition
exclusions expire after the first 12-18 months of coverage. The higher costs cause small
companies to switch insurance plans, further escalating administrative costs and
perpetuating the underinsurance of their employees.
11-3
�We must move toward an insurance system that groups individuals to spread the
risk of a large loss across a larger group. Many small employers find that insurance is
merelyfinancingtheir real costs and billing them back to the business, rather than
spreading risk across larger populations.
The NSBU Solution
I. Universal Access and Participation
As health insurance premiums continue torise,fewer individuals and businesses
will be able to afford coverage. But no system can work unless everyone participates.
Unless everyone is insured, those who have insurance will subsidize those that have no
coverage. Moreover, the insurance system cannot be reformed to allow universal access
unless everyone participates. We cannot require the insurance system to cover the costs
of those who have not been paying into the system, just as we cannot require insurance
companies to sell fire insurance on homes already ablaze. Therefore, NSBU would
require all citizens to participate and choose how their health care will be delivered and
financed. A system which emphasizes personal responsibility will also lower costs and
increase consumer awareness.
In such a system, everyone sacrifices and everyone gains:
• Providers will face more competition, but will no longer be forced to accept
uninsured patients (because there will not be any).
• Insurers (and other third-party payors) will be forced to accept everyone and
charge reasonable rates, but will see more young and healthy individuals enrolling.
• Individuals will be required to partidpate in the system, but will be guaranteed
acceptance, coverage and reasonable rates.
• Finandal assistance and subsidies will be available for lower income individuals
who are unable to afford such coverage on their own.
• Individuals whose employers offer coverage can continue to receive care
through their employment.
IL Managed Competition and Health Care Delivery
NSBU beheves the most sensible way to deliver health care and health care
coverage is through a system most commonly known as "managed competition."
Managed competition is a way of marshalling market forces to drive down health care
costs and streamline the system. Under this system—
• Nonprofit organizations would be established for businesses and individuals.
II - 4
�• These organizations (usually known as health insurance purchasing
cooperatives [HIPCs] or health alliances) would negotiate for health care coverage and
insurance on behalf of their members.
• Health alhances would compete for members based upon their success in
negotiating low cost, affordable health plans and making them available to their
members. They would give small businesses and individuals the same kind of market
clout as very large corporations.
• Health care providers and traditional insurers would be in the position of
having to negotiate for the business of health alliance members, rather than just
dictating terms to small businesses and individuals.
• Insurers and health alliances alike would be prohibited from discriminating
based upon the health conditions of their members.
Under such a system, it is expected that health care providers would form health
care organizations (loosely resembling today's HMOs) which provide complete health
care services to enrollees. These health organizations could compete directly for health
alliance business, thus compressing the insurer and provider roles into one. Both these
HMO-like groups, called accountable health plans (AHPs), and more traditional
insurers would be required to meet certification requirements.
• All health care will be channeled through AHPs, making it necessary for all
providers to form relationships with AHPs.
• AHPs would also be allowed to sell services directly to individuals and
businesses who choose, for whatever reason, not to join a health alliance.
III. A Package of Benefits
An independent federal health board would be created to establish a package of
minimum health care benefits that all individuals would be required to possess.
Currently, the states dictate what must be included in health insurance packages, but
all of these state rules would be preempted by this new federal package. The federal
minimum package should include only clearly necessary benefits.
NSBU beheves that the package should contain the following:
1) Hospitalization
2) Necessary physician visits
3) Surgery (including some outpatient)
4) Preventive care determined to be cost effective
5) Deductibles and copaystiedto income level
Deductibles should increase with income, because those with higher incomes can
afford to pay more for their own health care, though they still need protection from
very expensive claims. This minimum package would be used to determine the levels
of federal subsidy individuals would receive. So, while low-income individuals would
11-5
�be required to have low-deductible msurance, they would also receive additional
federal assistance to help them pay for it (or pay for it entirely, in the case of those in
poverty).
On the other end of the scale, those with higher incomes would be allowed to save
money and buy higher deductible plans, but only the basic plan would be tax
deductible. If someone wanted to buy a plan with a lower deductible than their
maximum one, it could only be purchased with after-tax dollars.
Such a tax system would give individuals an incentive to seek out less expensive
plans and care, and it would give AHPs and providers a much greater incentive to offer
cost-effective services. This new system would foster the kind of personal responsibility
so critical to cost containment in our system. Our current system only encourages real
competition based upon the quality and quantity of care provided; this new system
would also enter cost into that competitive mix.
IV. Containing Costs
The primary force for constraining health care costs should be the competitive
pressures outlined in the above sections. These pressures will comefromhealth
alliances competing for members by tough negotiation with AHPs, while the AHPs
compete for health alliance business. These competitive pressures will almost certainly
create organized delivery systems (the HMO-like organizations), which should be more
effident and will have incentives to cut costs and control expenditures.
A number of steps can be taken to contain health care costs:
• Repeal laws and regulations that prevent providers and payors from working
together to lower costs and end redundancy.
• Create a new "certificate of cooperation" to allow these organizations to
cooperate i n order to lower costs. Learning from the mistakes of the certificate of need
program, the new certificates of cooperation would carry with them an expectation of
cost reductions.
• Where necessary, state health boards should require providers to work together
to reduce duplication of services, a major component of the health care cost problem.
In addition, NSBU would recommend a series of other key steps be implemented
which are critical to sufficiently contain health care costs:
• Reform the medical liability system.
• Develop practice protocols for medical procedures.
• Develop a uniform administration and payment system.
• Implement an Electronic Data Interchange (EDI) system, to allow providers and
payors to immediately interact.
• Preempt states' anti-managed care laws.
1 -6
1
�• Educate consumers and patients with wide collection and distribution of quality
and cost data on providers.
• Develop incentives for more cost effective primary care and physicians, rather
than expensive treatments and specialists.
V. Financing: How To Pay for It?
The reform plan outlined by NSBU will be expensive. It calls for new and
substantial subsidies for lower income individuals which will total tens of billions of
dollars per year. The additional revenue that will result from our proposed limit on the
deductibility will fall short of financing the increased federal responsibilities. Therefore,
higher taxes will be necessary. The key will be in identifying tax increases that will
bring minimal harm to the economy, yet equitably distribute responsibility for health
care costs.
NSBU beheves that every effort should be made to finance increased health
expenditures through other cost cutting and waste reduction efforts. However, if such
cost-cutting efforts are insufficient to raise the necessary revenues for health care
reform, NSBU would support increased federal taxes to pay for the system, as long as
the taxes were broad-based in nature and did not include increased payroll taxes.
VI. Conclusion
NSBU is prepared to work aggressively to ensure that a health care plan similar to
the one outlined above is enacted. We believe that this model is the only one that can
cut costs, maintain and expand choice, preserve quality of care, reduce redundancy and
unnecessary care, maintain the jobs and economic growth capacity of the small business
community and provide health care for all.
II-7
�ffl. NSBU Glossary
�Health Care Reform Options
Presented below are descriptions ofthe various components ofthe current health care reform
debate as understood by National Small Business United (NSBU). These items have been
frequently mentioned by policymakers and the media, but the definitions and interpretations tend
to vary. The NSBU viewpoint on these reform measures is included in each description.
Accountable Health Plan (AHP)
The AHPs are designed to replace traditional insurers in a managed competition
model. The AHPs will either contract with providers or employ them, or both. These
provider groups should provide greater efficiencies and reduce the economic incentives
for providing unnecessary and excessive care.
Adverse Selection
Adverse selection is a tendency of individuals with poorer health expectations to
apply for or keep insurance to a greater extent than those with better health
expectations. A health plan cannot survive if the sick and healthy populations are not in
balance. It is the avoidance of this adverse selection which leads insurers to individually
underwrite small business and individual policies and exclude individuals from
coverage, at least temporarily. In a system where coverage must be offered to all
individuals at equivalent prices, the prices will be so high that many healthy
individuals will choose not to purchase coverage. Therefore, it is critical that any
universal access system require that everyone participate in order to keep prices down.
Benefits Package
The benefits package consists of those services which are covered by a given policy.
Most health care reform proposals define either a standard or a minimum benefits
package that everyone would carry. Very few things affect the price of a health policy
more than the range of covered services. Therefore, it is critical that any mandated
minimum package contains only necessary benefits. Small businesses simply cannot
afford "Cadillac" plans.
Capitated
Care (see Fee-for-Service Medicine)
Under a capitated system, a single payment is made to a health care provider
organization at the beginning of the year to cover all care for a given individual, much
like the current HMO system. Health care providers in a capitated system have an
incentive to reduce unnecessary care, since additional services do not increase revenues
III -
�and profits. On the down side, capitation eliminates the ability of deductibles to inject a
degree of market-based competition into medical choices.
Community
Rating (see Adverse Selection)
In its purest form, community rating means charging all individuals in a community
the same rate for the same health care coverage, regardless of health condition, age, sex,
occupation or any other factor. Without a mandate, community rating leads to adverse
selection. Since the average premium would be relatively high, many young and healthy
individuals would choose to opt out, while the sick and elderly would still find it
financially advantageous to partidpate. But this adverse selection further drives up
prices. Most health care experts see pure community rating as unworkable, but also
undesirable since it shifts a great deal of costs from the elderly to the young and from
the health-careless to the health-consdous. Therefore, most "adjusted" community
rating proposals call for insurers to be able to charge somewhat different rates—within
limits—based upon age, sex, region of the country and health history.
Copayments
Copayments are the portion of the medical bill paid by the patient, after the
deductible. Most polides call for the individual to pay a 20 percent copayment up to a
capped level Copayments are a method of keeping individuals engaged in the financial
consequences of their health care choices, without having to pay the entire bill. If there is
a move toward a capitated system, the copayment would simply be a nominal, fixed
payment charged at every provider visit, regardless of the extent of the care.
Cost Shifting
Currently, health care providers treat many patients with no ability to pay, or whose
insurance (such as Medicaid and Medicare) does not pay the full cost of the coverage.
When this happens, the providers recover these costs by "shifting" them to insured
patients by charging higher fees. Cost shifting causes higher health insurance premiums,
espedally for small businesses, since they do not have the market dout to negotiate
lower fees. One of the primary goals of most universal coverage proposals is an end to
cost shifting.
Deductibles
A deductible is simply that portion of care which must be paid by the individual
before insurance begins reimbursement. Raising the deductibles is one of the primary
ways that many small businesses keep their health care premiums at affordable levels.
When they are tied to overall incomes, deductibles function as very effective cost
IU - 2
�containment tools, by reducing unnecessary care and by injecting a degree of consumer
behavior into physician-patient relationships.
Fee-for-Service Medicine (see Capitated Care)
Most medical care is currently provided on a fee-for-service basis, where each
service and procedure is priced and charged separately. Such a system allows
individuals to compare prices and to behave more like a consumer in making health care
choices. However, such a system also provides strong incentives for providers to
increase the volume of care and provide unnecessary services. Under fee-for-service,
more care means more profit.
Global Budgets
A global budget is an overall limit on total health care spending. But such a budget
can only make sense if it is tied directly to local communities where the spending
decisions are actually made. If a global budget results in price setting and spending
directives at the national level, it will be unacceptable to the small business community.
Small businesses are uncomfortable paying into a system over which they have such
limited control.
Health Alliances
Under the NSBU managed competition model for reform, individuals and
businesses would group together to form health alliances. These alliances would then
contract with a number of health care providers, from which all enrolled individuals
could choose. The alliances would give small businesses the kind of group buying
power that they do not currently enjoy. With provider and insurer groups actually
competing for the business of small employers, we should see considerable downward
pressure on prices.
Health Insurance Purchasing Cooperatives (HIPCs)
(see Health Alliances)
Individual Responsibility
Under any reform, it will be impossible to serve individuals with a high degree of
quality, at a reasonable cost, without unnecessary care, unless individuals take
responsibility, in every sense of the word, for their own health care needs. Individual
responsibility means encouraging healthy lifestyles, challenging providers about
unnecessary care and inflated prices and being empowered financially and
educationally to become a partner in making the critical health care decisions.
Ill -3
�Malpractice Reform
Reform of the current malpractice system is a critical component in bringing down
health care costs. Health care providers must pay staggering amounts for malpractice
insurance, and all of these charges are passed down to the payers in the system. But
even more significant than the actual lawsuits and the cost of insurance is the enormous
amount of unnecessary care encouraged by the threat of these suits. Many estimates put
the cost of unnecessary care at more than $100 billion per year. Much of this care is the
result of physicians prescribing tests and procedures solely for the purpose of protecting
themselves in case of a lawsuit. This practice will continue until the threat of these
lawsuits has been substantially decreased.
Managed
Competition
(see Health Alliances or Accountable Health Plans)
The idea behind managed competition is that individuals and providers should be
grouped into large pools, which would then compete from a position of strength for one
another's business. Individuals would be pooled into large purchasing cooperatives (or
health alliances), which would offer the products of competing health care provider
groups. Individuals would be able to choose from the multitude of plans offered
through the health alliances. The competition among the provider groups would drive
down costs and reduce unnecessary care.
Some groups believe that a managed competition system should simply create a
single health alliance in a region, which would provide a medium for the health care
market. But NSBU believes that private, competing health alliances should be
encouraged. These alliances should then become aggressive negotiators on behalf of
their small business members, keeping costs and utilization of the system low.
Outcomes Research
Outcomes research looks into the effectiveness of various medical practices. It is
designed to determine which procedures are most effective for a given ailment.
Surprisingly, much of this information is currently unavailable. Extensive outcomes
research is necessary to determine a proper benefits package, the appropriate care in the
case of malpractice suits or how to end unnecessary care. After all, we must first
determine what is necessary and what is not.
Practice
Protocols
(see Malpractice Reform & Outcomes Research)
To address the medical malpractice problem, it is necessary to determine the
appropriate care for a given condition. This information could then form the basis for a
set of guidelines or practice protocols for care. When providers follow these protocols,
they should form a reasonable defense against many malpractice claims.
Ill-4
�Preventive Health Care
Preventive care, such as check-ups and immunizations, is an important part of the
health care system and very socially desirable. However, there is a very common public
mis-perception that increased preventive health care actually saves money. Except in
specific circumstances (such as pap tests, pre-natal and well-baby care), it does not. It is
important to realize that the aggregate cost of preventive care outweighs the aggregate
cost of the care that it is prevented. We must not enter the health care debate thinking
that more preventive care will pay for itself.
Rating
Bands
(see Community Rating)
Under a reformed health insurance system, rating bands set the limits on insurance
prices. Essentially, rating bands dictate the maximum amount that a given individual's
or business' premium can vary from the average premium. Especially if insurance
reform is undertaken without more systemic reform, these rating bands are a critical
element that allows reform but helps to prevent adverse selection problems.
Self Insurance
Most large businesses accept the financial risk of their employees' health and pay
the medical bills from their own funds. These self-insured companies usually hire a
traditional insurer to administer their plans, but the insurance company accepts no
financial risk. Self insurance allows large companies to escape costly state mandates that
dictate the contents of all health insurance packages, thereby realizing substantial
savings. Since most small businesses do not have the resources to accept the risks of self
insurance, they must face the full costs of the state mandates. In recent years, many
smaller businesses have begun self insuring for a portion of their expenses (such as,
$10,000) and purchasing insurance to cover the rest. However, many reform proposals
would make self insurance illegal for all but the largest companies. This change would
create a clear inequity and further discriminate against small businesses.
Tax Treatment
Currently, all payments for health insurance that employers make on behalf of
employees are not included as taxable income for those employees, and the business can
deduct the entire amount. Meanwhile, individuals cannot deduct any part of their health
insurance costs. Total health care costs must reach 7.5 percent of income before
individuals can receive a deduction. As a result of this tax treatment nearly all health
insurance is financed through employers, with employees bearing little or no financial
responsibihty for the health care plans they are demanding. This situation is directly
responsible for many of the cost problems currently facing the health care system. In
order for managed competition to function best, individuals must make decisions about
IJ] - 5
�which provider group they will use, based in part upon price. In order to ensure that
price is considered by individuals, there should be a limit on the degree to which they
can exclude all employer-paid benefits from taxable income.
Uncompensated Care (see Cost Shifting)
Currently, health care providers treat many patients with no abihty to pay. This is
called uncompensated care. Under almost every health care reform proposal,
uncompensated care would end. When people who cannot pay are treated, the
providers recover costs by "shifting" them to insured patients by charging higher fees.
To compound matters, uncompensated care is often very expensive, since it is
frequently rendered in emergency rooms and in cases where care has been unduly
delayed.
Ill -6
�IV. Discussion Points
�Discussion Point: Payroll Tax
Payroll-Based "Premium" (Tax)
Some health care advocates have suggested a system where employers would be
required to pay a percentage of payroll into the health care system, rather than
purchasing health care coverage for employees. While such a system may be simpler
for a business to administer, it removes the business and the individual from decision
making in the health care market and points the way to a more regulatory financing
system.
Taking Competition Out of the Picture
Rather than shopping for a better insurer, health alliance or provider group at a
lower price, under a payroll-based system, employers would simply pay the tax. There
would be no possible avenue for reducing those costs. Meanwhile, employees would be
automatically enrolled in the health alliance. With no price-based market competition
in sight under this system, the only option for containing costs would be through
government regulation and action. NSBU believes that such regulation would lead
either to insufficient cost containment or to severe rationing of care, both of which
would be unacceptable alternatives.
Discriminating Against Small Business
Most payroll-based proposals would allow big businesses to opt out and fund their
health care expenses in the traditional fashion. Should this happen, the separate system
for small business employees could easily become "ghetto-ized." Should the initial
payroll tax be insufficient to fund the small business system, additional federal dollars
would be required, but may not be supplied. One can easily see how a second tier of
medicine could develop, with cheaper lower-cost medicine being offered to small
businesses and their employees while the employees of big corporations receive a
higher quality of care. Such a scenario would be completely unacceptable to small
businesses and their employees.
Payroll Taxes Hit Small Businesses Very Hard
All additional payroll expenses are viewed skeptically by small businesses. Small
businesses tend to be more labor intensive than larger businesses, so payroll taxes affect
them disproportionately. Also, payroll taxes are not based upon size, revenues or
profitability. Even businesses that are losing money must pay their payroll taxes, and
they pay the same rates as Microsoft or AT&T.
IV- 1
�Discussion Point: An Employer Mandate
An Employer Mandate: Why Not?
A mandate on all employers to provide health care coverage for all of their
employees would be a very bad policy for a host of reasons. First, it must be recognized
that an employer mandate will be a powerful retardant to economic growth and to job
creation, which are fundamental in these tough times. But even in the narrow terms of
health care policy, an employer mandate makes little sense. It flies in the face of the
incentives that need to be created (individual responsibility), while also failing on
grounds of equity and fairness.
Employer Mandate = Lost Jobs
From 1982 to 1990, small businesses created 67 percent of all new jobs. As this job
engine has stalled in the last two years, the American economy has created very few
jobs. Any additional factors which directly increase the cost of hiring employees will
only continue to retard job growth. After all, those without insurance are also the ones
at the greatest risk in the job market The average wage for small businesses not
offering health insurance in 1988 was only $7,400, reflecting a very high rate of part
time, low wage and seasonal workers in those businesses (small businesses that provide
health insurance, however, had an average wage of $15,600). Requiring that the
uninsured businesses spend around $3,000 per year (40 percent of payroll) per
employee on health insurance and not expecting that most of those jobs will disappear
is simply naive.
An Employer Mandate Hits Small Business Hardest
Taken in the aggregate, an employer-based mandate would cost small business at
least $60 billion per year more than the already staggering amount that they are paying
right now (assuming an average policy cost of $3,000 per employee). Such a large new
burden will certainly have grave economic consequences.
Employer Mandate Is Unfair to Businesses and to Employees
An employer mandate is not fair either to small businesses or to their employees.
Such a mandate fits everyone into the same mold; if the business can afford the
coverage, fine; but if the business cannot afford the coverage, the mandate results in lost
wages for those employees. To correct these problems, some have advocated subsidies
for some businesses to help them afford coverage. But the idea of a subsidy raises some
very serious questions in terms of which businesses would be subsidized and how that
subsidy might be distributed. Do you subsidize the busmesses that do not currendy
IV -2
�provide insurance? Tell that to their competitors who have been providing coverage
and will receive no subsidy. Do you subsidize low-wage businesses—thereby
encouraging low wages? Do you subsidize low-profit or low-revenue businesses?
There are plenty of low-revenue businesses that are highly profitable, and there are
plenty of ways to hide profits in order to collect federal dollars. There is simply no way
to equitably and effectively distribute health care subsidies to businesses.
IV -3
�Discussion Point:
Individual Responsibility
Individual responsibility should be a cornerstone of the new health care system. If
the future system does not put individuals at the center of the process, NSBU beheves
that it will ultimately prove to be unacceptable to the American people. Individuals
must be placed at the center of the process, be made responsible—in every sense of the
word—for their own health care choices, and empowered to make those choices.
The Importance of Choice to Americans
Every major poll indicates that the American people rank retention of choice as a
very high priority as health care reform moves forward. The American people have
come to expect and demand a system which allows them to make many of the critical
decisions of how they are treated and by whom. It is very unlikely that any system that
does not retain this choice will be sustainable.
The Need for Market Forces
Since it is a political reality that consumer choice is likely to exist in some form in a
successful health care plan, the plan must be structured to keep costs to a minimum.
Consumer choice is very expensive if it is not accompanied by consumer consequences
and responsibility. Beyond a certain basic level, individuals should face a proportional
burden of the costs of their health care choices. Only through this market-based
interaction between consumer choice and costs can a system that Americans find
acceptable be madefinanciallyaffordable. Much of this market competition can be
achieved by limiting the tax subsidy for individuals to purchase or receive
unnecessarily excessive benefits.
Healthy Behavior Is Critical
Individuals should also be given incentives to lead healthier lives. By encouraging
individuals to take responsibihty for their own health, many costs to the health care
system can be avoided. By improving individuals' diets, exercise habits and general
health knowledge, unnecessary care can be avoided. But these goals can only be
achieved by individuals taking responsibility; they cannot be imposed by the health
care system.
IV -4
�Discussion Point: Health Alliances
Most health care reform models call for grouping small businesses and their
employees into larger purchasing units, called "health alliances." Unfortunately, some
proposals for health alliances do not respond to the real needs of small businesses.
Government Controlled Health Alliances Eliminate Choice
The debate is whether small businesses should be required to join a single,
government-created health alliance, or whether they should be allowed to choose from
among several private competing health alliances. NSBU believes that small business
should have the right to organize and to run their own cooperatives, in order to have
choice and empowerment within the system. A mandate on employers which provides
neither an avenue for these businesses to choose how to purchase coverage nor an
ability to organize for their own best interests and survival will be very unpopular with
small businesses.
Competing Alliances Respond to Small Businesses
There are many small businesses which currently provide coverage and that might
not oppose an employer mandate. But this group will almost certainly oppose and
resent a provision which traps them into purchasing coverage from a
single—potentially inefficient—source. On the other hand, private competing alliances
allow businesses to group together and actually be in control of the group to which
they are sending thousands of dollars. We believe that such empowerment will give
small businesses a much greater "buy-in" to the new system.
Private Health Alliances Necessary for Competitive Forces
NSBU believes that private competing health alliances are essential for maximizing
competitive forces for cost containment. Competing alliances will have strong
incentives to negotiate tough deals with providers in order to attract members. In areas
where the market cannot sustain multiple cooperatives, they will not exist, thereby
maintaining the efficiencies of larger pools. Private, competing alliances represent an
important component for maximizing the cost containment potential of managed
competition.
IV - 5
�V. NSBU Involvement
�NSBU Involvement in
Health Care Reform
National Small Business United (NSBU) has worked to make public policymakers
aware of the problems small business owners face regarding health care since the
mid-eighties. Many NSBU leaders have testified before Congressional committees
about the problems they were encountering, such as rising costs of coverage, inability
to obtain health care insurance for their workers and being dropped by their insurance
company.
NSBU's involvement is wide-ranging, as well as ongoing. Representatives of NSBU
have met with key administration officials and Congressional committee chairs many
times over the past few years. We have participated in coalitions and our members
have been speakers in panel discussions. NSBU also seeks to expand public knowledge
of small business health care reform perspectives through publishing articles in
association publications, distributing survey results of small business owners and
conducting interviews with the media.
In March 1993, NSBU was very pleased to have Margaret Smith, a member of
NSBU's board of trustees, be included among those who testified before the President's
Task Force on Health Care Reform. Prior to that, we were fortunate to have had
meetings with Ira Magaziner and Health and Human Services Director Donna Shalala.
We will continue to work hard to help shape a health care reform package that is fair to
small business owners as well as all other U.S. citizens.
This section of the notebook indudes the following:
1.
Highlights of NSBU Congressional Testimony on Health Care
Reform.
2.
NSBU's statement before the President's Task Force on Health
Care Reform, presented by Margaret Smith, March 29,1993.
3.
Testimony presented by Gary Kushner before the House
Committee on Ways & Means, March 13,1993
4.
An example of an effective market-driven cost control program
operated by the Council of Smaller Enterprises (COSE), an NSBU
regional affiliate in Cleveland, Ohio.
V- 1
�NSBU Testimony
on Health Care Reform
March 29
March 15
mi
June 11
March 12
January 29
mi
June 3
April 24
April 9
ma
im.
White House Health Care Policy Task Force
Margaret Smith, NSBU Legislative Committee Chair
House Ways & Means Subcommittee on Health
Gary Kushner, NSBU Health Care Subcommittee Chair
House Small Business Committee
John Galles, NSBU Executive Vice President
House Ways & Means Subcommittee on Health
Gary Kushner, NSBU Health Care Subcommittee Chair
House Ways & Means Committee
Tom Farrell, NSBU Trustee
House Government Operations Committee
John GaUes, NSBU Executive Vice President
House Ways & Means Committee
Susan Hager, NSBU President
Senate Finance Committee
Gary Kushner, NSBU Health Care Subcommittee Chair
March 29
House Small Business Committee
John Galles, NSBU Executive Vice President
July 26
House Small Business Committee
John Galles, NSBU Executive Vice President
Pepper Commission
John Galles, NSBU Executive Vice President
Senate Labor & Human Resources Committee
July 5
May 1
V-2
�Statement of
Margaret Smith
before the Health Care Task
Force
Representing
National Small Business United
March 29,1993
V -3
�My name is Margaret Smith, and I am an attorney specializing in representing
small and medium-sized businesses in the Silicon Valley and San Francisco markets,
where I also own two other small businesses. I am a long-time small business advocate
(my full biography is attached), and today I am representing National Small Business
United (NSBU), where I serve as chair of the legislative committee—the primary public
policy setting body for the association. We very much appreciate the opportunity to be
here today.
National Small Business United represents over 65,000 small businesses in all fifty
states. Our association works with elected and administrative officials in Washington to
improve the economic climate for small business growth and expansion. We have
always worked on a bi-partisan and pro-active basis. In addition to individual small
business owners, the membership of our association indudes local, state and regional
small business assodations across the country. For the past four years, health care
reform has been NSBU's top federal priority.
Our plan for ensuring that all employees of small businesses (and, indeed all
Americans) have health coverage can be simply summarized: 1) require everyone to
have coverage; 2) reform the insurance system so no one can be denied coverage; and 3)
institute a system of federal payments, based upon family income, so that everyone can
afford coverage. It is a plan that responds to people, not to businesses; that responds to
health care needs, not to employment status.
Of course, the details of our plan, like everyone's, become considerably more
complex. We have to deal with critical issues such as who gets subsidized, what goes
into a basic benefits package, how tight the insurance bands should be, and—the
biggest question—how to keep a lid on costs; but all of these questions can only be
addressed once we have dedded the answer to the most fundamental question in this
debate: Who pays?
It seems to us that we have three distinct financing options for a universal coverage
plan: 1) have the government cover everyone; 2) require employers to cover all of their
employees and dependents, with the government picking up the rest; or 3) require all
individuals to have coverage, with the government subsidizing those who need it.
However, we have rejected the government-run option on philosophical and
substantive grounds. In addition, it is our perception that such a system stands littie
chance of adoption. Between the two remaining systems, we believe that the
individually-based system makes far more sense—for businesses, for individuals, for
providers and for the nation.
We certainly understand and appreciate that an individually-based system—if it
appropriately supports the choices of lower-income individuals—will be expensive for
the federal government. Moreover, it could not really be made much less expensive,
since everyone must be guaranteed the ability to afford appropriate care, so we
V-4
�certainly realize the such a system will require a major federal outlay. But we also
realize that a full-blown employer-based mandate could cost the small business
community in excess of $40 billion more per year than what they are paying right now.
This number assumes an average premium cost of $2,000 per employee (blending
individual and family policies), or $1,250 per life. If the actual premiums prove to be
higher or lower than these assumptions (which we think are relatively conservative),
the $40 billionfigurewill naturally move either up or down.
Simply put, we have a lot of trouble with a government and a society that want to
avoid the tough choices of increasing the deficit or raising taxes—even for appropriate
societal responsibilities—yet insist on shifting those responsibilities to small businesses,
asking them to pick up most of the tab for reform. After all, government and big
business are both looking to reduce their costs in this deal; only small business will be
shouldering a bigger share of the burden than before. If an employer mandate is
adopted because it is the system that costs the federal government less money, rather
than because it is the system that makes the most sense, it will be a sad commentary on
our national priorities.
As President Clinton has so consistently and correctly pointed out, small business is
the engine that drives job creation and economic growth in this nation. Small businesses
employ 57 percent of the private work force, make 54 percent of all sales and contribute
50 percent of the gross domestic product (GDP). In the last decade, small businesses
created the vast majority of new jobs. Yet, we also have to remember that small
business jobs are more likely to be filled by younger workers, older workers, women
and part-time workers. Unfortunately, a health care mandate that drains tens of billions
of dollars out of small businesses every year will put a dramatic damper on job creation
and economic growth, affecting those workers and the businesses that employ them
most of all.
Please understand where we are coming from: an individual approach is not an
attempt by small business to duck responsibility for the health of their employees; over
80 percent of small business employees and their dependents have insurance. We think
that requiring all individuals to participate in the system would actually increase the
pressure that employees place on their employers to provide that coverage for them,
causing employer-provided coverage to increase. Yet, there are situations where the
added expense of health insurance would cause wage deflation, lost jobs and even
business closings. A system that responds to the needs of the employees and families of
such businesses—on an individual basis—would be the best system. As important as it
is to provide access to quality health care for all, we think that employment and jobs
should receive equal attention, especially when there is a conflict between these two
needs.
We understand that the task force is attentive to the financial constraints of many
small businesses and may be considering options to help employers afford coverage.
V-5
�However, we believe that an employer mandate raises some very serious problems in
terms of which businesses might be subsidized and how you distribute that subsidy.
Do you subsidize the businesses that do not currently provide insurance? Tell that to
their competitors who have been providing coverage and will receive no subsidy. Do
you subsidize low-wage businesses—thereby encouraging low wages? Do you
subsidize low-profit or low-revenue businesses? There are plenty of low-revenue
businesses that are highly profitable, and there are plenty of ways to hide profits in
order to collect federal dollars. We can think of no way to equitably and effectively
distribute health care subsidies to businesses.
Small business desperately wants and needs reform of the health care system in
order to achieve access and cost containment. The current status of the small group
insurance market and system-wide cost increases combine to make the current system
unsustainable for the small business community. There are several components that, if
addressed, can serve to make your health care plan responsive to the needs and
concerns of small businesses and their owners. Please be mindful of the following key
points as you come to dosure on the critical final details of your plan:
Individual Responsibility
Individual responsibility should be a cornerstone of the proposal. If the future
system does not put individuals at the center of the process, make them responsible—in
every sense of the word—for their own health care choices, and empower them to make
those choices, we believe that the new system will ultimately be unacceptable to the
American people.
Almost everyone agrees that the American people deem choice to be a very high
priority for the health care system. Yet the need to contain costs means there must some
limit on this choice. We must dedde whether we arrange incentives in a way which
encourages individuals to makefinandallywise choices (like limiting their tax
exdusion so they choose less expensive health plans) or whether the new system
unilaterally limits those choices. Despite the short-termfinandaltemptation to move in
the latter direction, we very firmly believe that the former will ultimately be far more
acceptable to the American people. To reiterate: encourage individuals to choose
appropriate care, rather than simply more care, and indude excessive benefits as
taxable income to individuals.
Learning From Current Examples
Right now there are local and regional small business organizations purchasing
care for their members on a cooperative basis. These groups have taken spedfic and
concerted actions designed to hold down their health care costs. We should build upon
their experience. Specifically, the steps these groups have taken include the following:
V-6
�•
Creation of a data collection system to enable the groups to follow enrollment
patterns, maintain control over premium billing and carrier reimbursement and
monitor utilization both by procedure and by provider. This data enables knowledge-based negotiation with providers to reduce costs.
•
Pursuit of state legislation to allow managed care activities, such as developing
capitated managed care plans with selected providers.
•
Using the leverage of their disciplined cost structure and more efficient delivery
system to enter into long-term agreements with insurers, which set maximum rate
increases.
Encouraging Private Competing Health Care Purchasing
Cooperatives
Small businesses should have the right to organize and run their own cooperatives,
in order to have choice and empowerment within the system. A mandate on employers
which provides neither the avenues for these businesses to choose how to purchase
coverage nor an ability to organize for their own best interests and survival will be very
unpopular with small business. Many businesses which currently provide coverage,
and might not oppose an employer mandate, will almost certainly oppose a provision
which traps them into purchasing coverage from a single—potentially
inefficient—source.
Moreover, we believe that private competing cooperatives are essential for
maximizing competitive forces for cost containment. Competing cooperatives will have
strong incentives to negotiate tough deals with providers, in order to attract members.
In areas where the market cannot sustain private competing cooperatives, they will not
exist, thereby maintaining the efficiencies of larger pools. Private competing
cooperatives represent an important component for maximizing the cost containment
potential of managed competition.
Creating Strong Incentives for Streamlining the Delivery
System
Efforts to contain costs in the short term will only cause dramatic hikes in the
out-years, unless the delivery system undergoes fundamental change. We are very
reluctant to repeat the Nixon wage and price control debade, exchanging short-term
savings for long-term price escalations. Should short-term price controls be part of your
package, their removal could cause very large price hikes—unless the system which is
driving the cost escalations has been profoundly changed. If price controls are enacted,
it should only be in conjunction with the guarantee (as opposed to the future promise)
of systematic change in the delivery system and its incentives for endless cost hikes.
V-7
�Avoiding Payroll Taxes
Payroll taxes hit small businesses particularly hard and create a very strong
disincentive for hiring and increasing wages (mandated health coverage, essentially, is
a payroll tax). Small businesses tend to be labor intensive, and almost always feel that
they need more help, but cannot afford to hire additional employees. So, any tax that
further raises the price of labor hits small business disproportionately hard.
Additionally, payroll taxes are ones that must be paid without regard to the financial
security or revenues of the business. A small business just starting—and losing
money—pays the same payroll tax rates as MicroSoft.
Should additional revenues be necessary to finance the health reform program, a
more broad-based and equitable source should be considered. We also believe that
revenues that are specifically and permanently ear-marked for health care reform will
receive a higher level of public support
Assuring Cost Containment
Cost containment should be addressed with a gravity at least equal to that given
universal coverage. Should access goals get ahead of cost realities, the new system
could fail. We believe that efforts to contain costs can best be achieved through
interactions between providers and payors at the local level, rather than through
federally-imposed restrictions. Empowering local payors and providers to enter into
tough negotiations is key. Tough judgments about resource allocations with scarce
dollars should be made by local communities rather than federal boards.
As you know, controlling costs in the short term is the toughest challenge.
Representatives of the task force have discussed the idea of somehow limiting cost
escalations to the rate of inflation. If such a goal were established. President Clinton
could challenge local provider communities to meet that target in cooperation with
local payor representatives.
Some states have previously defined health care provider districts, in their efforts to
contain costs. These districts operated under "Health Systems Agencies" (HSAs) which
reviewed certificates of need for state health boards. Provider representatives from
those districts could be combined with an equal number of payor representatives
(derived proportionately from the public sector, according to their financial
contributions). Together, they would form cogent cost containment targets. These
panels would review budgets, analyze costs, propose cuts and prepare their targets to
comprehensively address cost containment. In this way, cost containment can occur
from the "bottom up." Any restrictions that stem from local decisions—made with
local input—will be more acceptable than federal restrictions passed down the system,
from "on high."
V -8
�In addition, we hope that the Clinton administration takes the courageous step of
demanding serious medical malpractice reforms—and other changes needed to reduce
unnecessary care.
Demanding That Federal and State Governments Pay Their
Fair Share
The new system must ensure that the federal government steps up to its necessary
responsibilities, both by paying for those who need society's assistance, and by paying
going market rates for any coverage the government directly finances. Under the
current system. Medicare and Medicaid each pay below-market rates of reimbursement
to providers, and those costs get shifted to the private sector, especially to the payors
who do not hold the market clout to keep their costs down: small businesses. In terms
of care for the poor. Medicaid is wholly inadequate in terms of covering the necessary
population. Entirely too many individuals are left out, and the costs of their
uncompensated care also get shifted to the private sector—again, especially to small
businesses.
We appreciate being invited to testify today. You are moving forward with a
process that could produce one of the most historic and profound public policy changes
of this century. I wish you well in your final days of agreeing on a direction toward
health care reform. I hope that you have found these remarks helpful or enlightening in
some way. If we can be of any further assistance or provide additional information, we
are ready to help. Thank you.
V -9
�Statement of
Gary Kushner
before the
U.S. House of Representatives
Ways and Means
Subcommittee on Health
Regarding the Small Business
Health Insurance Dilemma
on behalf of
National Small Business United
v- J
O
�Mr. Chairman and Members of the Subcommittee:
Good morning. My name is Gary Kushner. I nm an employee benefit consulting
firm (Kushner & Company) in Kalamazoo, Michigan, and I am here today representing
National Small Business United (NSBU), where I chair the Health Care Policy
Subcommittee. I am also a former chair of the Small Business Association of Michigan.
National Small Business United is the oldest trade association exclusively
representing small businesses in this country—for over 50 years. NSBU is a
volunteer-driven association of small businesses from across the country, founded from
a 1986 merger of the National Small Business Association and Small Business United.
NSBU serves over 65,000 individual companies with members in each of the 50 states,
as well as local, state and regional assodations. The top priority for NSBU for several
years has been fundamental health care reform.
We appredate your holding this hearing today to explore the health insurance
problems faced by millions of small employers. The current insurance-based financing
system for health care poses large problems and concerns for small businesses. To be
sure, employers of all kinds and sizes, as well as the public sector, are finding it
increasingly difficult tofinancethe cost of health care for their employees and for the
nation's dtizens. The U.S. spends more per capita on health care than any other country
in the world—more than double what Japan spends and 40 percent more than Canada,
which is the second most expensive country. Twenty five years ago, health care
constuned 5.9 percent of the GNP; in 1992, that number topped 14 percent, for a total of
$840 billion. At this rate, we will see annual health care spending easily top $1 trillion
by 1994.
But there are additional reasons for cost increases on the private sector, other than
the aggregate cost of health care. There are three major groups who finance the costs of
health care in this country: 1) the government, 2) self-insured companies—generally
big corporations and 3) businesses which insure through traditional insurance
companies—generally small businesses. Together with individuals, these groups
finance virtually all of the nation's health care spending. It is important to realize that,
to the extent that one of these groups pays less, the others pay more. But the small
businesses that are in the third, insurance-based, group pay the most.
The federal government has a system which has been successful in reducing the
government's expenses for Medicare; it is a system which sets the amounts Medicare is
willing to pay for particular services. However, it has done nothing to lower the overall
costs of health care and has actually driven up costs for the privately insured. When
providers cannot get adequate compensation from the government, they simply raise
the prices charged to everyone else. Large, self-insured plans frequently have a great
deal of dout in a given area and can negotiate with providers in order to reduce the
impact of this "cost shift" on themselves. However, small employers have no abiUty to
V - 11
�reduce this cost shift and must bear its full brunt. This same cost-shifting scenario also
holds true for providers' expenses in delivering uncompensated care, primarily to the
uninsured. For these reasons, no part of the business community is hit harder by the
high costs of the uninsured than small business.
However, the health care cost problems of small employers cannot simply be dealt
with at the macro level. There are unique equity problems faced by small businesses in
financing the care of their employees, which go to the heart of how health care should
be paid for—whatever its cost happens to be. These issues revolve around how small
employers find and maintain adequate insurance coverage for their employees.
To illustrate the personal problems that have been created by the current system,
following are two all-too-typical stories that have received media attention regarding
the inequities of the small group insurance market
•
Health insurance was the last thing Ron Collins, an agricultural consultant from
Hillsboro, Oregon, needed to worry about Collins' wife was battling lymphatic
cancer when his insurer of 16 years chose not to renew his company's health policy.
The insurer stated that its decision was based on a decline in the volume of business
in Oregon. After scrambling to find affordable coverage for his business that would
also cover his wife, Collins was told by insurers that they would not cover his
business unless he placed his wife in Oregon's high-risk health insurance pool —
even though the program could take no more new policyholders. Hefinallyended
up buying a conversion policy that cost $17,000 a year, $8,000 of which had to be
paid up front.
•
When Charles Gilbert's son Matthew was bom i n July of 1987 with severe birth
defects, he was confident that his employer's insurer would cover the hundreds of
thousands of dollars in medical costs he would incur. On July 1,1989, Blue Cross
canceled the entire policy of Gilbert's employer, stating only that the small company did not meet underwriting guidelines. This is, in essence, an industry
euphemism for "daims deemed too expensive." Only through the intervention of
Indiana state offidals and former Vice President Dan Quayle did the Gilberts
obtain a waiver to have the state's Medicaid program finance their son's medical
care.
These two examples illustrate the tough choices that our current insurance system
poses every day to our nation's small businesses and their employees. Certainly, these
situations are not the result of overt acts of greed and malice on the part of insurers.
Rather, it is the result of a system gone mad, a system in which insurers that do not
engage in underwriting and other such practices will be driven from business. Even the
insurers recognize the failings of the current system and are calling for fundamental
change.
The insurance market for small employers is based upon individual underwriting.
All employees—and their dependents—of a small firm are screened for past and
V - 12
�present health conditions, which is used to determine whether a company will receive
insurance and whether the conditions of some individuals will be excluded from that
coverage. If individuals in these groups have conditions, those conditions are routinely
excluded from coverage. Moreover, small employers with sick employees are
frequently turned down for coverage altogether. When an employee gets sick while a
given policy is already in effect, renewal time often finds the employer faced with
premium increases which make the plan unsustainable. When this employer shops for
a new plan, other insurance companies either will not provide coverage, or they will
exclude from coverage the condition of the sick employee. These employers are often
faced with the "Hobson's choice" of discontinuing coverage for a given individual in
order to find coverage for everyone else. For the self-employed, the matter is made
worse: even if they bite the bullet and purchase expensive coverage, they currently get
no deduction for that expense, while large corporations can fully deduct the most lavish
benefit plans.
To illustrate the gravity of the problem in the small group insurance market, a
survey from the late 1980s by the Health Insurance Association of America (HIAA)
estimated that employers with fewer than 25 employees pay about 30 percent higher
premiums than large employers. Further, a survey by the National Association of
Manufacturers (NAM) reports that the premiums for those small employers have
continued to rise at a rate 50 percent greater than the rate of increase for all other
employers. Therefore, the problem is not simply that all insurance—even that of large
corporations—is too expensive (though it is); the problem is that small, marginal
companies actually get a substantial and discriminatory price hike, which stems from
the inequities of the current financing system.
The insurance industry argues that the major reasons for this disparity are the high
acquisition and administrative costs for small firms, combined with their relatively low
renewal rates. Insurers' marketing costs are higher and must be continuous because
their book of small firm business is constantly revolving. One of the major reasons for
higher-than-average premiums for small businesses is that they are always switching
insurance companies (called "churning"). Why is this churning so prevalent?
A major reason that small businesses switch insurance companies so frequently is
that their premiums are frequently increased substantially after the first year of
coverage. One of the major reasons these hikes occur is because pre-existing condition
exclusions often expire after the first 12-18 months of coverage. The resulting premium
increases often push small companies into switching plans, which serves to both further
escalate administrative costs and to perpetuate the under-insurance of their
employees—because they suffer a new round of pre-existing condition exclusions. Also,
the competitive pressures on insurance companies may encourage them to price a
product at levels that are not sustainable past the first year. Premiums may also
increase if new employee conditions have become present.
V - 13
�We must move back toward an insurance system that groups individuals in order
to spread the risk of an individually large loss across a larger group. As it stands now
for many small employers, insurance is merely financing their real costs and billing
them back to the business, rather than spreading risk across larger populations.
Naturally, this examination finally leads to discussion of how (or whether) the
system can be changed to eliminate the described problems. Though we have been
informed that this hearing is intended to primarily address the problems within the
current system, we feel that we would be remiss if we did not address the solutions to
the current problems. Therefore, we have attached an outline of our proposed solution
at the end of this testimony. Wholesale reform which includes universal coverage is
clearly necessary to resolve the complex and inter-related problems in the modem
health care system. But we believe that retention of a mostly private sector system will
ultimately best serve the interests of all interested parties.
Thank you for inviting us to testify today, to present some of the major problems
encountered by small business. These problems must be solved quickly, and we hope to
work with you in any way we can to assure passage of an equitable and sensible health
care reform package.
V - 14
�Example of Cost Containment
by: Council of Smaller Enterprises {COSE), Cleveland, O H
How COSE Imposed Successful Cost Controls on Insurers
To Control Price Increases for COSE Members
Small employers have little control over the cost of health care. Typically, only
about 70 percent of the price of a small employer's health plan goes to cover the cost of
medical care; the remainder covers administrative and sales costs and insurer profits.
Over a five-year period, the Council of Smaller Enterprises (COSE) took a number
of steps to narrow the gap between its members' prices and the cost of delivering health
services to them.
These steps indude the following:
• Creation of a data collection system which enabled COSE to follow changes i n
enrollment patterns, maintain control over premium billing and carrier reimbursement and monitor changes in utilization by procedure and by provider. By
taking control of the information related to how much COSE members were paying
into health plans, COSE could develop a format for measuring how much money
went to the delivery of services, and how much went elsewhere. This enabled
COSE to reduce insurers' administrative costs through knowledge-based negotiation;
•
Pursuing legislation which enabled our insurer to circumvent state anti-managed
care laws to develop capitated managed care plans with selected providers. This
step enabled our insurer, as an agent for COSE purchasers, to impose cost disdplines on providers through long-term (five-year) capitation agreements based
on cost-based volume discounts and;
•
Preventing our insurers from relying on commissioned agents to support the sale
of our sponsored plans.
Finally, using a more disdplined cost structure and more effident delivery system
as a base, COSE sought an agreement with an insurer which set a cap on annual
maximum rate increases for all members. To achieve this goal, COSE took the following
steps:
• COSE agreed to a long-term contract with its primary insurer. The current agreement is guaranteed through 1996, and renewable annually at an option through
the end of the century. This contract period gives the insurer the option of viewing
the profitability of the COSE business as a long-term arrangement;
•
COSE negotiated a rating methodology based on modified community rating. This
removes false subsidies often required by insurers' traditional emphasis on new
V-15
�business vs. renewal rates and simplifies pricing by ignoring such false differentials as gender and industry loads. Simplifying pricing also facilitates direct
marketing of COSE products.
COSE's formulas give them the flexibility to strengthen incentives to steer business
toward managed care products:
• COSE negotiated a rate renewal methodology which ignored insurer trend factors
in favor of a commonly-accepted standard for measuring inflation. The renewal
rates are based on the CPI (W) for hospital and medical services, which typically
is 30-50 percent of insurer trend factors. The CPI-based formula can be modified
upward or downward based on changes in utilization measured in cases, not in
dollars.
This approach has produced value in several ways. Changes in the CPI are readily
trackable and objectively measurable, where insurer trend factors tend to be more
self-fulfilling prophecies.
The CPI-based cap gives COSE's insurer great incentives to hold providers
accountable. COSE will not pay the insurer more than CPI. The insurer is highly
motivated to keep provider increases close to the CPI.
By measuring utilization in cases rather than dollars, COSE has placed a greater
emphasis on how many times its members use services, and on what services they use,
rather than on how much they pay. This has made the providers more careful.
These steps have helped produce some significant results. More than 60 percent of
our members' enrollment is in managed care plans (up from less than 25 percent five
years ago).
Cleveland has dropped from the third most expensive dty i n America in which to
get sick (as measured by the American Hospital Association) in 1987 to nineteenth in
1992.
COSE members' prices have increased by more than 10 percent only one year in the
last ten. The average rate increase has been 7.5-8.5 percent.
COSE represents Blue Cross & Blue Shield of Ohio's most profitable line of business
on an underwriting basis, despite prices which average 30-50 percent below market
rates.
Price controls can work if they are part of a general cost-control strategy.
March 16,1993
V - 16
�^.Media Coverage
�HEALTH-CARE
REFORM
Reform
By Judy Keen
E d Judl Hason
m
USA TODAY
ARLINGTON, Va. - Dale GilUlland had planned to hire two new
workers mis summer for American
Foam Center, his business here.
He scratched mat Idea when he
read that President Clinton will soon
be asking him to chip In to guarantee
health coverage lor his workers.
"We're scared," says GlUllland,
••••fiose furniture and cushion firm
does not now profde health covernec for its 10 employees.
••Smnll business can'i afford exiwtwa ihey c.ninoi conirol." he snys.
Every $1 ol expense means Jl less
ol proBu And right here, It means
r-vo new jobs won t be created."
Clinton. GlUllland says, "hasn't got
a clue as 1 how a job Is created."
0
Two-thirds of small businesses
currenlly provide heallh<are coverage lor their workers. Clinton promises reforms will reduce costs (or
small firms whose health-Insurance
now rise by 20% a year.
Bui reforms could push small
firms thai don't insure their workers
into bankruptcy and layoffs.
We are freaking out." says Leslie
Aubin of the 607,000-member National Federation ot Independent
Business. Top "panic buttons," she
says: required employer payments,
and a benefits package "loaded with
goodies" like long-term care, mental
healUi and prescription drugs.
The Clinton administration argues
all employers must share the COSL
Currently, some workers .whose
employers don't provide health care
get a freerideIn medical emergency
rooms - where paying customers
are charged more to cover the uninsured - and some are covered under spouses' insurance.
"We don't think it's fair for a dry
cleaners lo be paying large amounts
ot money to insure its employees
mrt, in effect be covenng the employees of Ihe car wash down the
".reel lhal doesnt offer insurance,"
<
says Robert BooreUn, spokesman for
Clinton's health-reform task force.
Once reforms are passed and
small businesses band together to get
the lowest-cost coverage, Boorstin
says, they'll be freed from the high
premiums that now far exceed those'
granted to big Srms.- •
"Our major concern Is controlling
costs and, to the extent that the entire package Hits that way, thafs a
good thing," says John Satagaj of the
Small Business Legislative Council.
But many business owners balk at
being ordered to pay for coverage.
"People will be laid off, wages frozen, hours nnd benefits cul back,"
snysAuhln.
At a round table discussion at the
U.S. Chamber of Commerce, business owners voiced similar concerns:
• Cheryl Womack of Kansas City,
Mo., who runs a S30 million agency
lhat Insures truckers, has told workers their other benedts could be cut
If she's forced to pay more.
She now pays $12,000 a month for
health Insurance for 80 .workers. If
there's an 8 payroll tax, she says,
%
her tab will be $28,000 a month. And
If she has to pay more — up to 12%,
by some estimates — "what will give
Is other benefits: profit-sharing, bonuses and on-site day care."
• Boyd Berends of ProUght, a
Holland, Mich., lightingfirm,worries
the federal government will Impose
a big new bureaucracy. "Who covers
the kids? Who keeps track of working and non-working family members? Who covers the spouse?"
• Kenneth Wolfe, a Park Hills,
Ky., accountant,figures10 or IS of
his 200 small-business clients would
be forced out of business If they had
to pay more. Most, he says, are Just
squeaking by. Reforms, he warns,
"will cut down on job creation."
Business owners say they"!) be
forced to cut corners somewhere —
and they say the lagging economic
recovery Is even slower because
they, like GlUllland, are holding off
on new hires now.
"There's a lot of apprehension,
Small businesses wary of fax
By Mitt UtnSVtOhn, U8A TOOAY
HOLDINQ OFF: Marguerite and Dale GIMland have put off Wring at their
American Foam Center because of coneema over health-reform costs.
and I think certainly that Is forestalling some of the Job creation Clinton
wants today," says John Galles of National Small Business United. Re predicts small businesses will persuade
supporters In Congress to change
healtlKare reforms.
'There'll be an Incredible war
over this," Galles predicts. "It will
stir the kind of national debate we
havent had since the Vietnam war."
Stephen Elmont, owner of a Boston restaurant and president of the
National Restaurant Association,
says mandates mean hell have to
"scninch down the amount of hours"
his 32 employees work.
That, he says, will shrink paychecks and the amount of money
they inject Into the economy. His
workers pay $20 a week for insurance; he matches that amount
Eugene WIgglesworth of Vancou-.
ver, Wash.; who owns «ve auto repair shops, wishes he could share his
concerns with the president
"Call me," he would tell Clinton.
"Get back In touch with the people
making the Jobs."
1
, Small business has one big fear ,.firmscould !hot staytobusiness 1
of . President Clinton's health re- forced to pay It, and others would
form plan: more taxes.
. trim their payrolls to meet more
Under an idea embraqed by .Hgoverement-mandated costs: ;
the White House,'whose health
Scott Holman,' 'a steel foundry
plan comes out after a budget bill owner In Bay City, Mich., says he
passes, companies large and wouldn't have started a business
small would pay a payroll premi- now employing 83 If he'd faced
um — the equivalent of a tax — ' such a levy. "It would have been
for each worker.
one more disincentive," he says.
The administration knows the
The charge would replace
what many Srms now pay for biggest opposition to refonn will
health Insurance — and In many come from small business.
But spokesman Robert Boorcases be less than current costs.
Thafs not enough to make busi- stin says there would be a "phasein mechanism" that would allow
ness happy.
The National Federation of In- businesses threatened with bankdependent Business says a payroll ruptcy or severe losses to tap Into
• premium would threaten. 18 mil- a "rainy-day fund" to help them
lion Jobs, because some small but
USA T D Y • W D E D Y JUNE 9 1993 • 9A
OA
ENSA;
,
�among classes but also among regions,
industries, companies, in patterns that
may not make sense" to many people, says
Mr. Aaron. For example, a state like
Connecticutj with a higher wage base and
a lower uninsured rate, could effectively
end up subsidizing a state nke Alabama,
with a high rate of uninsured people and a
^.-tJifesiV -By Haim:Snur^ .ii.iiii'rilower wage base. Microsoft would end up
Sta// KtporWr o/ TOT W M J . S m i r r JOUHKAI.
subsidizing Seven Eleven.
: WASHINGTON.-Ittethe tax that dares
W speak its name..:.>>'-.'.?
-ivtirtiTo avoid such complaints about subsidi. To administration officials grappling
zation, the administration is also considerwith the critical Issue of bow. to pay for
ing a system of different payroll tax rates
.;universal health coverage. It is a "waged
for different states, or even possibly differpremium." But to economists :and
entregionswithin a state. The rate would
A E A E • ••. %.CHAKGEFROM lr:
VRG
everyone else, it Is a payroll tax, and | ^ FAMILY I C M V
NO E
'. P Y O L • ' ;ij C R E T :: Z be calculated after taking into account the
AR L
U R N.
J) .. .CURREIIf : •
. tne decision on whether to Impose tt could
wage base of the area, the number of
R MU
'j
' \ ' PRBllUt.l • r : P E I M . ':S . POLICV;
have huge ramifications on the economics
uninsured and the cost of medical care.
But the varying rates themselves could
politics of health-care reform.
causeresentment,not to mention making
, -. The levy would replace the health in-,
what would be a hugely complicated syssurance. premiums manyfirmscurrently
tem even more complex.
pay on behalf of their workers with a:tax
divided between employer and employee.'
For business people, perhaps the most
similar to the taxes that now (und Social
worrisome question Is: Will It be enough?
Security and Medicare; fpr .those firms
From 1382 to 1992 the country's wage base
ihat don't now contribute-to.their em
grew 83%, while national health spending
jployees'health coverage. It would be a new
Jumped at nearly twice that rate. Unless
.e
s,. President.CShiton dropped the
the administration's health plan succeeds
-Idea during his campaign, but te ' now
in quickly and significantly reducing the
leaningtowardtt,and a decision could be
rate of Increase In health costs, the payroll
2
s «s wop as this week.--v.; .LHVY«S!:
tax rate might have to be Increased year
The proposal has split the president's
after yeartocover the gap.
.advisers,'With flrstlady.'HlllaiyiEpdham
If the payroU levy te set at 8*. "how
Cllntm ant Tm Maprliyr.^.hffldonifr
long will it be before It will reach 12% or
^lealthrcare .teun^tatttng.^the .idea,-' based-premium^ euphemism." But' the! wfisfled wlththatr^'
->', > '
15%?" asks John Galles, executive vice
*lillet«oooomk!( «Ides,sIed,diy>.Tieasuiypractical effect would be a tax, with aDthe rjijaSeoil ercn Kf. Aaron says that while president of National Small Business
iSea
Ltoydpenteenarexlublous..'. v benefitsondJlabUUlesthata'taxentaite.: heada£StbealinoftliepaynjUtax.Ulsa' United...
,: .;
i-The^Klilef >hene£U;/is6progresslvity}>: jpoUlical-coippllcation the administration
: Administration officials have talked
w t a x . ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ '
about guaranteeing that the payroll prefltfni£2i2*^S^
miimf ratmevergoes beyond ar-spedfled
slve 'jaltematlTCJtefinaikingtflnlversal contribute mpre than Anns, paying, low thinfc^with premiumfinance,and I say leveliifthelimltdidntprovetobeenough,
i «wraie.'<J!Wtfrt ttioo&p insup-. wages, such as snack bare and neighbor-; that as an unashamed;egalitarian who . revenue would havetobe (bund by some
^ott of:.flie.iiragrtased:^iiproach'is op-: hood laundries., (The first sevwal that- would Uke to see more Income redlstribu- means other than taxing business. But
fiQsei to Jhe •tradltlbnal'ipremlum itruc-; sand dollars ola company's payroll and a ,tion lathe t r s r '
many business people think that guar
—
^ej^everlrt.-Miejofjtheliaost worter's salary probably would.likely be. ' Moreover, for'all the talk of fairness, antee or not, the administration would
i they ^llould.tlo,•; says exempt bom the levy, and a cap would there would be dear winners and losers inevitably come backtothemtomake up
gtelattwdlredortor.tte' probably be placed on the total earnings under the payroll tax.'Ifs going to causea any shortfall, whether It was called a
I Auto Workers, v- .•—.->•-•-. -subjecttothe levy, offidals say.) Another ' lot of Income redistribution, not Jus^ tax or not
.. .Besides. Mr. Reuther adds* with a benefit Is that If the administration goes
payroll tax. some advisers think the;
.payroll taj. "we'd negotiate for the em- with a . .
ployer to jay*: the! .entire, amountf For' onlyother inoney they will need for health
•eaguijple/if the levy was 7* for the em:/< care reform can be raised by Increasing
ployer and-2%for the employee; a. leading t the cigarette tax. - : V ' •
fonnula^era^MenUloh.unlottwbuld ' The alternative that the president te
.bargalir^o make the employer pay the consideringtesimply requiring by law that
fntlre85£
all employers contribute a certain percent; Maxorhuslnesses are not enthused. "A age of the premium for the federally
•payran^ix te probably the worst of all guaranteed benefits package. That, says
icbotees," says John MoUey, a lobbyist for Henry Aaron, a Brookings Institution
Jhe National Federation'of Independent economist "is the most regressive method
Business: Among other things, he says, a we have available." It could mean, for
June 1, 1993
Jiuge new payroll tax would discourage the example, that International Business MaCreation of precisely the kind of higb-pay- chines Corp. pays $2,000 for health benefits
•ing Jobs the admlntetraUon says It wants for a $135,000-a-year employee, while Joe's
more of. And for small business especially, Gas Station pays $2,000 a year for a
he says, "you've comeupwithataxthatis $25,000-a-year worker.
deVastaOhg to your cash flow beMoreover, it would probably mean rais•cajise it Is not based on cash flow."
ing other taxes to help subsidize small |
j ' Moreover, a payroll tax could entail employers as well as to pay for care for the
huge political risks for Mr. Clinton, arous- uninsured, taxes that Mr. Clinton would
ing widespread resentment and reinforc- have no choice but to decribe as such.
ing the political perception that he is a
But despite the intellectual appeal and
tai-and-spend liberal bent on big-govem- the support of the critical labor constitument approaches.
ency, a payroll tax has some huge draw.' Unlike the Social Security and Medi- backs, not the least of which Is that it
care taxes, the money from a health levy is such p radical change. After all, a vast
wouldn't be paid to the U.S. Treasury but majority of Americans are accustomed to
father to new regional health msurance getting their heallh coverage through embuying cooperatives, hence the "wage-/} ployer-paid premiums, and most are quiJ4
[What Do You Call U.S. leaking Cut of Payrolls?
:
:
:
(
V] - 2
�ENTERPRISE
Mandated Health Coverage Finds Surprising Opponents
Even Small Busmesses With Insurance Plans View Prospect With Alarm
By JEANNE SADDLER
Staff Reporter of T H E WALL STREET JOURNAL
Hardwick Printing Services Inc. In
Greenville, S.C, offers health Insurance to
us eight employees, but Its president has
remarkably mixed feelings about making
other companies do the same thing.
Though it costs $11,000 a year, Hardwick's coverage has helped lure several
good workers from competitors, says
James Hardwick, the small firm's president, If employers "don't see fit to take
care of their employees, that leaves those
employees wide open to go to someone
else," Mr, Hardwick adds.
This widely held point of view could add
to resistance for President Clinton's Imminent health-care proposal. The plan Is
expected to require that all businesses give
Uninsured: Worke
9.8
49.1% |
timmmm
employees the same basic health-Insurance benefits..
It's no surprise that most small-business owners who don't offer health-care
coverage oppose mandated coverage. But
interviews with owners show that a remarkable number who do offer coverage
also view mandated care with alarm.
Many oppose tt on principle and many Inc The Oak Brook, Dl., concern employs
think poorer owners Just can't afford the 120 employees and helps large companies
cost. But others also think they will ipse a manage worker injuries. It competes for
competitive edge in wooing skilled workers talent with employers With generous plans,
if mandates force everyone else to offer such as big hospitals.
health care, too.
Covering 75% of the health-insurance
Administration officials have been hop- premium for an individual and two-thirds
ing that these owners'would back man- for a family also enable^ Rehabilitation
dated coverage for everyone to get the Consultants to attract woreers from busihealth-cost burden shared equitably. "Ob- nesses that don't offer any such coverage,
viously, It's a burden on some businesses Mr. Johnston says.
that provide health Insurance for their Beyond the Practical
employees to compete with others who do
But opposition to mandated coverage
not," Vice President Al Gore said at a
recent public meeting of the administra- goes beyond practical considerations.
"I'm a knee-jerk liberal from way back,
tion's health-care task force.
and 1 really believe In doing these things,"
says Katharine Paine, president of DelaCompetitive Edge
But these companies think health plans haye Group Inc., a Portsmouth, N.H., firm
also help them compete - which Is a major that evaluates marketing plans. "But I'm
still very much against the mandate," she
reason they started them in the first place.
adds. "1 don't believe you can mandate it
In a recent survey by the Kessler Exchange, a research firm In Northrldge, on to small businesses."
Besides medical and dental Insurance,
Call/., 60% of the approximately 500 smallcompany owners questioned said they of- Delahaye Group offers Its 21 full-time
workers flexible working hours and generfer health Insurance to attract good
ous vacation time. Nonetheless, Ms. Paine
workers.
moved Delahaye Group to Portsmouth,
"We're very focused on our benefits
99
because we want to hire the best and the N.H., from Boston in March 1 8 when
brightest. Health Insurance is what em- Massachusetts moved to require nearly all
employers to offer health insurance or pay
ployees ask the most questions about,"
says Laura Henderson, president of Pros- into a state fund; (That requirement, howpect Associates, a Rockville, Md., firm that ever, has never been implemented.)
Elliott Hoffman, founder and president
produces health-promotion materials for
federal agencies. Insurance rates for the of Just Desserts, a San Francisco bakery
chain, says his company provides its 300
company's 130 Employees have Increased
workers with health Insurance as well as
about 1 % a year since 1988. Like many
6
firms big and small, Prospect has trimmed paid family leave. Yet he also opposes
some benefits to keep Its rates down, but mandated coverage. Many small businesses "Just can't afford it," he adds,
has kept the coverage.
A number of small businesses say mar- noting that the firm's health-Insurance
ketplace pressures force them to provide rates have increased 50% over the last five
health-care benefits, despite the spiraling years.
costs. " I Just can't hire people without a
minimally acceptable package," says
Mark Johnston, president and owner of
Rehabilitation Consultants for Industry
A federal mandate would cost the
small-business community 540 billion more
a year than it now spends for health
care, estimates National Small Business
United, a trade group. About a third of
small businesses.don't offer health coverage to their employees. And nearly twothirds of the nation's estimated 20 million
uninsured working adults are employed by
concerns with fewer than 1 0 workers,
0
according to the Employee Benefit Research Institute In Washington, D.C.
Donald Summers Sr., president of Austin Welder & Generator Service Inc. In
Austin, Texas, Is representative of the
small-company owners who want to,- but
can't afford to - provide employees with
health Insurance. He says he canceled his
eight workers' coverage a few years ago
when rate Increases meant premiums
would have exceeded his net monthly
profit of about $2,500.
" I don't even talk to [insurance companies) anymore. I'm just worn out," Mr.
Summers continues. " I must have looked
at between 50 and 100 plans, and they all
cost from $3,000 to $3,500 a month."
At present, small companies typically
pay 3 % more for health-insurance cover0
age than large concerns, and often face
annual increases of between 20% and 50%,
said Ersklne Bowles, the new head of the
Small Business Administration, during his
Senate confirmation hearing this month.
Nonetheless, many critics say more
small concerns could afford mandated
health-care benefits - and should support
them out of fairness. "A number of small
businesses offer coverage even though
they can't spread the cost across a broad
spectrum," says Karen Ignagni, director
of employee benefits for the AFL-CIO In
Washington. "And a cadre of businesses
refuse to offer health insurance and then
win [contract] bids because of their lower
costs," she adds.
�%r Bigger Payroll Tax on Large Firms
Is Strongly Considered for Health Plan
By HILARY STOUT
And RICK WARTZMAN
Staff Reporter of T H E W A L L S T R E E T J O U R N A L
WASHINGTON - The Clinton administration is strongly considering requiring
many large companiestopay a far bigger
payroll tax than most smaller companies
in the early years of its health plan.
One official on the White House healthcare task force predicted that the adminis-
Doctor-HMO Tensions
Tensions between doctors and healthmaintenance organizations threaten to
turn into an antitrust battle, while some
hospital executives are doing something
that only a few years ago would have
been unthinkable: They're talking to one
another. Articles on page BL
tration may.propose to finance health
coverage with a payroll tax that ultimately
w 1 fall between 8 and 11%, counting
%
both employer and employee contributions. But in the short term, companies
with high health expenditures would be
askedtopay a higher rate, while companies that now provide little br no health
^toerage would pay-a lower rate — even
V H g h employees of both would be getting
the same benefits.
For example, if the payroll tax ended up
being 9%, a big auto maker might start by
paying 15% and a comer grocer might pay
only 3%. Over time, both would be moved
toward the 9 target
%
But administration officials stressed
that'companies shouldering a higher tax
rate at the outset-generally, large companies - still would be requiredtospend less
than they currently do on health care. And
as the years go by, such companies presumably would spend lower and lower
amounts.
Time to Adjust
The difference would be made up by
companies - mostly smaller ones - that
currently don't pay for health coverage for
their workers. But because the full tax
would be phased in gradually, these businesses conceivably would have time to
adjust.
"It's beneficial to both sides," one
administration official contended. "The
top begins to pay less and the bottom
begins to cover their workers."
Still, the plan might not be beneficial to
everyone. For instance, though many companies with high health expenditures could
money from the beginning, their
rs conceivably could end up with a
„enerous benefits package than they
have now. Administration officials have
said repeatedly lhat the standard benefits
package it guarantees to .-HI Americans
will he comprehensive, lim ihey have made,
no firi.il decisions oy) iis eonlenl.
»
Although many large businesses seem
opentothe payroll tax scheme, some are
skeptical. "I can't imagine that big employers would be overjoyed at the thought
of trusting a system in which they would be
paying 80% or 90% of thetotalcosts of
everybody," said Robert Stone, associate
general counsel at International Business
Machines Corp.
Small Businesses Opposed
Meanwhile, small businesses adamantly oppose any kind of payroll tax, no
matter how low it is or how slowly it is
phased in. "Additional mandated payroll
taxes on small business are just a nonstarter," said John Galles, executive vice
president of National Small Business
United, which represents tens of thousands of companies.
Administration officials stressed that
they haven't yet decided whether to proceed with any Und of payroll tax, which
they prefer to call a "wage-based premium." The other option is to require all
employers to contribute directlytotheir
workers' health insurance premiums.
At a meeting with manufacturers earlier this week, semor White House adviser
Ira Magaziner noted that any payroll tax
on small employers would have to be
phased in slowly. "We're looking at a
very long-term phase-in so that it . . .
doesn't have an adverse employment effect for those companies," he said.
But in effect, Mr. Magaziner was revealing only half the equation. He neglected to say that many big employers
would be subsidizing their smaller counterparts for the transition period.
Still, many large businesses seem convinced they'd be better off, recognizing
that they already effectively subsidize uninsured workers through the higher prices
hospitals and doctors charge to make up
the gap-a phenomenon known as costshifting. "A big piece of our costs is
cost-shifting," said Walter Maher, director
of federal relations at Chrysler Corp. "It's
important that gets resolved." Some companies estimate that more than 25%of their
total health expenses reflect cost-shifting.
Nevertheless, many questions about
how a payroll tax would work remain
unanswered. For instance, administration
officials said they weren't sure whether
the employee portion of the payroll tax
would vary along with the employers'
share. Moreover, administration officials
haven't decided whether they will allow
large companies to stay out of the regional
health insurance purchasing pools that the
Clinton plan would set up. If big companies
can opt out, they might not be subject to
i the payroU tax. But officials have said such
iflrms then would likely berequiredtopull
' their weight in the new system by paying
some sort of surcharge.
While administration officials were discussing the fine points of financing their
health proposal yesterday. Rep. Pete Stark
(D., Calif.) called a news conference to
question the entire premise of their plan.
He likened "managed competition," the
combination of free-marketforcesand
government regulation that is at the heart
of the Clinton proposal,toa unicorn. It's "a
beautiful animal in fairyland, but unseen
on earth," said Mr. Stark, who is chairman
of a House heaith subcommittee through
which the Clinton plan must pass.
Mr. Static also released a Congressional
Budget Office study that questioned the
potential of managed competitiontoreduce health costs. It warned that in order
to cut health spending substantially, any
such system would havetobe structured so
that "consumers would probably have less
choice, more limited access to many
providers, fewer services and slower access to new technologies." Mr. Stark said
the CBO began work on the study a year
ago, before Mr. Clinton was elected.
Separately, the health task force has
decided against including undocumented
alie is in its coverage.
Wall Screet J o u r n a l
May LA, 1993
VI-4
�MONDAY, MAY 10. 1993 • USA TODAY
Battle over health insurance
As costsrise,employers struggle to keep coverage
By Michael dements
USA TODAY
surers, doctors and hospitals. have led many small employSo health-care expenses have ers to drop insurance More
become their most unpredict- than half the 2 million people
At Precision Shapes, a 34- able business cost
added to therollsof the uninempioyee machine shop in Ti" I dont think you can do a sured from 1988 through 1991
tusville, Fla, health-insurance survey of small employers that were employees of small busicosts have quadrupled in near- access to health insurance isnt nesses and thar families, acly four years.
first or second among the most cording to the Employee Bene"It Is.the. issue that is crip- distressing issues that employ fit Research Institute.
pling to small business," says ers face," says John Polk, exec- At Precision Shapes, POLK: Health costs 'among
Susan Metzger-Palma, corpo- utive director of Cleveland's Metzger-Palma has battled to the most distressing issues.'
rate secretary and benefits Council of Smaller Enterprises. CUt COStS While maintaining
manager. The issue for many I f s not just because ifs costly, coverage. *1 shop around every deductibles and premiums.
is whether to even cany it any but smaU employers view the year," she says. " I look at four She also has workedtomake
longer, not just what benefits to cost as being not controllable." different (insurance) carriers employees better consumers of
provide"
Leslie Aubin of the National and about three different plans health care.
The cost of health insurance Federation of Independent from each one."
"We explain the basic stuff
is a problem for employers of . Business says two-thirds of
She says the company has In plain English," she says. "We
every size. But small employ- small employers provide been "playing all the different want to get the myth of the proers are more vulnerable, be- health insurance.
angles" to get the best deals, re- vider — that the provider is alcause they lack big business'
Rrt the recession and rapid- arranging benefits and requir- ways right — out of their
clout when bargaining with in- ly rising medical-care costs ing employees to pay higher minds."
By pooling risks, small businesses bring down costs
Some small employers are trying to more than 10,000 employers 35% to 50% company's premium increases have avhold down health-care costs by uniting cheaper than the open market The eraged 6% per year for nine years. That
group's plans cover some 70,000 employ- compares with 18% average annual inwhen buying health insurance.
creases for small employers not covered
When insurers evaluate a small em- ees and 105,000 family members.
"We are the single largest purchaser of by the group. Polk says.
ployer, one employee with a serious
health problem can raise the lossriskfor health-care services in our local commu- The National Business Coalition Fothe entire company. To cover the risk, nity," says executive director John Polk. rum on Health represents more than 50
insurers charge higher premiums. But "We can negotiate very aggressively with employer-led purchasing coalitions that
when many small employers are pooled our insurers and, through the insurers, have formed around the country. For intogether, they resemble a single large with our local provider community."
formation onfindingor forming a coaliemployer, spreading the risk.
Ron Cohen, of Cohen & Co., a Cleve- tion, call 202-775-9300, or write: 1015
In Cleveland, the Council of Smaller land accountingfirmthat buys health in- 18th St NW, Suite 450, Washington, D.C.
Enterprises offers health insurance to surance through the council, says his 20036-5203.
VT - 5
�Clinton Seeks
IndustrySupport
On Health Plan
tr
E"l0. f9%V
<,UrMl
But the Decision to Include
Workers' Compensation
Isn't Enough, Some Say
By RICK WARTZMAN
And HILARY STOUT
Staff Reporter, of T H E W A U . STREET J O U R N A L
• WASHINGTON - The Clinton adminisfration's decision to fold workers' compensation and medical-related auto insuranoe coverage into its health-care reform
M m Is a clear attempt to woo Industry. But
^ • p y business groups aren't satisfied.
^ P ; T m happy that they're discussing this
Piece of it, but it doesn't solve the overall
health-care problem," said John Galles
executive vice president of National Small
Business United, which represents some
65,000 companies.
_He said the move is "not enough to
offset' President Clinton's pledge to make
aU employers pay for part of the cost of
health insurance for their workers.
Jerry Jasinowski, president of the National Association of Manufacturers
agreed. 'T really like the idea," he said'
But certainly that, in and of itself, isn't
enough" for businesses to back a mandate
requiring all companies to buy their employees health coverage.
One Plan
Consolidating workers' compensation
and health-related auto insurance into a
single benefits package would mean one
plan would cover the cost of treatment
regardless of how and where a person is
injured.
Advisers to the administration's
health-care task force have told business
groups in the past that such a step
would help rein in the S 0 billion annual
2
medical claims related to worker injuries
Bj|£onsolidating three insurance svstems
^^•>ne. the advisers contend, consumers
W businesses could save monev on
premiums and administrative duplication
could be eliminated.
Hillary Rodham Clinton, who is leading
the health-care task force, Friday disclosed the decision to tiy to change the
scope of insurance coverage. Her remarks
followed a closed-door session in Williamsburg, Va., with members of the Business
Council, a group consisting of the chief
executives of the nation's largest corporations. Though administration officials previously have said they were considering
proposing that workers' compensation and
auto health coverage be brought into the
new system, Mrs. Clinton's comments
were the most definitive so far.
"We believe, based on everything we
know, that for the vast majority of businesses, health-care reform will be a net
winner," Mrs. Clinton said. "Their costs
will stabilize and go down. For many small
businesses, the same will be true," she
added, partly because of the treatment of
workers' compensation and auto coverage.
But not everyone is so sure. "We're
highly skeptical," said John Motley, a
lobbyist for the National Federation of
Independent Business, which includes
hundreds of thousands of small firms and
is one of the most outspoken opponents of
the administration's efforts on health care.
He said the nation's health insurance and
workers' compensation systems are
"screwed up, and this simply looks like a
way to get employers to take responsibility
for both of them."
Many insurance companies, which
stand to lose business, are also sure to
oppose the administration on this issue.
Meanwhile, labor unions want to make
certain that none of the special benefits for
rehabilitation and therapy available under
workers' compensation coverage would be
eliminated.
During her meeting with the Business
Council, Mrs. Clinton talked about the
threat ofrisinghealth-care costs as well as
various options the administration is reviewing to bring costs under control. Many
of the executives, noting that the first lady
spoke extemporaneously, came away impressed with her knowledge of the subject.
No 'Silly Approaches'
"This group needed to hear from her,"
declared Paul Allaire, chairman of Xerox
Corp. and one of the few Democrats on the
Business Council. He said her speech
seemed to reassure the group that "there's
not going to be any silly approaches to pay
for" extending health coverage to the
nation's 37 million uninsured.
Nevertheless, "there are still a lot of
questions unanswered," said Robert Allen,
the chairman of American Telephone &
Telegraph Co.
" I like the general approach. 1 like the
idea of addressing serious social problems.'' said Harold Poling, the chairman of
Pord Motor Co. "The question is, 'What are
the details How do you provide universal
access without a huge increase in taxes?
And what are the implications of that for
the economy' Will it have a drag on
tlu' economv?'
9
1
VI - 6
�28
WI:I)NI:SI)AY,AI'«"- '
1993
•
David S. Broder
On the
Front Lines
Of Health
Care
CLEVELAND—As the Clinton
health care task force goes into its final
f
: of vforit, aiming to produce a
program some time next month, the
people on the front lines of America's
remarkable health-delivery system are
watching and waiting with an understandable mixture of anxiety and anticipation.
On a visit 'here last week, I asked
three of them-what , they hoped the
adnunistration iWouH^propose-^and
what they^^pratyed it would avoid. Ther
a
-sand their differences illuminate
the difficulties that lie ahead—hut also
theoooortunity,
^ h e first person I saw was John J.
senior vice president of the CounWSf Smaller Enterprises, whkh. among
other things, is the health insurance
bargaining agent for 10,000 small busii
covering 70,000 employees and
another 105,000 dependents—about
one of everyfiveQevelanders.
Its 10-year-old program has drawn
ional attention. According to Polk,
one-fifth of the firms had no health
insurance before they joined COSE. By
becoming part of a big bargaining unit,
the typical firm with health insurance
cut its cost by 35 percent to 40 percent
In the last two years. COSE has held its
rate inaeases below 6 percent annually,
less than one-third the national health
inflation rate. It deals with a dozen
insurance firms and care providers, offering both managed care and fee-forservice plans.
Polk suggested several do's and
don'ts. He hopes that Clinton will
change tax policy so self-employed people can buy health insurance with pretax dollars, as corporations already do,
and that Clinton will "take steps to
attack the balkanization of small group
health insurance finns." There are 200
in Ohio alone, he said, usiny "gimmicks
an^wderwnting scams" to take husi"<tJom each other, and "we need
soi^^tederal standards to level the
playing field."
AN INDEPENDENT NEWSPAPER
But his main hope is that "they don t
overdesign the system" or "try to fit
everything into one model" In creating
a national network of Health Insurance
Purchasing Cooperatives, or HIPCs. like
his'own. Polk said, "we need the maxiitam. of state and local flexibility. No one
'iif'Washirigton can design the ideal
health plan for'Cleveland, Cheyenne,
Tulsa aitdjacksdnvflle," atid the Clintons
will fail if they try to specify all the
details.
My . second visit was with M. Orry
Jacobs, the senior vice president of Universtty HospitaL The research and
teaching arm of Case-Western Reserve
Umveraty, itls also the city's largest
care-giVCT,; with 33,000 inpatients a
year, an annual budget of $300 million
and an' affiliated $150 million managed
care prograin.
Jacobs befieves as fervently in the
power of competition as does Polk. "If
the right incentives are put in place," he
said, "the right decisions will be made
and the costs will be minimized." In the
last four, years, he said, his hospital has
responded to competitive forces by
eliminating 600 employees, cutting expenses $50 million and reducing the cost
for comparable cases 6 percent, without
adjusting for inflation.
More large-scale savings are possible,
Jacobs said, if government does two
things—insists that the incentives encourage effidericy and, "equally important, institutes quality controls so the
savings are not achieved by systemic
underutili2ation," i.e., cutting comers m
patients' care. "We probably need some
government standards," he said, "but
you get much more innovation when
people and institutions are responding to
competitive forces than to regulatorv'
overload."
The third visit was with Marty Hiller.
a Vietnam vet and psychologist who
runs Cleveland's Free Clinic, where volunteer physicians, dentists, nurses and
other therapists provide free care to
some 15,000 patients a year, mainly the.
"working poor," who are not eligible for
Medicaid but cannot afford private physicians or counselors.
v
1
f Unlike the odier v ^ S S ^ & m i f ^
smgle-payer system. Eke Canada'-s,
where the government is the health
insurance company for every dtizen.
But Hiller also has a warning for
those who think the govenunent can
^solve" the teaMrcare problem itself.
"Any national health care system will
succeed only if the individualtikesresponsibility for tus or her own health-fend
works toward a set of behaviors that
promote health, rather than the reverni'tesM.
i
. 11131,116 added, is why no one leaves
the Free dime—whether a patient has
come to have a cavity Sled, a pregnancy
test administered, orfordrug or AIDS
counseling—without a dose of education
on his or her ownresponsibilityin the
situation. "If we're not wiffing to be
responsible, to get prenatal care, to get
inoculations, if we just assume there will
be a system tbere to help me when I get
sick or need help, it will reinforce the
worst behaviors in the individual—and
probably bankrupt the society."
Thisrepresentsone day's gleanings
in one dty. But I came away convinced
that when the Clinton plan is complete,
it is vital that it be examined and doublechecked by thP ^mnt-W hetjth warfiorelike those with whom I talked. The
risk of error in anyradicalrestructuring
of a system that consumes one-seventh
of our national wealth is very high. But it
can be reduced if the hard-earned wisdom of practitioners like these is carefully weighed.
VI - 7
�ecial Re
T
ony Stith wasn't out to change the
U. S. economy when he decided to
go into business in October, 1985.
The small St. Louis packaging company
where he worked had just filed for bankruptcy, after spending $6 million more
than it expected on an expansion. "We
were suddenly faced with losing our
jobs," recalls Stith. So he and a fellow
worker mortgaged their houses and beaL
the bushes for investors to raise cash to
buy the company. Thus was born threeemployee Best-Pack Corp., which seven
years later supplies specialized packaging
and supplies to the likes of McDonnell
Douglas Corp. and Hallmark Cuds Inc.
Stith and the. millions oi small businesspeople like him art! increasingly being hailed as ihe grual job-cieaihin
hopes ol America. \\'< ea^sv In see whv:
Small liiisiiiesses--,leiincd In- ihe gov-
ernment as those employing 500 or fewer—accounted for 3.2 million new jobs
between 1988 and 1990, when big business had a net loss of 500,000 jobs.
And now, as corporations such as IBM
and Boeing continue to announce layoffs in the midst of an economic recovery, the care and feeding of small business is at the heart of a policy debate in
Washington. To help put jobs into the
current jobless recovery. President Bill
Clinton says: "We have to look for ways
to try to help spur small-business and
medium sized-business job growth.'
NEW WOES. But car. the job-growth en-
gine of the 1980s remain a powerhouse
in the 1990s? There are plenty of reasons to worry. Rising laxes will pinch
profits, even as demand flags for many
oi ihe personal-service businesses lhal
sniouied in lire I ' N Financin-' remains
1
tight. Employee benefits, especially
health-insurance programs, have become
too expensive for many small outfits to
offer—leaving them at a disadvantage
in wooing skilled workers. And complying with new regulations—ranging from
family leave to providing access for the
disabled—could suck up cash that might
otherwise be used for growth.
Add it all up, and the entrepreneurs
America looks to for job growth could
find themselves hobbled in the next few
years. "The obstacles for creating a
brand-new business are now higher, and
the potential for return is now lower
than in the 1980s.'" warns William K.
Mac-Reynolds, economist at the U.S.
Chamber ot Commerce. "So in the l9Ms,
you miglu. nol. have as much net new
business creation adding employment l.o
small business.
VI -s
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President Clinton has left little doubt is one of the vestal virgins of the U. S. politics: More than 36 million American
that he .wants to bolster the job-creation economy," says Jack A. Kyser, chief workers are employed by businesses
ability of SEMII business. His Administra- economist for the Economic Develop- with fewer than 100 employees. And
small-business executives tend to be civtion has proposed-ajiumber of meas- ment Corp. of Los Angeles County.
ures, ranging from ta&credits to regula- SMALL BLESSINGS. In recent years, this ic leaders and active politically.
tory relief, designed^, help small adulation has spawned a pohcy of tax
The new Administration is clearly
companies. But many owners find that preferences and regulatory dispensations conscious of the economic and political
the reality of the plans falls short of for millions of small businesses. Many of clout of small business. As part of his
the rhetoruvMost of the measures, they the smallest of businesses, for example, plan to spur the sluggish economy. Presargue, apply io too few companies, and have so far been exempted from federal ident Clinton bestowed several blessthe modest pluses will be outweighed mandates on family leave. Not only did ings on mini-enterprises: a permanent
by the minuses of added regulation, new federal and local authorities hope to en- tax credit for very small companies that
mandates, and higher taxes. Indeed, in a courage further job creation, but many invest in equipment and a 50% capitalBUSINESS WEEK/Harris Executive Poll policymakers were also eager to find
gains tax exclusion on profits on stock in
01 owners and managers of small that special one small company in 20 certain small businesses. The Adminispanics, a plurality of 48% said they that goes on to become a Dell Computer tration also left the corporate tax rate
acted Clinton's economic plan to be Corp. or Federal Express Corp. Being a for small, low-profit businesses unfan of small business has also been good changed, despite increasing it for large
bad for their businesses {page 120).
corporations (table).
The debate over the
nurturing of small busiAlso, to quell comness is nothing new.
plaints about tightfisted
Throughout the Reagan
lenders being fearful of
era, its owners were
regulatory scrutiny of
routinely praised as
small loans on their
America's true capitalbooks, Clinton said in
ists. But the growing
March that he would
nstax- •
Permanent
respect for their collec- -V.'vcrtsdit of 7% for property or equip- , ^ . ' ^
ease loan-documentation
i d le of
^
tive economic might
requirements for strongment put into service between D e c . 3 , '„'•
smqljicoinpan^
turned into downright
er banks within three
1992 and Dec. 3 1 , 1 9 9 4 . Falls i p 5 %
'
'
awe after a Small Busimonths. Instead of relycompanies ^ d t h a v ^ r S
no
for equipment put to use later. Eligible
ness
Administration
ing on past financial
morelhqa^^^ijyao'ln^capital.-'
companies must have annual sales
study showed their stardata alone, bankers can
below $5 million in the three years
tling employment suctake into account a
preceding the taxable year.
inve^mentihcentiye^since most
cesses in the late 1980s.
small-business owner's
experience, making it
small companies a t this capital
IMPACT Because of the low revenue
State and local goveasier for bankers to
level typically d o n ' t use stock
ceiling, many small manufacturers
ernments also promake so-called characfinancing.
would be ineligible.
claimed that small comter loans to small busipanies were job-creation
ness. "This is the first
wunderkinder. In Los
H AT I S R N ETORS L - M L Y D
E IH NU A C
E FE P O E
: ETRRE Z NS .
NE P I
S OE
time in a long time that
Angeles County, for inwe have had a budget
PROPOSAL Extend through 1993 the
PROPOSAL Designate 5 0 federal entstance, businesses with
proposal that stimulates
2 5 % deductibility of health insurance
erprise zones, giving targeted invest
fewer than 500 employthe small-business secees created 493,000 new
premiums for the self-employed and
ment incentives to businesses that
tor and recognizes that
jobs in the 1980s. In
their dependents.
locate there.
small business is essens^rp contrast, com paIMPACT A popular cause among the
Ift'PACT A politically charged protial Lo the nation's ecoemploying more
self-employed, whose health insurposal, with most congressmen hopnomic strength," says
J00 workers creating their districts will be designated.
ance premiums are treated less favJohn C. Rennie, owner
ea only around 187,000
The ultimate benefits are difficult to
of $30 million electronics
orably than the employees of their
new jobs during the
assess since no one knows where the
small businesses. This will score
decade. "Small business
manufact urer
Pacer
«
M.
im.
points lo< the new Adminisliolion.
zones will be located.
U/iU-BU'ilMiS Wits
VI - 9
�BEVERLY ZEISS
PRIVATC-OUTY N U R S I N G
BeveHy Zeiss calls it "rtie businesswoman's tax." That's the extra $ 1 2 , 0 0 0 in
interest that she reckons she paid by using her credit cards when banks rejected her loan request in 1986. Zeiss
needed inoney to p a y her employees
at Critical Care Associates, a Montdair
(N. J.) privateflursing firm. Zeiss, 4 6
and a registered nurse, says that hospitals owed her $2.2 million. But bankers
responded: no collateral. So Zeiss, who
believes her gender had as much to do
with the rejections, borrowed $ 9 2 / 4 8 3
on her cards. "I felt frustrated not being
taken seriously,'' says Zeiss, who now
frets that heaMxare cost controls could
•': •••"(•ft;''.::,:
WAS SHE TREATED
AS A SECOND-CLASS
BANK CUSTOMER?
limit her company's growth.
Systems Inc in Billerica, Mass., and
president of National Small Business
United, a lobbying group.
Upon closer examination, however,
the Administration's plan looks disappointing to many small-business owners.
For example, the $5 million sales cap
for companies eligible for Clinton's muchpraised investment tax credit (rrc) "is so
low that it's only suitable for development-stage companies when you're talking about manufacturers," complains Jerry J. Jasinowski, president of the
National Association of Manufacturers.
Just ask Ronald D. Bullock, president
of Bison Gear & Engineering Corp. in
Downers Grove, 111. Since taking over
the manufacturer of gear motors in a
1987 leveraged buyout, Bullock has reinvested every dollar left after taxes and
debt service into new equipment and
products for the business. And he has
had impressive results: Sales have tripled, to more than $20 million, while his
work force has doubled,
u x JOLT. Yet since ISO-worker Bison exceeds $5 million in sales, it doesn't qualify for the permanent small-business investment tax credit Instead, Bison is
treated the same as large manufacturers
such as Caterpillar Inc., which get only a
temporary two-year credit for incremental spending above their average invest
ment in recent years. And since he has
already spent heavily on new machinery in the past four years, it's unlikely
that hell soon spend more than his recent average, as he would have to" do to
qualify for future T C aid under the curT
rent Clinton proposaL The investment
credits are zero help for a company like
us that has already been doing the right
thing," grouses Bullock.
Perhaps nothing has elicited louder
howls from small business recently than
Clinton's proposed hikes in taxes on personal income, which could have an unusually sharp impact on some small businesses' ability to invest in equipment
or new jobs. That's because fully 17.8
million businesses operate as sole proprietorships, partnerships, or so-called
Subchapter S corporations, all of which
pay taxes at individual rates. So as individual tax rates rise, so
do the tax burdens of
small companies.
DEAN CUPLIN
The Clinton plan
BIOTECH ENTREPRENEUR
could mean big increases for small business.
Dean Cuplin is annoyed at the Clinton
Personal tax rates
Administration. A former executive at
would jump from 31% to
EUCO Leasing Corp.—a un'rt of GE Capi36% for those earning
tal-Cuplin, 4 8 , founded Applied Genet
more than $140,000 and
filing a joint return.
ics in 1992 to develop a treatment for
Self-employed business
Alzheimer's disease. Cuplin put in
owners earning more
$ 2 5 , 0 0 0 ; venture capitalists kicked in
than $135,000 would be
$ 6 5 0 , 0 0 0 . But many of his investors
subject to an additional
won't qualify for Clinton's proposed
2.9% tax on incremental
capitalgains tax cut. Only those w h o
income, due to the elimhold on to their shares for at least five
ination of wage caps on
years would get a break. If Applied
the hospital-insurance
Genetics goes public or is acquired beportion of Medicare.
fore that time—and his backers cash
And the deductibility of
business meals—a marout—Cuplin says his investors are stuck
keting tool for small and
with "o penalty for selling our stock afbig companies alike—will
ter it's appreciated."
drop Lo
f m m 80%.
:
1 Uj liuf.iNi^'.s wH K/A;'k'i: iv. ivv:i
V I - 10
�Those tax boosts can add up, leaving
some small companies paying at higher
Ux rates than large corporations. Big
"^mpanies would pay a top corporate-tax
of 36% under the Clinton plan. And
-ax proposals will cut a wide swath:
wue senior official at the Federal Reserve figures that 80% of the corporations and partnerships that pay at individual rates reported income of more
than $100,000; 65% of them had incomes
of more than $200,000.
Worries about taxes could be just the
beginning, however. The recommendations from Hillary Rodham Clinton's
health-care task force could have an
even more painful impact on small-business owners. If the health-care-reform
plan requires all employers to provide
insurance for their employees, National
Small Business United estimates that
small-business owners will pay an additional $40 billion on top of what they
now spend for health care,
our OF STEAM? That prospect sends
shivers down the spines of even succ
ul small-business owners. "Mandat
ed health care could put me out of busir
" says Patricia A. Suess, president
of Software Systems Spedalists Inc. in
St Louis, which has 26 employees.
While small businessmen in some regions have successfully banded together
to hold down health-care cost increases
(box), most owners are at the mercy of
a v k e t that no one seems to control.
^Bnder such an array of pressures,
small businesses may already be running out of job-creation steam: Employment at existing small companies fell
slightly in the fourth quarter of 1992,
with all employment gains coming from
startups, figures William C. Dunkelberg,
dean of Temple University's business
school In the BUSINESS WEEK/Harris Executive Poll, 69% of respondents said
they expected to employ the same number or fewer employees in three months'
time—even though 57% said they anticipated higher sales in the next quarter.
Small-business consultant David L.
Birch, president of Cognetics Inc., for
one, believes the fast job-growth mantle
will shift in the 1990s to midsize businesses that are savvy enough to integrate technology into their operations.
In the long run, such a shift could be
better, for U. S. workers. More than half
of small-business jobs are in services
and retailing-sectors dominated by the
sort of low-quality jobs that could lead
to a decline in national living standards.
Perhaps even more important for the
purposes of the policy debate is that
nearlv all the new small-business jobs
ar
-rated by the smallest of the
si
eed, during the sluggish |:>eriod
fvo.
^ to 1990, all of the much-ballyhooed job creation came ai eompanies
wilh lower than 20 employees. These
:
A SMALL-BUSINESS CO-OP THAT
PRACTICES ALTERNATIVE MEDICINE
R
aise the subject of health-insurance costs with most smallbusiness owners, and you'll get
an earful. Horror stories about skyrocketing premiums and cancellations
are standard. But don't listen for Louis
F. Fow, vice-president of Custom Materials Inc. in Chagrin Falls, Ohio, to
chime in. The custom-parts manufacturer's premiums actually fell 40%
when it joined a local health-insurance
buying group in 1991 and have notched
up only modestly since then. "We're
talking tens of thousands of dollars of
savings here," says Fow.
Welcome to the new world of managed competition, small-business-style.
While ffillary Rodham Clinton's healthcare task force debates theories about
huge purchasing co-ops, the reality is
up and running in Cleveland. The
city's Council of
Smaller Enterprises
(COSE), a group of
more than 10,000
Northern Ohio companies—each with no
more than 150 employees—is showing
that it pays for
small fry to think
big when it comes
to containing healthcare costs. "We're
doing things that
you're not supposed
to be able to do, especially when your
average member
only has seven employees," says C S
OE
Executive Director
John J. Polk, who
has been deluged
with inquiries from
business groups in cities from Toledo
to Tampa about how his co-op works.
AU OR NONE. Serving 171,000 employees and dependents, C S uses its buyOE
ing clout to negotiate discounts with
six insurance companies—with 90% of
its business going to Blue Cross &
Blue Shield of Ohio. The results have
been impressive. From 1988 to 1992,
COSE's health-care premiums increased
54%, a shadow of the 172% premium
jump logged by commercial carriers
in the Cleveland market. COSE's average monthly subscriber cost of $231.36
per person is only tw.. thirds the U.S.
average. It's up to individual companies to decide how much of the cost is
passed along lo employees.
Keeping a lid on premums hasn't
been an easy task. COSE got into the
medical-insurance business in 1974,
with just 180 companies. It struggled
with skyrocketing premiums until 1983,
when it adopted some hard-nosed standards: It banned the frequent smallbusiness practice of covering individuals other than employees and their
immediate dependents—such as the
owners' aged relatives, for example—in
the company health plan. And to lower
the administrative costs charged by
the insurers, COSE took over and centralized subscriber enrollment, billing,
and reimbursement
Moreover, to keep members from
dumping only their sickest workers
into its plans, COSE requires companies to include all workers. Hie group
also turns down about one in seven
companies, often because one or more
of their employees has a severe preexisting health problem that could push
the group's costs up. C S offers 14
OE
plans, from health-maintenance organizations to traditional major medical
coverage.
But C S couldn't have done it all
OE
alone. A key element was reform legislation in 1987 that gave Ohio health
insurers the right to negotiate price
discounts with individual hospitals and
the power to refuse to do business
with those whose costs were out of
line. It just goes to show that bringing
lower health-care costs takes a broad
cooperative effort.
By .hunt;!, E. Ellis ni Cl<ji /luiid
. O A I k'l l'Ot'l
vi - n
�added more than 4 million jobs. On the
other hand, companies with 20 to 499
employees lost 849,000 jobs—even more
than the 500,000 lost by big companies.
The worry is that, in general, the
smaller the company, the lower the quality of the jobs it offers (table, page 115).
Small business traditionally has lower
wages, fewer benefits, and less job
stability than large companies. Some
wage variance is understandable, since
small businesses hire more young and
female workers. But even after adjusting
for the differing experience and skill
levels needed by larger businesses,
James L. Medoff, a Harvard economist,
found that small companies generally
pay about 10% to 13% less than large
corporations for comparable work.
Also, data analyzed by the Employee
Benefit Research Institute show that,
not counting the elderly, half of the
working adults with no health coverage
were either self-employed or working
for companies with fewer than 25 em
ployees. In contrast, only 9% of workers
in big companies were uninsured. "It's
not just a question of who generates
the most jobs in this country, it's who
creates good jobs," argues Medoff, who
worries that what he calls "the inflated
public image of small business" has stifled critical assessment of the quality ot
many of the jobs it has created.
The Clinton proposals seem to ac.nowledge this politically volatile issue.
Many small-business owners were hoping for a jobs tax credit for tiny outfits.
1 1H IU)S"
K/AITII
i'.'. ivv:-;
ness tends to provide almost all net new
jobs during recessions-96% between
1980 and 1982, for example-but that's
largely because big companies cut back
so sharply in downturns.
NO SNEEZES. Looked at over longer periods, small businesses account for more
Uke 65% of new jobs. And even then,
they have a higher mortality rate. As a
result, their share of total U. S. employment is around 53%, up slightly from
the 1980s (chart, page 115). That's nothing to sneeze at But it's also a portrait
of a job generator that has stayed relatively static for years-a much different picture from the one sometimes
painted of small business.
Some critics also argue that even the
slightest Urgeting of
small-business growth
smacks of favoring an
SUE GIN
industrial policy that
FOOD SERVICE
picks winners and losers. Those selections are
Sue L Gin's company headed into a
particularly tough to
tailspin the day her biggest customer
make when it comes to
collapsed. It was Nov. 13, 1991, when
small companies. Birch
moneylosing Midway Airlines Inc
says that only about 4%
of firms account for 70%
abruptly shut down, wiping out more
of small-business job
than 40% of the $17 million in sales at
growth. "The problem
Gin's Chioagobased airline caterer. Flyfrom a policy point of
ing Food Fare Inc. But rather than joinview is that you can't
ing countless other small business failpredict which ones
ures. Gin fought back. She laid off 180
they'll be," he says.
employees. Ihe remaining 240 took
Many observers are also
pay cuts. Then, Gin hit the streets to
questioning the wisdom
drum up new customers. She eventually
of encouraging unfolanded food-service deals with Amtrak
cused growth of U.S.
small businesses because
and the local county jail. The upshot:
they aren't globally comGin, 51, and the widow of William G.
petitive. The service
McGowan, the late chairman of M
Q
and retail companies
Communications Corp., says Flying
that dominate small
food should be profitable in 1993. Revbusiness are typically
enues may reach $20 million. Finally,
low-investment, low-proGin sighs, "we're out of the woods."
ductivity operations that
make scant use of technology and do little exporting (page 119).
mandated high coverage levels for employer-sponsored health plans—allowing
But 53% of U.S. jobs is still 53%.
cheaper, bare-bones coverage that's more Then, too, large companies don't seem to
attractive to small, cash-strapped busi- be picking up the employment slack this
nesses. And the Commerce Dept.'s Na- time around. Many economists fear that
tional Institute of Standards & Technol- the widespread job cuts at big corporaogy helps fund seven centers nationwide tions are not simply a cyclical phenomethat provide small manufacturers with non but a structural shift to substitute
free or low-cost consulting in everything investment in machinery and technology
from gee-whiz manufacturing techniques for traditional spending on new workers.
to routine computer-software selection.
That's why the challenge will be to find
Surprisingly, though, there's
a ways to spur the creation of more effismall chorus of economists, acad ™i< s, cient, more competitive startups, and to
and consultants who are beginning to upgrade the quality of existing small
wonder whether small business realiy businesses. Bolstering mini-enterprises'
deserves all this attention. There's no place in America's economic future is
question about the small company's em- no small matter.
ployment prowess in recent years. But
By James E. Ellis in St. Louis, wiili
some revisionists contend that the image Christina Del Valle iv Washinglon, wid
has been overblown. True, small busi- bureau rejxirl.s
which would have given breaks based on
the number of jobs created—and bolstered lots of retail and service companies. But Clinton's rrc plan is more beneficial to the investment-hungry small
manufacturing and technology companies that Clinton praised throughout his
1592 campaign. The problem, though, is
that job quality may come at the expense of job quantity. "Investment credits are almost antijobs in the short run,
because they encourage capital to go
into machinery instead of hiring," explains Birch.
There's clearly plenty that government at all levels can do to help lighten
the burdens on small business. Arkansas
recently revised regulations that had
CIA; SHOVM
VI - 12
�m
SMALL BUSINESS DESERVES A BIGGER BREAK
O
ne of the few things Clinton Democrats of the 1990s
have in common with Reagan Republicans of the
1980s is a healthy respect for entrepreneurs as job
generators par excellence. Yet at a time when they face
mounting obstacles to growth, there is a gap between the
Administration's rhetoric and policy concerning the small
business community.
It's not as if the Clintonites aren't trying to help. They
are. The new regulations that allow banks to make so-called
character loans to small-business people is a welcome move
that might open the financing spigot. But the broad policy
initiatives that are part of the Administration's overall economic package appear to have been written by a coterie of
lawyers and academics who never bothered to schmooze with
the Kalamazoo and Peoria Chambers of Commerce.
Take the permanent investment tax credit, the key Clinton small-business initiative. It's 0. K. for small manufacturing and high-tech companies, which tend to generate wellpaying jobs with good benefits. Yet with a sales cap of only
$6 million, eligibility is severely limited and there is not
much for the huge service sector.
How about the 50% capital-gains tax break on profits made
from the sale of stock in small companies held for at least
three years? That's 0. K., too, but it apphes only to companies that have raised less than $50 million in capital. Unfortunately, companies that raise more than $50 million in capital are usually the ones that use stock financing.
It gets worse. The proposed hike in top personal-income
tax rates from 31% to 36% will hit hundreds of thousands of
small businesses organized as sole proprietorships, partnerships, or Subchapter S corporations, which pay taxes at individual rates. Then there are the new regulations and mandates. Many small-business people already have to deal with
family leave and providing access to the disabled. The next
mandate will be health care. National Small Business United estimates that small-business owners face up to $40 billion in new health-care costs.
So what should the Clinton Administration do to bring its
talk in line with small-business reality? The easy steps would
be to bump up the annual sales cap on the investment tax
credit from $5 million to $50 million and raise the $50 milhon capital limit for the capital-gains tax break to $200 million. A second step would be to ease in mandated health care
over a period of years and keep the required health-care package bare bones, with employees sharing the cost.
The most challenging step wouldn't cost a cent. Small-business people will tell you that what's crippling them isn't just
complying with government regulations but the crushing paperwork demanded by an avalanche of unintelligible forms.
Not only does this paperwork siphon off time, it is expensive. Here's how to cut it:
• Consolidate all government regulations that apply to
small businesses.
S Cut down the number of forms.
• Make the forms easy to follow.
The money saved by millions of entrepreneurs would help
pay for new taxes and mandates and generate more jobs over
the next four years.
V I - 13
�D rJ
April 12, 1993
WILL AN EMPLOYER MANDATE SINK SMALL BUSINESS?
When Boston-based restaurateur Stephen Elmont told Vice President Al Gore last month that forcing
employers to offer health msurance to worken would be "un-American,^ he was speakingformany small
business owners.
"I am paranoid," Elmont admitted during the Administration's marathon Mar. 29 health refonn hearing
in Washington. "If I give an inch, I am terribly concerned about that inch." A mandatefromWashington
"wiU discourage peoplefromopening up restaurants, it will force marginally profitable restaurants w shut
down, and it will mean fewer jobs."
Whether or sot Elmont's predictions come true, a nr^nd^ requiring employers to provide health msurance
to their employees is certain to be a tenet of President Clinton's upcoming health refonn package. While small
busmesses insist that a mandate wiU severely pinch their bonom lines or force them into extinction, the Clinton Administration is determined to build on die current employer-based system to expand insurance coverage and
to stop cost shifting. An employer m n m . also is a cornerstone of managed competition as defined by the
aA A
Jackson Hole Group, which has influenced the Administration's health reform proposaL
While most large employers provide insurance to their workers, many small businesses have resisted
providing health benefits for reasons of cost and ideology. The still-evolving Clinton Administration reform
plan ppomises to make insunnce more affordable to small firms, but a vocal segment of those employers
hope their continued defiance will derail a federal mandate.
Still, an increasing number of small business organizations have grudgingly begun to accept that an
insurance mandate will be part of the Administration's heahh reform strategy. The once unified employer
mandate foes have begun tofragment— with even the die-hards showing a new willingness to bend if
the quid pro quo is sufficient federal assistance and flexibility.
BtJILPING ON TODAY'S SYSTFM
Supporters of an employer mandate say that approach is the least painful way to build on the existing
system. According to the U.S. Labor Dept., more than 70 percent of Americans under age 65 get health
insurance through their employers. Another 15 percent buy individual policies or are covered through a
public plan. Of the 36 million Americans who are uninsured, some 75 percent work or belong to Families
with at least one working member.
Small businesses say a mandate from Washington would dump the burden on those least able to shoulder
it. Two-thirds of small firms provide coverage to workers. But many small business workers are in low-wage,
transitory, or part-time jobs, where owners can't afford to pay S3,000 to $4,000 a year in premiums per worker.
Not only do small busmesses have less money to spend on insurance benefits, but coverage for them
is more expensive under the current system. A typical small business that offers coverage pays premiums
that axe one-third higher on average than large employers, and those premiums have risen as much as
V I - 14
�PERSPECTIVES, April 12, 1993
50 percent faster than larger employers' premiums, says National Small Business United (NSBU), which
represents 65,000 small finm.
The Clinton Administration is not unsympathetic to small businesses' fears. But the Administration
says insurance would be affordable under its plan because small businesses could join large purchasing
pools, which would give them the clout to negotiate for high-quality care atreasonableprices. The plan
also would providefinancialhelp forfirmsthat need it through subsidies and require insurers to community
rate their premiums, eliminating the redlining that drives prices up.
Even if those perks come to pass, an employer mandate would could stifle business development,
business groups say. Clinton may propose that employers pick up 80 percent of the cost of coverage, and
workers 20 percent; some reports have indicated the split would be 75/25.
The Employee Benefit Research Institute (EBRI) estimates that about 23 million of the 36 million
uninsured would be covered iffirmswith more than 10 workers were forced to insure those who worked
at least 19 hours a week. Depending on die structure of a mandatory benefit package, EBRI says, a mandate
would boost employer spending on health benefits by S33 billion to S86 billion.
The prospect of another mandate from thefedscomes at a time when recessioo-drained busmesses already
fed bombarded with m*"dafp*fromWashington. From 1982-90, small businesses created 67 percent of the net
new jobs in the U.S. They warn that a mandate could compel companies to tum to more temporary help aod
employee leasing — a tread that is gaining a foothold tn die workplace — to avoid paying health insurance.
EBRI estimates thar between 200,000 and 12 million woricers would lose jobs as a result of a mandate, at
a time when the nation's unemployment rale is stock at 7.7 percent Employers also would reduce wages, say
mandate critics, becausefirmswould make up die cost of insurance in lower wages.
Some small busmesses say a better way to go would be to require all individual Americans to obtain
insurance. "Requiring all individuals to panicipate in the system would actually increase the pressure that employees
place on their employers to provide coverage," says NSBU Legislative Committee Chair Margaret Smith.
DEJA VII ATI. OVER AGAIN
The current debate over employer mandates is a replayed scene for business. President Richard Nixon
floated an employer mandate as pan of his 1972 national health plan. That planfilteredfor many reasons,
including staunch opposition by Democratic advocates of single payer national health insurance who claimed
that employer-provided insurance would be a gift to private insurers. Small businesses are wanning up to
mandates to try to avert precisely what those Democratic activists sought — a govemment-run system a la
Canada. The growing list of now, albeit grudging converts is remarkable.
In December, the Assn. of Private Pension & Welfare Plans (APPWP), which represents 450 small
and large companies, became thefirstbusiness group to endorse a mandate as long as it was pan of an
overall health reform strategy and tied to an employer cap on the tax deductibility of health insurance.
APPWP Health Policy Director Ellen Goldstein says her members agreed to endorse it for survival's
sake. "Our credo and mission is to preserve the employer-based system. If we believe what we say, [that]
employers can play that role, than we have to abandon our opposition."
In March, the U.S. Chamber of Commerce — with 215,000 small business members — reversed
a 20-year stance and said its members would support a mandate as long as the federal government pumped
in enough money to help needy companies. The Chamber has yet to specify what "enough" is, but the
group's acceptance of a government mandate removes a major hurdle for Clinton and Congress.
"If you want to keep the system employer-based you have got to get everyone in the system," says Kristin
Bass, a U.S. Chamber lobbyist. "A lot of our members believe thar if something isn't done this year or this
Congress, we will be a nationalized system in not too many years. Our members don't want that."
V I - 15
�PERSPECTIVES, April 12. 1993
Even big business, which historically has weighed in against any health benefit mandate, has been
mounting the bandwagon. In a recent survey, more than half the members of the National Assn. of
Manufacturers said they would accept a mandate as long as it was tied to a plan to lower health costs.
However, support is farfromunanimous. The more conservative, 600,000-raember National Federation
of Independent Business (NFIB) continues to see red when it hears the word "mandate." NFIB Governmental
Affairs VP John Motley says small business owners would like to offer health msurance as afringebenefit
out of both "a sense of familial obligation and competitive necessity. Small employers who do not provide
employee health insurance are. . .the ones who take comparatively little money out of their busmesses
in income," Motley says. "They simply don't have the money to run a business, pay employees, and pay
for expensive mandates."
NFIB doesn't hesitate to play hardball — even at this stage of the game. It refused a White House invitation
to appear on a small business panel during the Mar. 29 health task force hearing, a brush-off Gore pointedly
commented on. NFIB spokesman Terry Hill says his group didn't intend to snub the White House, but decided
an appearance would be tutUe" since Clinton and his aides already have decided to support a mandare.
THE HAWAII MOPET,
Hawaii is the only state with hands-on experience with a mandate. Since 1974, Hawaii has forced
all its employers to cover workers employed at least 20 hours a week. The state also community-rates
premiums and encourages heavy use of preventive care. All the hue and cry from small business is
exaggerated, says Hawaii Health Dept. Deputy Health Director Peter Sybinsky. "Our experience shows that
what may look unpalatable may in faa be something that works well for America."
While Sybinsky admits businesses in Hawaii aren't exactly embracing their system as a national model,
ihey have come to live with it "Ideologically they are against it," he says. But it has worked: 98 percent of
Hawaiians are insured — a claim no other state can make. Under an employer mandate, "the guy across the
street [who is at a competitive advantage] will have to play by the same rules as everyone else," he says.
Bene Tatum, director of Hawaii's NFIB office, says the 29,000 small businesses in the state have
no choice but to accept the mandate, but she is sympathetic to mainland concerns. "A small business only
has so much money. If they have to spend it on employer mandates, the wages are going to be lower,"
She also notes lhat small businesses on the island of Hawaii can hardly pick up and move to the next
state and take jobs with them the same way they could on the mainland. Mandate proponents say, however,
that under a national plan that argument falls short.
Hawaii set up a supplementary , fund to help subsidize unprofitable small businesses with fewer than
eight workers. Clinton has proposed a similar idea. But only $85,000 of the $2 million pool has been
tapped so far, says Sybinsky. "We would point that out as evidence that a mandate is not going to negatively
impact" small employers, he says.
But small business representatives argue that the profitability rules for tapping the fund are restrictive and
paperwork burdens enormous. In addition, a lot of firms were in the dark about its existence. "It has never
been touched because we hardly knew that it was there," says Tanim. She adds that the state health depanment
is now trying to ease profitability limits to make it easier for employers to take advantage of rhe fund.
Tatum says the one plus about Hawaii's system is that "'at least the government doesn't run the insurance
part." But she doubts the plan would have been able to pass today as easily as it did 19 years ago. There
weren't as many small businesses in Hawaii and their lobby was considerably less formidable in 1974.
The battle about to be staged nationally already is being played out in states. In Florida, Gov. Lawton
Chiles (D) averted a fight with his small business community by pursuing a canrot-and-stick approach to
covering the state's two million uninsured. Chiles decided a threat of more severe regulation would be
more effective than a mandate (nearly 95 percent of Flonda's small businesses have fewer than 25 workers).
VI - 16
�PERSPECTIVES, April 12. 1993
If the state fails to meet the goal of guaranteeing every resident access to health care by Jan. 1, 1995,
through a mix of market-oriented schemes, an employer mandate or a single payer plan could prevail.
It's too early to tell whether the strategy will work, but Chiles is hopeful This month, state lawmakers
passed a major element of his healthreformplan, which, establishes msurance purchasing pool programs
to cut the cost for small business. "You don't want big govenunent solutions,** says Chiles spokesman
Ed Towey. Under purchasing pools, "thefirstthing you'll see is a fairly quick decrease in the increase
in costs of insurance and health care."
A bloodier battle is now occurring in Kentucky, where Gov. Brereton Jones (D) has been trying to
push through a mandate that would impose a 16 percent payroll tax on small business to cover his state's
429,000 uninsured people. Jones' plan is being shredded by scores of opponents, including 70,000 of die
state's 83,000 businesses that employ 20 or fewer workers. Jones contends the mtmAat* is key to controlling
costs and covering the uninsured. But NFIB/Kentucky Chapter State Director Tom Underwood says his
"members have gone ballistic. . .they just feel like it is going to destroy small business.''
Faced with a mountain of opposition, Jones last week shelved the employer mandate in favor of
an "individual" mandate. Under this approach, employers who don't provide coverage to workers who want
it would pay a 3 to 4 percent payroll tax. Jones dropped the. employer mandate because "he was told
by the legislative leadership that they did not think they could pass" one, an aide admits.
QUTLQfiK
Despite some thawing by traditional mandate opponents, there is certain to be a hugefighton Capitol
Hill when the Clinton plan is unveiled. Republicans adamantly oppose a mandate, as do many Southern
and moderate Democrats. Supporters believe Clinton can win passage of the plan if he provides enough
subsidies and phases in the mandate over a lengthy period. Clinton already has promised to raise the 25
percent write-off that self-employed people get to buy insurance to 100 percent, a move that comes with
a $2 billion a year price-tag.
How the benefit package is structured, the size of the insurance pools, and whether there will be
some type of individual mandate or tax cap are major concerns certain to influence employer suppon.
How the SI0 billion ro $20 billion tax subsidy will be distributed is another critical component Sources
say the Administration is leaning toward more generous subsidies for low-wagefirms,not those with low
profits or revenues.
Another major question to be resolved: How to structure the mandate so that firms do not switch
to more part-time workers co avoid providing health insurance. Sources confirm that the Administration
has decided to pro-rate premiums so that employers will be liable for pan-timers. Under this approach,
for example, i f the Administration decides to require a company to cover 70 percent of the cost of health
insurance for a full-time worker at say, 30 hours, it can't escape the mandate by cutting its work force
to two pan-timers. I f the firm decides to hire two workers at 15 hours a piece, it will have to cover
35 percent of the cost of msurance for each.
Although many business groups regard an employer mandate as inevitable, Clinton still must make
a lot of costly concessions to win political suppon and cooperation during the implementation phase. If
those fixes don't preserve small business viability, the defiant restaurant owner could find his gloomy
predictions coming true. — Janet Firshein. editor. Medicine & Health
z-iiior'.zv.
^ '-rjcrir-ri Xeri:. Editor
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V I - 17
�Clinton Health Care Goals Win Praise,
But Industry Finds Fault With Means
By HILARY STOUT
Staff Reporter of T H E W ALL STRECT JOURNAL
WASHINGTON - Representatives of
major health Interests praised the broad
goals of the Clinton health care plan during
a daylong public hearing of the adminis. tration's health care task force, but took
issue with many of the measures being
considered to achieve them.
Virtually all of the 64 groups testifying
proclaimed support for major revisions to
the health care system to provide health
coverage for all Americans and control
medical costs. But even though the 13-hour
session was largely polite, the quesUons,
answers and prepared presentations underscored the extreme difficulty the Clinton administration faces in selling the
details of health care reform.
Most of the representatives of the
health care Industry, including groups
representing doctors, hospitals, insurance
firms and drug companies, expressed opposition to government controls on medical
fej^The administration is strongly cons ^ B i g such controls, at least temporariljWThold down costs while a restructured
health system is being put in place. "True,
effective cost control has never been
achieved in this or any other economy by
arbitrary caps on expenditures," said
Raymond Scalettar, chairman of the
American Medical Association. 'They will
not work in health care."
Wage and Price Controls
" I counsel you most sincerely against
imposition of wage and price controls,"
said Jack Moynihan. executive vice president of group insurance for Metropolitan
Life Association, testifying on behalf of the
Alliance for Managed Competition, a
group representing the five largest health
insurers.
"Price controls not only will kill our
industry, but they have the potential to kill
the patients who could benefit from the
products we develop," said G. Kirk Raab,
chief executive of Genentech Inc., testifying on behalf of the Industrial Biotechnol
ogy Association and the Association of
Biotechnology Companies.
But Vice President Albert Gore, who
conducted the session, told a panel of
doctors: "Everyone who has been making
lots of money off the health care system for
years will have to sacrifice to make the
new health care system work." Mr. Gore
was standing in for the task force's
chairwoman, Hillary Rodham ^Clinton,
who canceled her appearence to remain in
Arkansas with her ailing father.
The session was the first public hearing
of the task force, which is drafting the
.health care legislation President Clinton
has promised to submit to Congress in
May. Although top administration health
officials, including Mrs. Clinton and senior
White House adviser Ira Magaziner, have
met with most of the groups appearing
today, the task force has been criticized for
holding closed-door meetings and refusing
to include representatives of special interests more directly in formulating the plan.
Earlier this month, in response to a lawsuit
charging the task force pras violating open
meeting laws, a federal judge ruled that •
the group must hold informatlon-gatnenng
meetings in public
But after all the uproar over pubhc
meetings, the George Washington University gymnasium where yesterday's hearing was held was mostly empty, save for
several dozen journalists scattered over
the bleachers and a small throng of lobbyists and others. Much of the session was
televised live on C-Span.
But many of the administration's top
officials showed up for at least part of the
marathon session, including Mr. Magaziner, Health and Human Services Secretary Donna Shalala, Treasury Secretary
Lloyd Bentsen, Attorney General Janet
Reno, Labor Secretary Robert Reich, Secretary of Veterans Affairs Jesse Brown,
National Economic Council Chairman Robert Rubin, Senior Domestic Policy Adviser
Carol Rasco, and Tipper Gore, wife of the
vice president and a task force adviser
on mental-health issues.
Besides listening to the health care
industry, the task force also heard from
groups representing labor, big and small
businesses, consumers, the elderly, the
disabled and others.
One of the most spirited exchanges ot
the day came during testimony from representatives of small-business groups. All
but one of them denounced the prospect of
a government mandate requiring that all
employers contribute to the cosKof health
insurance for their workers. During the
presidential campaign. Mr. Clinton repeatedly called for an employer mandate, and
administration offidals say such a measure will almost certainly be a part of his
health care bill.
An employer mandate "would literally
sound the death knell for many restaurants," said Stephen Elmont, vice president of the National Restaurant Association.
Worry Over Mandates
"Mandates really are oppressive to
small business," said Samuel Carradine,
executive director of the Minority Contractors Association, who contended that employees of many businesses that offer to
pay for part of their health plan don't opt
for the coverage. Vice President Gore took
Issue with that notion, and suggested that
the main reason an employee might decline to enroll in an employer health plan is
because he or she couldn't afford the
personal contribution.
"You want to argue about mandates,"
Mr. Gore retorted. "Tofight(that! battle
by making the argument that employers
don't want health insurance is in my view
somewhat off the mark."
Several officials asked the panel participants how they would propose raising the
money to pay for health benefits for the
working uninsured if they didn't require
employers pay for part of their employees'
health plan.
Margaret Smith, testifying on behalf of
Nationafcmall Business United, suggested
taxing employees on excessive health benefits. Mr. Elmont suggested raising income tax rates.
-Ian Olgeirson contributed lo this article.
Wall Screen J o u r n a l
March 30, 199 3
VI - 18
�Gore urges
controls on
health costs
By E D W I N C H E N
Los Angeles Times
WASHINGTON — The
White House on Monday sent
its strongest signal yet that it
intends to impose short-term
price controls on doctors,
hospitals and other private
sector medical providers as
part of reform in health care.
In the first public meeting of
the White House task force on
national health-care reform,
Continued from A-1
Rcsiaurani Association, who
warned thai many small businesses could not afford to provide
health coverage.
"Thai's why cost conlrols . . .
represent such an important pan
of reform," Gore said.
In the 13-hour hearing, interrupted by only' two IS-minute
breaks, more
than 60 interest
groups and consumer representatives pleaded
their cases before the adminislration.
The only points
of agreement
were the need to
cut insurance
red tape and to Gore
place greater emphasis on preventive care.
Like Elmont, many who testified Monday criticized likely
lemcnls of the reform plan.
nsurers argued against caps on
premiums, doctors, hospitals and
other providers resisted mandatory price controls; and small
businesses opposed a government
requirement thai all employers
Vice President Al Gore said
short-term cost controls would
be necessary to put a lid on the
cost of insurance premiums.
The controls would make it
easier for businesses to furnish
workers with health coverage
under a government mandate,
said Gore, who presided at the
meeting.
His comments came during a
debate with Stephen Elmont,
vice president of the National
See GORE, A-6, Col. 1
pay a big part of every worker's
health insurance premiums.
Other elements of the proposed
reform disclosed Monday included plans to provide coverage for
long-term care and give nurses
and physician-assistants greater
roles in heallh care as a way to
hold down costs. Senior administration officials also pledged to
minimize disruptions in doctorpatient relationships.
In addition, to improve services
to the underprivileged and others,
the task force is exploring ways to
eliminate Medicaid altogether,
perhaps by gradually covering
indigent persons under the same
large health care co-ops being
contemplated for much of the
general population.
Judging from the questions
posed by various administration
officials, the lask force apparently
has not yet settled on some of the
basic elements of the reform
agenda — including how to
finance coverage for the 37
million uninsured Americans and
the extent of coverage for longterm care, mental health and
prescription drugs.
Gore presided over much ofthe
meeling, silling in for Hillary
Rodham Climon. who heads the
-
A PLAN:
m
The White House task
force on health-care refonn
heard officials say cost
controls would help
businesses furnish workers
with health coverage under a
government mandate.
Also mentioned:
• Providing coverage for
long-term care.
• Giving nurses and
physician-assistants greater
roles in health care.
• Eliminating Medicaid by
gradually covering indigent
persons under the large
health-care co-ops.
Still undecided:
• How to finance coverage
for the 37 million uninsured
Americans.
(ask force. The tirst lady was still the death knell" for many restauin Little Rock, Ark., with her rants, Elmont said.
father, who suffered a stroke
A government mandate to
nearly two weeks ago.
provide health coverage would
Gore was joined off and on cost small businesses at least $40
throughout the day by Cabinet billion, said Margaret Smith of
officials and top White House National Small Business United.
advisers, including Treasury SecAs an alternative, Gary F. Petty
relary Lloyd Bentsen; Health and
Human Services Secretary Donna of the Small Business Legislative
Shalala; Attorney General Janet Council urged the administration
Reno; Roben Rubin, head of the lo institute a wage and price
National Economic Council; Lau^ freeze on health-care providers.
But G. Kirk Raab, president
ra Tyson, chairwoman of the
Council of Economic Advisers; and chief executive of Genentech
Carol Rasco, Clinton's chief Inc., a California-based high-tech
domcsiic adviser; and Ira Maga- firm, warned that such controls
ziner. the task force's day-to-day would "strangle invesimem" in
the biotechnology indusirv
manager.
Witnesses were grouped into 12
During a queslion-and-answer
panels lhal represented consum- period. Gore said the administraers, small businesses, physicians, tion intended to include insurance
insurance companies, drug firms, coverage for long-term care, starthospitals and labor groups, among ing with services that arr homcothers Each speaker was given and community-based.
three minutes, a limit Gore
Gore also agreed wiih those
diligently if good-naturedly en- who called for a greater emphasis
forced .
on preventive medicine
A number of small businesses
argued against a governmenl
requircmcnl that they pay for the
heallh insurance of all workers,
saying that would be a burden
many small firms cannot bear.
Thai requirement would "sound
Los Angeles Times
March 30, 199 3
VI - 19
�Health reform: Groups urge
more care and lower costs
WASHINGTON (GNS) - In a
13-hour marathon of testimony Monday, spedal interest groups told Vice
President A l Gore that they wanted
more out of health care reform —
more home care, more prevention,
more choice for consumers, more
attention to minorities.
But many of the 65 organizations
— ranging from consumer and labor
advocates to insurance companies to
large businesses — also wanted less:
fewer requirements, lower costs and
less paperwork.
"What needs to be changed is the
deliveiy system, not just how you pay
for it," said Virginia Trotter Betts,
president of the American Nurses
Association.
The first — and probably only —
public hearing of President Clinton's
task force on health care refonn gave
its audience an idea of what those
crafting the reform plan still need to
work out, and what ideas might cause
trouble if they become part of the
plan.
That plan is due on May 3, and the
hearing was one of the first things that
the normally secretive task force has
done in public.
It made its work a shade more
accessible Monday, with an
announcement that people interested
in reading the task force's working
papers can see them in a special reading room at the Department of
Health and Human Service offices in
Washington.
Gore promised that all the testimony, as well as the more than 50,000
letters received by the task force,
would be carefully considered.
Some places where President Clinton might have to do some hard selling: organizations representing small
businesses balked at a possible
requirement that they provide insurance for their employees (although
Gore pointed out that small businesses fulfill other legal requirements such
-as paying workers' compensation and
"Social Security and don't go out of
business), and groups as varied as
dentists ;ind Native Ameticans
begged that i < M that work now noi
d_ S
be touched
"Our concern is lhat we're uoins; lo
ilcsimy a mxid svsiem. said Dr. Jack
How^o^Qjitaet^
l o " W d i mt-ssagi l o t h i 1
ilflLu} liodham Chntou.ci'o PICMrdcnl^a^ft^cej^l^ltli^re
Ufl&nlWa£^et&i >D.G'
r
>
Harris, president of the American
Dental Association.
Gore, who is not a member of the
task force, filled in for Hillary Rodham Clinton, who was in Litde Rock
with her ailing father.
But he'd clearly brushed up on
health care refonn, and during the
hearing offered a few more hints on
what the Clinton reform plan would
include:
• Coverage for more home-based
and community-based care, the kind
that keeps people out of nursing
homes.
• Strong services that would help
prevent disease, especially in children.
• — Better access to care for areas
that don't have enough medical care
now, such as inner cities and rural
areas, possibly by recruiting future
doctors from the people who already
live there.
• Less paperwork for doctors.
• Good mental health coverage as
part of a basic benefits package.
• Using more non-physicians such
as nurses, physicians' assistants and
chiropraaors to provide care.
Several groups pressed the task
force to give fresh thought to proposing a single-payer system, similar to
Canada's. Gore flatly ruled out such
an option.
"'We are committed to a uniquely
American system, rooted in the private sector," Gore said "Everyone
who has been making money off the
system in the last 10 years will be
required to sacrifice to make it work."
Cabinet memhers on the task
force, as well as policy advisers who
work full time on health care relorm.
repeaiedly asked lor specific rccommendalions. or foi an hlea ol what
solutions might cause opposition.
Attorney General Janet Reno was
most interested in drug and alcohol
treatment, as well as ways of dealing
with domestic and youth violence;
Robert Rubin, chairman of the
National Economic Council, tried to
pin down groups on the best way to
fund reform. There was no one
answer.
"We need to see the details and
apply them to a real-life business,"
said Margaret Smith, legislative committee chair for National Small Business United.
One doctor bluntly told the task
force that the government should butt
out, and had harsh words for the
refonn plan favored by Clinton — it
involves networks of doctors and hospitals among which a patient would
choose.
"Costs will not come down until
the government gets out of medicine,"
said Dr. Jane Orient, executive director of the American Association of
Physicians and Surgeons. "Let's give
our patients real choice, and not tum
this into a sham of choosing between
Monolith A and Monolith B, both
with the same benefits."
The American Medical Association repeated its strong opposition to
cost controls — another idea Qinton
likes — but offered some compromise
as well.
"We will not defend the status
quo," said Dr. Raymond Scalettar.
chairman of the A M A board of
trustees.
Gannett News Service
March 30, 1993
VI - 20
�Health reform angers business owners
, NEW YORK (AP)
John Motley, who holds strong views about
health care for all workers, said his
organization nevertheless declined
an invitation to appear before the
Clinton administration's Health
Care Task Force.
- Why? Because, said Motley, vice
president of the National Federation
of Independent Business, the Health
Care Task Force already has made
.'tip its mind that small businesses
must provide health insurance for all
workers.
• Motley said in earlier meetings
•with task force aides, they made
clear that insurance for all workers
iwas non-negotiable. :
."; ' 'The task force includes only one
• person who has met a payroll or had
ito purchase health insurance for employees," he said, indicating his
scorn and fear about what may
.emerge as the Clinton health care
program.
: Motley's reaction is more typical
than unusual. His federation claims
more than 600,000 memberorganizations, some as small as sole
•proprietorships' but others large
•enough to employ thousands of
AP NEWS ANALYSIS
John Cunniff
workers.
Speaking for the National Small
Business United, which represehts
more than 65,000 small-business
owners, Margaret Smith told the task
force members that an employer
mandatecould cost small companies
$40 billion in added bills.
Smith, a small-business owner
from Los Altos, Calif., pointed to
what many in the small-business
community view as an inconsistency
in such a mandate: It might stymie
another Clinton goal, that of greater
job creation.
•Calling small business the engine
of job creation, she declared: "A
health-care mandate that drains tens
of millions of dollars out of small businesses every year will put a dramatic damper on job creation and economic growth."
It is rare that anything tops taxes,
regulations and paper work as the
top concerns of small businesses, but ness representatives suggest that if
health-care issues, especially a pos- the expected mandate applies to
sible mandate to cover all workers, part-timers as well as full-time
undoubtedly had done that.
workers, the impact could be mean
Many small businesses barely job cuts.
make enough to pay the founder and
Nobody seems to be stonewalling
leader an income indistinguishable the issue. Motley, for example, says
from that of employees. Often, their "small-business owners desperately
entrepreneur's income is derived
want health care reform that
more from cost-cutting than from
works."
sales increases. Many are marginal.
But they make clear their dislike
Such companies, according to the for a mandate, not an unusual stance
NSBU, could be badly hurt, even
for a business sector that already
forced to lay off workers or go out of feels overburdened by regulations.
business, if required to provide
Motley qualifies small-business
health insurance for all employees.
support for reform, adding "but not
Their fears are based partly in the at the price of making them responstatistics: The greatest concentration sible for the health care of working
of uninsured woikers is in small bus- Americans."
iness, especially In those companies
Smith asserts that "an individuemploying fewer than 25 workers.
ally based" system makes more
sense than a system that requires emIn Congressional testimony two
years ago, Robert Reischauer, direc- ployers to cover all their employees.
tor of the Congressional Budget OfIn her statement she declared that
fice, cited 1990 figures showing
if the future system fails to "make
them (people) responsible for their
51.1 percent of all uninsured workown health-care choices and emers were in this smallest-of-allpower them to make those choices,"
companies category.
Small businesses heavily rely on it eventually will be unacceptable to
the public.
part-time workers, and small busi-
Associated Press
March 30, 1993
<
�Administration Is Trying to Woo Small Business
nBid to Overhaul Nations Health-Care System
J
By HILARY STOUT
And RICK WARTZMAN
SIQ//
nail Busih^BUitien %
Reporters O / T I I E W A L L S T K E E T J O U R N A L
iikiryey lastyc^ttiatlhelfjws^
WASHINGTON - When Hillary Rodew s
ham Clinton's health-care task force holds health h r W I h c ^ ^
its first public hearing today, representatives from scores of interest groups are
Increased " W t f r
expected to testify. John Motley, chief
lobbyist for the National Federation of
Independent Business, won't be among
them.
.. The reason: The powerful small-business association, which boasts that it has
1,000 to 2,000 members in every congressional district, turned down an invitation
to appear. Its members fear that President
Clinton's eventual health-care proposal
would impose crippling costs on them.
Says Mr. Motley: " I might as well spend •
my time getting ready to fight."
Many administration officials believe
that small business - not doctors, hospitals, Insurancefirmsor drug companieswill be the biggest obstacle to the president's plan. "Many small businesses may •
fiercely resist the proposal," warned Ira
Administration officials counter that if
Magaziner, the White House adviser who anyone should support an overhaul of the
is running the dally operations of the health-care system, it's small-business
health-care effort, in his initial memo to owners. After all, they say, small compathe task force In Januaiy.
nies have suffered more than almost anya result, the administration is ur- one else under the current health system.
^ B y trying to woo small employers, both And if the White House succeeds In bringpreaching outto groups other than the ing down medical costs, small companies
overwhelmingly Republican NFIB and by stand to gain more than most anyone.
putting together a package of tax credits or
"Health-care reform will be one of the
other financial assistance to help small
best things to ever happen to small busifirms cope, even if it means higher; taxes
for everyone else. "We have to have a ness," argues Paul Begala, a Qinton politipackage for small business," says Health cal adviser.
and Human Services Seaetary Donna ShaThe key, administration officials think,
lala. Mr. Magaziner often reminds audi- is to communicate that messagetogroups
ences that he was once a small-busi- other than the NFIB. Top administration
ness owner, and empathizes with how
health officials have met with such groups
expensive it is to buy heaith insurance.
as National Small Business United, the
Small Business Legislative Council and the
The biggest problem is that many
small-business owners vehemently oppose National Association of Women Business
Owners. And those groups, though they
the administration's expected proposal to
too have some reservations about the adrequire all employers to contribute to the
ministration's tack, have accepted invitacost of health benefits for their workers.
tions to "testify before the task force today.
The NFIB's Mr. Motley says he has flatly
Their appearance, administration officials
told Mr. Magaziner that the mandate is
hope, will demonstrate that the NFIB
"nonnegotiable."
Currently, an estimated two-thirds of doesn't speak for all of small business.
Gary Frank Petty, president of an
small employers pay for at least part of an
association representing local moving and
employee health plan. But many of the
storage companies, says in testimony preothers claim that having to purchase
pared on behalf of the Small Business
worker coverage will put them out of
business. And even some who do provide Legislative Council that the president's
coverage denounce the idea of the govern- - plan should have credible cost controls,
address spiraling workers' compensation
ment telling them what to do.
insurance costs and require workers as
"Once they talk about an employer
well as employers to pay some health
tn^ndate it bothers me," says Raymond
premiums. If Mr. Clinton's plan includes
, president of Phoenix Products
such provisions, he says, "we believe you
Meveland faucet maker that pro.surance for its 65 workers through will be able to make a strong case to small
a coalition of small businesses that resem- business that they need lo be a part of
a comprehensive solution."
bles the kind of purchasing- network the
The administration's ultimate success
White House wants to set up across the
in eourtinf; small businesses will be deter
nation. A mandate, he contends, "will
mined by ihe size of Ihe carmt it dangles
destroy companies and destroy jobs."
!
in front of them. But figuring out how big
that carrot should be, and who should be
entitled to it, is a tricky task.
One problem is that any assistance only
for employers who aren't now buying
health insurance will surely infuriate those
who have been providing coverage all
along. "We'd be punished for having done
something that we thought was the right
thing to do," says Jean Johnson, the
manager of Johnson Electric & Supply of
Spruce Pine, N.C, which for years has
struggled to maintain Blue Cross-Blue
Shield coverage for its four employees.
But giving a meaningful subsidy to all
employers with small work forces would be
extremely costly. And it too could be
attacked as unfair; a law firm with five
affluent partners certainly wouldn't need
government assistance to provide health
coverage.
To navigate this minefield, Clinton
aides are considering several options, including:
• Awarding tax credits based not on a
firm's size but its average wages, or
awarding credits not to the firm but directlytoits low-wage woricers.
• Setting up a "rainy day fund," a pot of
money to provide assistance to small employers who demonstrate a need. Officials
wouldn't disclose the amounts under consideration. Hawaii, which requires all
employers to cover their workers, has such
a fund, which it uses to provide loans and
grants to help very small businesses.
• Simply delaying the date by which
small employers would be required to
provide health insurance, until the newly
restructured health system is up and running. The idea is that by then, buying
health insurance wouldn't be such a strain
on small companies, which would be able
to join huge buying networks of bigger
businesses and individuals.
But it's far from clear whether these or
any other options being discussed will be
enough to assuage employers like Sharon
Beard, owner of Hurricane Fence Co., a
nine-person Springfield, 111., company.
The company is already overwhelmed by
the health insurance premiums it pays for
its workers, she says, and the prospect of
what Mr. Clinton may propose is even
scarier. "A lot of small business owners
feel very threatened right now," she
says.
Wall Street Journal
March 29, 1993
VI - 22
�G AN
RIS
'
C CG B S E S
HA O UI S
I
N
Chicago, IL
WEL
E KY
61,018
MAR
2 2 , 1393
M12188
UJCT PRESS CUPPfK'CiS
Health care watch
• Small business owners pay an average
60% of the premium for their employees'
health care coverage, according to a report
by Nationaf-Small Business United, an advocacy group in Washington, D.C.
Of those companies that offer health insurance, half pay more than 75% of the
premium. Here are breakdowns of the employers' contributions:
WHO'S PICKING UP
THE HEALTH CARE TAB
Companies that pay...
16%
None of the
premium costs
1-25%
0
3%
13%
26-50%
51-75%
0
7%
50%
76-100% |
Souice: National Small Business United
VI -23
�W-nter 1992/1993
ame 10
Number 3
S12.00
S M A L L BUSINESS
1
FORUM
The Journal of the Assodarion of Small Business Development Centers
Published by the University of Wisconsin-Extension
What Should I Do about the Increase
in My Health Insurance Premiums?
A Case Study
With responses by John Polk, Robert F. Lederer, Linda Jenckes,
E. Stuart Amett and Ralph Andreano
Three Questions that Net Present Value Analysis
Can Help You Answer
from Lynn Neeley
A Small Business Owner's Guide to the
Americans with Disabihties Act
from Bruce Elder and Karl Borden
Reflections in the Mirror—an Entrepreneur's Story
from William E. Lowell
What is the Solution for Small Business
in the Health Insurance Crisis?
With opinions by Susan Hager and John Satagaj
Vl -24
�OPINION
What is the Solution for Small Business
in the Health Insurance Crisis?
If everyone was
required to have
insurance, we
could spread the
costs evenly and
avoid cost
shifting.
Health Care Access and Cost Containment
Susan Hager
Ms. Hager is the president of National Small
Business United, a trade organization with
60,000 small-business members. She is also cofounder and president of Hager Sharp Inc., a
communications firm in Washington, DC.
The issue
The health care situation in the United States
has reached crisis dimensions, driven primarily
by extraordinary escalations in cost. Average
Americans are now concerned that they could
lose their own coverage, and they are ready for a
change. And the health care costs that have
driven the public to despair are still going up; if
left unchecked, they will reach potentially
unsustainable levels, particularly for small
businesses struggling to provide insurance for
their employees.
In 1991, the United States spent over 13
percent of its GNP on health care, more than
$750 billion. This number represents an expenditure of $3,000 for every individual in the
country, and the amount is growing at several
times the overall rate of inflation. The U.S. is
spending more on health care — by any measure
— than any other country in the world, yet it
has the highest rate of uninsured individuals in
the industrialized world. Something is fundamentally wrong.
Today's very high health care costs have
placed people who are uninsured at a much
greater financial risk than in the past; it is more
necessary today than ever before to have
insurance to meet many health care bills.
However, it is the very high price of health care
and health insurance that is making it increasingly unavailable. We have no hope of significantly expanding access to the health care system
without significantly reducing the cost of that
system.
Yet the small business problems within rhe
current system go beyond the cost problems
expenenced by nil employers. Many smnll
businesses do not have good access to insurance
for all of their employees at any price, certainly
not at an affordable one. Small businesses stand
alone in being forced to undergo experience
rating of their employees, making insurance
unaffordable for some employees and inflicting
pre-existing condition exclusions on others.
Small businesses generally cannot become part
of a large group across which theseriskscan be
spread.
An employer-based mandate is no solution to
either the cost or access problems. An employer
mandate to provide health insurance would most
likely drive prices up and would still not cover
the majority of those who are uninsured.
Recommendations
The insurance market must be reformed. But
to reform the insurance market without other
reforms will most likely drive health insurance
premiums higher faster. Think about requiring
all individuals to participate in the health care
insurance system. If everyone was required to
have insurance, we could spread the costs evenly
and avoid cost shifting.
With an individual mandate, individuals could
gain greater control over and confidence in their
health care decisions. Individuals would have the
option of obtaining insurance through an
employer, or on rheir own through a private
insurance company or a federal health care
program.
To assure access to this required insurance
coverage for all, the federal government should
expand Medicare and Medicaid to include more
of the working poor. In addition, medical
charges allowable under Medicare and Medicaid
need to be increased to reflect their real costs
and to prevent those costs from being shifted to
the rest of the health care consumers. A system
of tax credits could also be established to help
those who do not qualify for the federal programs, but could otherwise not afford health
care insurance.
Finally, and perhaps most importantlv. heahh
care costs must be contained and finally brought
down. Cost containment can be achieved through
several strategies working rogerher, such .-is.
V I - 25
�bringing together providers, employers, payers
and individuals to negotiate caps on the cost of
care and to lower the high capital expenses of
hospitals;
• reforming the malpractice system to help
eliminate defensive medicine and high malpractice insurance premiums;
• lowering high administrative costs through
simplified and standardized billing and the
elimination of "churning" in the small business
insurance market;
• making physicians and hospitals more accountable for their charges by requiring them to
disclose the full cost of care up-front, where
possible; and
• eliminating costly state mandates which drive
insurance premiums up and force individuals to
purchase types of insurance they do not want
or need.
The health care system must be reformed —
and quickly — or small businesses will no longer
be able to afford it.
Author's note: To get a complete and detailed
copy of NSBU's Action Plan on health care
reform, calL National Small Business United,
202^93-8830.
S.n.ill
1 ' . . , I ' . i . u m
- \V,ni.;r
\ ^ l r : :
V I - 26
�NEWS AND NOTES
JOBS AND BENEFITS IN SMALL BUSINESSES
lealth care is one of the three most offered benefits, along with paid
vacations and paid sick leave, to employees of small businesses, according to a
survey by Arthur Andersen's Business Enterprise Group and National Small
Business United, a private nonprofit association of more than 60,000 small
business owners. Overall, 53% of the companies provided health insurance.
A mail questionnaire of 6,000 such businesses around the country this
spring, with data tabulated by the Gallup Organization in Princeton, N.J.,
found health insurance offered by 97 percent of companies with 100 to 500
workers, by 90 percent of companies with 21 to 100 employees and by 47
percent of those with 20 or fewer workers.
Over the past year, health care costs increased for 83 percent of companies
offering health insurance benefits, with one third of the businesses hit with
hikes of 25 percent or more. On average, small businesses paid 60 percent of
a worker's health insurance premiums.
Paid vacation
64%
Health insurance
Dental insurance
Employee leave
•is-'
12%
Profit sharing
11%
Unpaid parental leave
10%
Tuition reimbursement;;
8%
Paid parental leave
4%
Stock ownership plans
2%
Vl - 2?
�L s Angeles, C
o
A
TM S
IE
Los Angaltt-Ung Bsaoh Met Ares
Monday
o 1,242,864
NOV
16, 1992
Firms UnifmgforAttack
on Comouisorv Coverage
• Health care: Small-business owners, insisting they
can't afford it, lead opposition to Clinton plan.
By ROBERT A. ROSENBLATT
TIMES STAFF WRITER
legions of small-business owners
who are expected tab: lie at the
forefront of organized opposition to
CUnton's ambitious blueprint for
health care reform. Already trad?
groups representing small busi-.
nesses are sounding the alarm. - -V.
Their battle cry is simple: Mandatory coverage may sound great,
WASHINGTON—At the Wedding Belie Bridal Shoppe in Highland, IlL, owner Carolyn McDonald
fears for her future if Presidentelect BiU Clinton carries through
with his promise to make businesses provide health insurance for
1
NEWS'ANALYSIS
'I
their employees.
McDonald has only two part- but small businesses just can't
time workers, a sales clerk and a afford i t "A federal mandate-js,
seamstress, but she says the cost of intolerable." declares- John Faifl"
coverage would be prohibitive for Galles, executive vice president_at
her low-volume operation. "How ^Sfrnaii Business UmtecL ' '
can I provide health insurance for
The battle over mandatory covmy employees if I can't afford to go erage will determine the direction to the doctor myself?" she laments. of health care reform. At least *
Please see HEALTH, A20 <
McDonald is just one . of . the
x
^
Vl - 28
�n^ALIH: Firms Uniting for Attack on Health Care Coverage
C«eaaa«d from M
of hejlih care reform. At least two-thirds
of the 35 million Americans who lack
health insurance are full -ume workers and
their families, and Clinton has promised to
find a wjy to cover them.
Lasl week. California voters decisively
^^gected *n inilialive sponsored by the
^ ^ ^ • f o m u Medical Assn. Lhat would have
^ ^ ^ ^ R i r e d employers to provide heahh cov^ • R g e . and the fight on the national level
could be every bit as bitter.
"We will pass a national health plan."
<
vowed daring the campaign, promtsinc a sweeping program with "rigorous
health care cost controls and a basic
package of affordable health care for all
Americans."
Although Clinton has not yet spelled out
the details, his plan ts expected to require
all emptoyers to provide msurance for thetr
workers. He has promised to give small
businesses several years to enter the
prograin, and to provide tax credits to help
<
Ihe costBut email-business owners are not persuaded. "What good Is a Ux credit if youYe
not making any money, and the economy is
in recession?** asks Terry Hill,
ipokesman for the SOOOOO-meniber National Federation of Independent Business,
campaign against compulsory coverage ts not limited to mom-and-pop
proprietors. Small businesses are being
Joined by a number of big players in the
food and lodging Industry. Fast-food firms,
resuurant chains, hotels and motels all
tend to have rapid employee turnover and
Urge numbers of low-paid and part-time
worken with no insurance covenge.
International House of Pancakes, glive
Garden and TGIFrid*y*i are among 35
companies bankraUing a new ooaUtkn. the
Emptoymem Policies Institute, that intends to promote alternatives to mandatory Insunnce coverage.
American Express has Joined the coalition, concerned thai hs restaurant clients
could lose substantial business they are
forced to boost menu prices to pay for
: health poUcks. It estimates that mandatory
covenge would cost about
per
employee per year, a Ug burden tn a
business where waften get about (2.13 an
hour, before tips.
While most small firms and many larger
i qxp expected to fight mandatory
^ w r a g c«the business community'i tradit
tional unity on mailers involving increased
government intervention in the private
sector seems to have crumbled.
Some giants of industry, despairing of
efforts to control heallh care costs by
Ihemselves, say they are ready for Washington to step in. Their reasoning is lhal
universal coverage will level the playing
field by forcing all competitors. Urge and
small, to bear the cosi of heallh insurance.
In addition, they warn the government to
help control costs with a tough federal
ceiling on heallh care spending.
The splil in the business community has
created some unusual polilical alliances.
Big employers such as Safeway. Bethlehem Steel. Chrysler. Xerox, Lockheed and
Southern California Edison are marching
alongside advocacy groups such as the
Children's Defense Fund, the American
Assn. of Retired Persons and unions representing steel workers, teachers and service
employees.
These divergent groups have joined to
form the National Leadership Coalition for
HeaJth Care Reform, the strangest advocate of a "play-or-pay*" health care system. Under that idea, businesses would
either "play.** by providing heallh insurance for their workers, or "pay.** through a
new payroll tax that would finance a public
fund to cover the uninsured.
The impending struggle has splil the
insurance industry itself. Large insurers
appear willing to conskJer major reforms of
the existing system, while smaller companies seem more inclined to preserve the
status quo. More than 1,500 firms currently
•ell health insurance, and critics say that
many are "cherry-picking*'—providing insurance only to employers with relatively
healthy work forces.
A
etna, a giant insurer that coven 12
million Americans, has Jutt resigned
from the Health Insurance Assn. of America, the tadustiy's primary trade group, in a
dispute over health care refonn priorities.
"We fett if we were going to make some
progress tn health care reform^ tt had to be
beyond the cootett of strictly insunnce,"
•ays John Hawkins. Aetna's assistant vice
president for health communications. "We
needed to buOd bridges to other coalitions,
to a much broader base, to our customers,
to the cnmpaniei we aerve. to unions,
retirees and conmncr ^mup^.
The battle over health a r c reform will
be waged not only in the halls of Congress.
members are clearly rescmlul lhai some
but in corporate board rooms across tlie
firms, mainly small businesses, receive a
Und. Pnvate sector employers are the
free ride by noi providing insurance io
pnmary source of health insurance for
employees.
more Ihan 190 milhon Amencans. workers
and members of iheir families.
n California, the physician-backed iniliThe biggest impacl will be on the
alive calling for mandatory coverage
smallest firms. About 98% of employers
was defeated by an uneasy alliance of small
with more than 100 workers already offer
businesses, insurance companies and conhealth benefits. But only 27% of firms with sumer groups.
fewer than 10 employees provide coverage,
Proposition 166 losl because voters
according to the Health Insurance Assn. of
"bought the argument that ii would have a
America.
negative impacl or )obs in Calilomia." lays
It cost an average of *3.573 to cover a
Dr. Richard Corlin. president of the Caliworker last year under tradilionaJ indem - fornia Medical Assn. and a member of the
nily plans that give employees unrestrici- . American Medical Assn. board of trustees
ed choice of doctors, according to a survey
He vows ihat doctors will continue to wjge
by the A. Foster Higgins consulting firm.
the fighL but on a nalional level.
Less expensive policies are available, but
"We need io educate ihe public thai
they generally require workers to pay
heallh care reform is coming one way or
bigger deductibles or limil iheir choice of another." says Corlin. "There are only iwo
heallh care providers.
ways of paying for it- on a tax basis or
The cost of providing health care coverthrough an employer mandate. And we
age is rising al three or four times the
believe the employer mandate is least
general rate of inflation, the Higgins firm
expensive."
calculates. With heallh coverage account But the small business community, having for an expanding share of payroll costs, ing prevailed in California, has been emless money is available for wage increases
boldened to take an uncompromising stand
or other benefits at medium-sized and
against a national coverage mandate.
large fimts.
"1 expect the pressure to be on us pretty
heavy." says Hill, of the Nalional Federa**T_Teallh costs continue to rise seemX i ingly beyond everyone's control." tion of Independem Business.
"O in ton's fim prioriiy b lo create jobs,
says Ellen Goldstein, director of health
policy for the Assn. of Private Pension and and any mandate will inhibit job creation."
argues Galles of Small Business United.
Welfare Plans, which represents major
Restaurants are particularly vulnerable,
corporations wilh extensive benefit proinsists Richard & Berman. executive digrams. There Is a tremendous sense of a
rector of the employment Policies Inslineed to change and move. -. . . business,
lute. "People will still eai out. but if the
and especially Mg business, wants a system
price goes up enough, maybe they cat out
lhat is leak-proof, that covers everybody
and pays for health care in a rational way ." less and cut their pending 20%. And that
means a lot of places go out of business and
The "leaks" resented most by Ug business are the higher hills they pay for their worken lose their jobs."
McDonald, owner of the Wedding Belle
worken as a result of holes elsewhere in
Bridal Shoppe. agrees lhat "it is unconthe health care system. Hoapttab charge
scionable that some people cannot have
more for privately Insured patients because govenunent programs—Medicare medical treatment" under the current
for persons over 65 and Medicaid for the system. But she insists thai the best
solution is to "spread the cost ao it is not so
poor—have sbaiply restricted reimburaepainful" for small bunnesaes such as hers.
ments. Hospitals also boost the Ulls of
Insured palienls Co help cover the cost of
cDonald says she can barely afford
free care for patients with no insurance.
the health Insurance policy she purThis oost-shifUng Increases health care chased for heraeU. which only covers
costs for manufacturing firms by an esticatastrophic expenses. The plan requires
mated MLS bOttoa annually, according to her to pay the first SZ500 of any medical
the National Assn. at Mamrfimnera. After expenses she incurs each year, plus 50% of
a spirited debate last year. NAM decided to the next'12^00. She says she manages u>
stick with Its trvlitlonal opppsitkn to pay the $90 monthly pnrmJunU. but tends
mandatory insurance coverage. 'But many
to forgo routine medical care because the
I
M
deduciibkissohigh.
Not long ago. McDonald says, she hun
herself when her dog dragged her off th<
porch of her home. " I fell and bruiser
myself.- she recalls. -My friends said. Ck
to the emergency room. but I said. 'No. 1
just can t afford it.' "
Another opponent of mandatory coverage is David Harper of Chatswonh. Calif,
who just sold his business as a broker of
pnniing work. Harper was paying $360 s
momh (or medica; coverage ior 1
and his wife. "1 can't afford to get insurance for the employees, not with th<
margins in ihis business." he says.
Clinton's health advisers say they intenc
to provide lax credits to ease the financial
burden of mandatory coverage on firm;
such as the Wedding Belle and Harper
Business Products. But any special consid eraiion bestowed on small businesses wji:
place a heavier burden on others.
"Everybody recogniies that if you hav,
a mandaie to purchase insurance imposec
on businec. you have lo give a substantia
break to some employer*," says Waltei
Zelman. special deputy to California Insur
ance Commissioner John Garamendi. whe
has developed his own universal coverag<
proposal The questions are tough ones
How big a break, and to which employers
and where do you gel the money?"
-
F
or some small businesses, profit margins are so thin that mandatory insurance could cause them to lose money, say*
Mark Weinberg, executive vice presidem
of Blue Cross of California, which has beer,
trying aJtemative approaches to provide
low-cost policies.
"We're experimenting with pricing
thresholds;- says Weinberg, riling a ~safety-neT plan lhat costs as little as S36 a
month per employee. The policy is cheap
because it excludes office visits to the
doctor, except for prenatal care for pregnam women. Coverage indudes hospital
care, after a one-day deductible, and offers
up to SS million tn Ufetime benefits.
Weinberg argues that companies such as
Blue Cress should be encouraged to offer
private-«ctor aolutions for the millions of
uninsured worken at small businesses
before the govenunent Imposes the heavy
hand of national regulation.
The question fs whether Clinton. Congress, and consumers and big businesses
angered by heallh bftls, have the patience
to wait
VI - 29
�FN N I L SERVICES W E
I A CA
EK
N w York, N
e
Y
BI-WEEKIY
85,750
AUG : 2 4 , 1992
M534G2
LUCE PRESS CLIPPINGS
) Past Year's Health Care Costs Rise
For Most Small-Business Owners
5
CHICAGO — Eighty-three percent of the nation's small-business
owners who offer health care benefits to their employees have faced
cost increases over the past year.
Furthermore, one-third of these
small-business owners have experienced health care cost increases
of more than 25%, a nationwide
Gallup Organization survey of
small- to middle-market business
owners on behalf of Arthur Andersen's Enterprise Group and National Small Business United
(NSBin^found.
"The average per-employee cost
of health insurance in 1991 was
more than $3,600. When you add a '
25% increase on top of that, you
get costs closer to $4,500 per employee per year," John Galles, executive vice president of the
NSBU, said of the findings. " I f
this situation continues, smallbusiness owners will be forced to
increase employee contributions,
cut benefits or drop coverage altogether."
Survey results showed that 97%
of companies with 101 to 500 employees offer health care benefits,
as do 90% of companies with 21 to
100 employees. Only 47% ofcompanies with 21 employees or less
offer coverage.
"Companies with fewer than 20
employees find it much more difficult to obtain affordable health
care," Galles said. "Businesses this
small are forced to undergo individual underwriting.
'This means that if even one employee has a heallh problem — such
as diabetes or arthritis — the business is likely to be charged very high
premiums, or may even be turned
down for coverage," lie added.
Although on average a smallbusiness owner pays 60% of the
firm's employee premiums, the survey found that of those small businesses that offer health insurance,
50% pay more than 75% of premiums. Seven percent pay between
51% and 75% of premiums, while
16% pay half or less of premiums.
"We've seen more and more
smaller companies being forced to
shift costs to employees," Rick
Fumo, managing director of Arthur
Andersen's Enterprise Group, said.
"Five years ago, it was very common to see small businesses paying 100% of health care costs.
That's impossible today."
Arthur Andersen's Enterprise
Group specializes in providing
business consulting, audit and tax
services to small- and middle-market businesses..
The NSBU is a private, nonprofit organization that represents
small-business owners nationwide.
The NSBU's services include
working with members of Congress
and other elected officials on behalf
of small businesses.
Gallup was contracted to conduct the national mail survey in
March 1992, and 634 completed
and usabtb surveys were returned
toflicorganization by late June. To
ensure that theresultsrepresenteda
proper distribution by company
size, theresultswere weighted using information from CACI Marketing Systems, Arlington, Va.
VI - 30
�WASHINGTON WATCH
THE GOVERNMENT AND YOUR BUSINESS
Escalating health-care costs are the
number-one concern of small-business owners.
CLEAN BILL
OF HEALTH?
Small-business owners identified
soaring health-insurance costs as
their single biggest problem in 1992.
As a result, small-business advocates
are advancing a number of healthcare reform proposals to address this
pressing concern.
"Health-care costs are fast b ^
coming the great American anxiety,"
says George Abbott, immediate past
president of National Small Business
United (NSBU). 'Today, millions of
Americans—both insured and
uninsured—find themselves only one
major illness away fromfinancialruin.
A long-term solution that works for
American business and the individual
is imperative."
Health-in sura nee premiums
rose an average of 23 percenl over
ihe p.isi year for small-business proprieiors surveyed recently by NSBU.
W'liilc must of (hese premium hikes
By Go i I Greco
were in the 1 to 25 percent range, 17
percent of those surveyed reported
dramatic increases of 26 to 50 percent.
The mere availability of healthcare coverage is another significant
dilemma facing small business. In
the NSBU survey, some 18 percent
of businesses report they've been
rejected by insurance companies
when seeking health-care coverage
for their firms. Many of these have
been denied coverage two or more
times.
Due to rising premiums and the
frequency of rejection, 83 percent of
the surveyed firms report they've
switched carriers at least once over
the pastfiveyears. And 40 percent of
the surveyed employers increased
deductible levels for their workers.
To lesser degrees, smallfirmshave
increased the amount of the premium paid by employees and/or restricted the number of employees
who receive coverage in an attempt
to spread the growing burden of
health-care costs.
Small-business advocates are
well aware of the situation's dire
nature. A case in point U.S. Rep.
Andy Ireland (R-FL) recently introduced the Small Business Health
Care Reform Act. The congressman
says his legislation would address
the availability problem through improvements in both the quality and
affordability of health-care insurance
for small firms.
In a similar vein, Rep. Dan
Rostenkowski (D-IL) and Sen. Lloyd
Bentsen (D-TX) have introduced
Democratic plans. Rostenkowski
says of his bill, "An employer would
either have to provide private health
insurance meeting certain minimum
standards to all employees and dependents, or pay a payroll tax that
would help finance a public health
insurance plan lhal would, in turn,
covei" (hose employees."
The Rostenkowski, Ireland, and
HeiHseu bills would make heall.hVI-31
�insurance costs 100 percent deductible for the self-employed as compared to the current 25 percent deduction. Meanwhile, Rep. Richard
Gephardt (D-MO) has been working to unify the many Democratic
plans that have been proposed in the
House and Senate.
President Bush has recently advanced his own ideas on the healthcare issue, and NSBU announced a
proposal for health-care reform as
well.
Calling its proposal thefirstcomprehensive one offered from within
the small-business community,
NSBU says the unique and most
important part of its plan is a requirement that all Americans be responsible for obtaining health insurance
for themselves—through either an
employer, a federal health-care pro-
gram or a private insurance company. In this way, each individual
would at least have catastrophic
health-care coverage at a maximum
annual cost of S2.5(K). NSBU says
the program is meant to encourage—rather than eliminate—employer-based coverage through increased accessibility, affordability
and quality.
John Galles. NSBU executive
vice president, maintains that the
mandate requiring health coverage
would give people more control over
and faith in their healtlware choices
by:
•helping to control expenses
through competition since individuals are more Bcely to make economical med teal decisions when
they find themselves facing significant deductibles and paying all or
part of th^ir own premiums;
• ending nearly all cases of
uncompensated medical treatment,
a circumstance which currently increasesratesfor all parties involved;
• allowing all reform implementation
necessary to provide greater access to the heahh-care system; and
• eliminating instances where an individual feels compelled to remain
with an employer simply to maintain coverage.
Beyond the mandate for individual coverage, the NSBU proposal
calls for reform throughout the
health-care system. To increase access to health care, it would institute
a new basic benefits package—ensuring hospital inpatient/outpatient
physician service, surgeiy and costeffective preventive care actions in
addition lo catistrophie coverage.
This basic package could be provided through employers or bought
from the government.
Tlie plan also advocates a tax
deduction lor premiums and a penalty for individuals who do not pay
into the system. As for cost controls,
NSBU suggests:
« full disclosure of care costs in advance (whenever feasible)
• caps on malpractice awards
• a universal elzim form
• local and statr government heallhcare spendin£ j^oals sei bv a national health^re exp.-nHinnv review board
• iruaranteed p!-- ' " al ;i> well .is
fl r
:1
V I -32
�year-to-year limits on rate hikes
• creation of similar local and state
review boards to promote cooperative health-care planning, reducing unnecessary specialization and
duplication of services
NSBU calls for these local and
state review boards to assure quality as well, and suggests that a nationwide information database could
be helpful in spreading news about
the quality of medical care.
coming from small-business people
in professional or technical services,
wholesale, finance, insurance, real
estate, transportation, communication and other nominally represented
groups such as agriculture. (For a
complete overview of the creditcrunch crisis facing small businesses, see the "Trend Watch" column in March 1992.)
The NSBU survey of small businesses also reveals the following:
More than two-fifths of the respondents reported that their cash flow is
worse than it was a year ago. The
small-business owners rated the
Bush Administration as slightly positive for small business and the 102nd
Congress as "somewhat to very
hard" on business.
•
Gail Greco is a writer and communications consultant in the Washington,
DC, area.
CREDIT CRUNCH
The difficulty in getting credit is
a problem plaguing many small-business owners these days.
According to the aforementioned 1991 NSBU survey, 80 percent of respondents said small businesses are having a tough time getting loans. More than a third of the
small-business owners who had tried
to get a bank loan of $50,000 or
more in the past year were unsuccessful, and 22 percent failed in efforts to get smaller loans.
The result is a bleak outlook for
small-business growth. "Almost half
of the small-business owners who
participated in the survey indicated
they have no plans for expansion in
the next year, and most are not
planning to hire more workers," says
Susan Hag^r, NSBU president "Unless banks begin making more loans
to small firms or ease up on interest
rates to consumers using charge
cards, recent Federal Reserve Board
cuts in the interest rates will be of
little benefit to the small-business
sector."
With credit so hard to come by,
the survey reveals the most common source of capital, other than
banks, was family (21 percent), followed by private individuals, leasing
companies, finance companies,
friends and credit unions—all named
by roughly 7 to 9 percent of the
respondents.
Although small-business proprietors are somewhat optimistic about
sales growth this year, they expect
operating cosl increases to keep net
earnings down to 1991 levels or even
lower.
The majority of those surveyed
are in the retail, semces, constmction. or manufacturing industries,
with the balance of the responses
VI - 33
�INC.
Boston, M
A
MONTHLY
767,401
JUN
1992
Ml 3660
LUCE PRESS CUPPINGS
BENCHMARK
Health-Care-Cost
Headaches
Health-insurtmce premium forsmall
companies increased by an average of 23%
during the pastyear, according to National
Small Business United Most increases ranged
~fiom l%to25%, but 17% ofthe surveyed
companies reported increases between 26% and
50%. No wonder health-insurance costs and
availability were cited as the most important
problems the small companies faced
Percentage Increase in Health Premiums
I%t i25% 4 1 %
<
26% lo 50% 17%
" N S B U believes respondents w h o didn't answer do not
provide hcaJdi insurance f o i their employrci.
Source: 1991 Nauonal Smajf Business United Member
Survey, Washington, D . C .
V I - 34
�HAy /I,/J?,
MONEY:
SAVING
IT
Health-insurance challenge
Coverage out of reach for many
By Blair S. Walker
USA TODAY
per worker per
month, Dimock workers pay an average
BOSTON — If Fortune 500 companies are moaning $157 a month.
about escalating health-care costs, then small businesses "Seven months into
are screaming in agony.
thisfiscalyear, we're
At the Dimock Community Health Center here, one of already exceeding last
every three full-time workers cant afford health cover-year's total healthage. The irony of the situation isnt lost on Dimock Chief care costs," Lam says.
Financial Officer Philip Lam.
Small businesses
Massachusetts, like therestof the USA, faces a bleak get hammered when
they buy health-care
health-care tableau: Blue Cross & Blue Shield of Massachusetts is seeking a 40% increase in premium payments insurance. They cant
ByUsaButAP
for small businesses, which means self-employed entre- spread actuarial risk LAM: Health
take up
throughout a large 6% of center's
preneurs would pay as much as $3,030 a year.
Nationwide, smaU businesses are being socked with pool of woricers the
health-care increases of 30% to 300% annually, accord- way big companies can, so underwriting costs are higher.
ing to the National Federation of Independent Business. Largefirmsalso cut costs by implementing self-insurThey're spendingflnyyhftrpifrom 11% to 24% of payroll ance programs, but small enterprises dont have the peron health-insurance premiung^djavpayirients, says sonnel or money to make such plans feasible, says Kelleen Jackson of the NFEB.
me lobbying group National smalTBusiness United.
Small companies — which range from one-to500-per- The upshot? Small employers wind up paying as much
son shops — are passing on higher health-care costs toas 20% more than large companies for the same insuremployees or dropping coverage altogether. Workers are ance coverage. That fact has wide repercussions since
paying more for health-care insurance, company profits 96% of U.S. businesses have 100 workers or fewer and
are shrinking and small businesses are losing potential employ 54% of the privat§or workforce.
employees to large companies with more attractive
In Massachussetts, Kerry Stackpole of the Smaller
benefits.
Business Assocjatimcci New Englano, says some small
Of 225 full-time Dimock workers, 75 have no health firms have begun hiring two part-time worKers to do me
insurance. Those who have fallen through the cracks are job of one full-timer, because part-time employees don't
young, without dependents and have low-paying posi- receive nealth benents.
tions.
If nothing is done to ease the crisis, Stackpole predicts,
"At least we're in a position that when they need hospitals will expenence nnancial failures from treating
health-care services, they can come back to us and we so manv uninsured patients.
can provide them," Lam says. "It would be worse if we Robert Restuccia, executive director of Health Care
were not a health-care provider."
For All, paints an equally pessimistic picture.
Located in Roxbury, a poor, predominantly black sec- "It's hard to envision infiveyears how most small busition of Boston, Dimock footed 75% of employees' health nesses will be able to purchase health insurance in Masbills three years ago. Now, spiraling costs have forced itsachusetts, given the kind of cost increases they're seeto reduce that to 66%. With premiums averaging $470 ing" he says.
VT - 35
�13.9% of Americans are not insured
By Karen Riley
THE WASHINGTON TIMES
The number of Americans without
health insurance rose by 1.3 million from
1989 to 1990, bringing the number of the
"medically indigent" to a record 34.7 million, private consumer groups reported
yesterday.
The figure represents 13.9 percent of
Americans, according to the report by
Public Citizen Health Research Group
and the Center for National Health Program Studies at Harvard.
The District, with one of the five largest uninsured populations in the nation,
saw the percentage of those without coverage fall to 19.2 percent from 21 percent
in 1989.
Nationally, the numbers of uninsured
"are especially disturbing because they
;
-•.-.v-^.T"*"^-"-'-''; '
; 1989
in thousands percentage
in thousands
percentage
. ^ n w Washington Times
largely predate the recession and grossly
understate current problems," said Harvard professor Dayjd Himmelstein, who
compiled the information.
"Figures fortius year will show nearly
40 million [uninsured nationwide]," he
HEALTH
From page CI
for the poor, he said.
The report, based on a Commerce
Department survey of 60,000 households conducted last March, promises to become a campaign staple
since health care is emerging as a
major election-year issue in 1992.
Dr. Sidney Wolfe, director of the
Public Citizen research group, said
the rise in the number of people
without health insurance is "clearly
a middle-class issue." •
Three out of four of the newly
uninsured nationwide are white
males or have family incomes that
exceed $25,000 a year, he said. A
third have incomes above $50,000.
Although the Commerce Department survey does not include information on why people dropped coverage, Dr. Wolfe believes it is largely
because of the rising cost of health
insurance premiums. About half of
the uninsured are unemployed.
"If you are 45 years old and you
want to buy family health msurance
and you work for a small employer
who doesnt offer you health insurance, your annual premium will be
$9,911," Dr. Wolfe said. "Unless you
are making a huge amount of inoney,
because the premium is insensitive
to your income, you are probably not
going to be able to afford i t "
However, most employers pay
most of the insurance premium, according to the annual survey of
employee benefit costs released yesterday by the U.S. Chamber of Commerce. It showed that employers pay
85 percent of an employee's premium.
The Chamber of Commerce report found that because of surging
medical costs, employee benefits
rose faster than pay in 1990 — the
percentage of payroll devoted to
benefits increased from 37.6 percent in 1989 to 38.4 percent last year
"Employers are now paying more
than 54,000 a year per employee for
health-related benefits —40 percent
of their total benefit costs," said
Martin Lefkowitz, the chamber
economist who conducted the survey of 1,000 U.S. firms. "This includes workers' compensation costs,
the employers' share of Medicare
and sick leave," he said.
said. And last year's" figures would have
been higher if Congress had not expanded the coverage of Medicaid, which
is the federal health insurance program
see HEALTH^ page CIO
Senate Democrats say they intend
to push for a "play or pay plan" next
year that would require employers to
provide health insurance to their
employees or pay into a government
fund to provide insurance.
Public Citizen advocates a national health insurance system to be
administered by the states, which
Dr. Wolfe said would save $45 milhon
in overhead costs now spent by the
nation's 1,500 private health insurers.
Meanwhile, National Small Business United, which represents
60,000 small businesses^ called for
an "individual mandate health in7~
surance plan yesterday.
Under that proposal, each consumer would be responsible for obtaining insurance from an employer,
a private insurance company or a
federal health care program that
would cost no more than $2,500 a
year.
—
It also would call for guaranteed
government underwriting coverage
for catastrophic illness to every
American. The plan would cost tax
payers some $30 billion, paid for
with individual income taxes.
VI-36
�•VIA SATELLITE
Money
THURSDAY, DECEMBER 19,1991
Smallfirms:Pay-or-play insurance deadly
By Kevin Anderson
USA TODAY
do so. The smallest companies, which account for most of the nation's uninsured,
say pay-or-play would break them.
The small-business community, which
But beyond where to put the onus for
is at the top of the losers list under one providing insurance, the NSBU plan and
leading health-care reform strategy, un- pay-or-play both call for
veiled its own reform plan Wednesday.
• Rewriting insurance rules to make
The National Small Business United's small-group policies more affordable.
blueprint would make each individual re• Government-sponsored basic coversponsible for insurance.
age available to all who can't afford even
Thafs a reversal of the central idea be- the cheaper private insurance.
hind pay-or-play, the middle-of-the-road re• Similar menus of freemarket and
form strategy being pushed by the Senate government mechanisms to control the
Democratic leaders. Pay-or-play would re- growth of health costs.
quire all employers either to provide private insurance or pay the government to • Counting the uninsured, 1A, 10A, 1B
VI - 37
�2 O A A WORLD-HERALD Thursday, December 1 , 9 1
MH
91 9
Small-Business Group Offers Health Plan
which he estimated at $670 billion a
year.
WORLD-HERALD BUREAU
State and federal governments would
Washington — A national health-care cover the additional costs, which would
plan was proposed Wednesday by Na- be used to extend catastrophic health
tional Small Business United, an organi- insurance to every American, he said.
zation of 60,000 firms headed by George
Galles, describing the plan as "a
Abbott, president of an Omaha consult- hybrid public-private system," recoming firm.
mended that the additional costs be
"We decided to put something on the covered by "a broad-based tax, such as
table for the national debate," Abbott an income tax." .
said after a press conference.
He said the aim of the plan was "to
The organization's health-care plan encourage, not eliminate, employerwould- require all U.S. residents to based health insurance by making It
obtain health insurance, either from more affordable and accessible."
their employer, the federal government
Galles said members of the organizaor from their own resources through tion drafted the plan after reviewing
private insurers.
work by the Pepper Commission and
People paying for their own insur- studying legislation drafted thisyear by
ance would be given tax deductions Senate Majority . Leader George Mitcovering the full amount of their premi- chell of Maine; Sen. Lloyd Bentsen,
um costs.
D-Texas, chairman of the Senate FiJohn Galles, executive director of the nance Committee; and Rep. Dan Rosorganization, said the plan would pro- tenkowski, D-lll., chairman of the
vide government coverage for cata- House Ways and Means Committee.
strophic illness while limiting to $2,500 a "We used pieces from each of these
year an individual's annual expendi- bills," Galles said. "We did not take
tures for medical care covered by anything from legislation introduced by
insurance.
Sen. Bob Kerrey. That Is a federal
"We want to reintroduce the individu- response, and It is unacceptable."
al to the economic decision of paying for Galles said major elements in the
health care," Galles said.
organization's plan would be aimed at:
He said 58 percent of the organiza• Eliminatiiig uncompensated treattion's members provide their employ- ment.
ees with health insurance in which the
• Repealing state laws that require
company pays premiums ranging from insurers to pay for non-basic proce1 percent to 24 percent of total payroll dures such as liver transplants.
2
costs.
Galles said the organization's plan, if
adopted, would add $20 billion to $30
billion to current U.S. health-care costs,
By David C. Beeder
• Increasing deductible amounts.
• Limiting awards for punitive damage In medical malpractice suits.
• Developing a single claim form.
Abbott, who heads Trouble Shooters
Inc., said Canada's government-sponsored system was studied by National
Small Business United in drafting its
own plan.
"We found you have to wait two to
four years for elective surgery under
the Canadian system," he said. "Also,
the Canadians are having trouble finding enough tax revenue to pay for
government health care."
Abbott said his consulting firm, in
which he and his wife are the only
employees, designs and builds materials-handling systems for a widerangeof
businesses..
�u
A TATTERED 'CONSENSUS' ON HEALTH CARE
BY JULIE KOSTERUn AND R V E A DALY
OVM
B
n early November, a coalition of 37
business and labor groups boasting
former Presidents Caner and Ford as
co-chairmen grabbed headlines when it
announced a consensus on a bold new
national health care refonn plan.
The National Leadership Coalition for
Health Care Refonn endorsed a "play-orpay" plan, similar to one proposed by
leading Senate Democrats that would
require employers to provide health
insurance to their employees or pay—
along with employees—into a government fund that would provide insurance.
The plan also induded limits on health
care spending growth and imposition of
price controls for hospitals and doctors.
Observers made much of the fact that
several large corporations had agreed to
government mandates on employers and
that some unions had accepted a payroll
tax. But a doser look at the coalition also
reveals how narrow that consensus really
is. Fully a third of those who were on ilic
coalition's membership list a year ago did
not sign the agreement, and several key
corporate and union members have left
the group altogether.
Moreover, the tally of signers and nonsigners so far follows some predictable
lines. The largest group
WASHIHCfOH
of corporate signers,
roughly a third of the
total, were steel companies—a troubled
industry, with costly collectively bargained
health care plans and aging work forces—
and their union. The steel companies and
the United Steelworkers of America
could both have been expected to endorse
reforms that would impose cost controls
on health care providers and require
other employers to provide or contribute
to the cost of employee health care.
Among those who did not sign the
agreement were those for whom such
reforms would impose direct costs: representatives of some doctors' groups and of
small business—even though the representatives of these interests in the coalition—the American Academy of Pedi-
well as the Communications Workers of
America. (Four independent phone companies, however, signed on.)
AT&T, the Bell companies and their
major union were considered particularly
motivated to find common ground on
health care reform, because health care
benefits have been a major stumbling
block in recent contract negotiations.
Indeed, most of these phone companies joined the coalition at least in part
because contracts negotiated with the
Communications Workers in 1989
required them to jointly investigate broad
national solutions to the problem of rising
health care costs.
And although several companies that
didn't sign the agreement are remaining
in the coalition, several members—including many phone companies—
dropped out.
A BellSouth official said that the company opposed the plan because "it called
for substantially more regulation of
health care at the same time that we are
urging the Congiess and ihe conns to free
our industry trom le^ul.nion."
By contrast. Louise Novmny. heallh
policy analvsi for the roll.OOOmemhci
telephone union said ihe union 'n.ui tie
imuied on the plan Ivx.iusc il jirek-is a
atrics, the American College of Physicians
and National Small Business United are
widely considered mpre progressive than
organized medicine and small business as
a whole.
At least five of the corporations that
didn't sign are major suppliers to the
health care system and could be hurt by
cost controls: Eastman Kodak Co., General Electric Co. and E.I. du Pont de
Nemours & Co., Minnesota Mining &
Manufacturing Co. and W.R. Grace &
Co. (Du Pont and Eastman Kodak quit
the group.)
"You could look at a list of those
names fof coalition members] and predict
ahead of time what the results would be."
saio John Paul GaUes, executive vice president of National Small Business United,
which is preparing to release its own_
health care proposal. 'There is a selP~
interest there displayed in final results."
Less predictably, the list of those refusing to sign also indudes American Telephone & Telegraph Co. (AT&T) and the
seven regional Bell phone companies, as
Canadian-style one introduced in Congress by Rep. Marty Russo, D-III. The
American Federation of State, County
and Munidpal Employees quit the coalition for similar reasons. :
Several of those who left said they felt
frustrated by the coalition's process and
its proposal, which, they said, tried unsuccessfully to be all things to all participants.
"It was clear that we couldn't agree
where it was coming out," an executive
from another telephone company said.
"The coalition tried to respond to every
group, and it didn't make a lot of sense."
Other members who didn'l sign the
agreement said they nevertheless valued
having a place where diverse groups could
hash out their views on health care. Not
all of the corporate signers, they noted,
were from predictable industries. An
apparent anomaly is Minneapolis-based
Dayton-Hudson Corp., the owner of several retail and discount store chains and
part of an industry not usually known for
offering generous heallh care benefits
"The most important thing to us is Uow
very close a l;irgc and diverse group
C.HIIC" to consensus, said John Hall, execuiive vice president ofthe Anicrican College ol Physicians. Coalition nicmhcis are
nnieh closer lliau ihcv woukl have
been."' Ball's group hasn't endorsed the
coalition plan because it is still soliciting
the views of its members.
A Du Pont excaitive, however, said he
thought the coalition risked outliving its
usefulness. "We believe that the original
purpose of the coalition is now complete
and that the debate should move forward
to include other organizations and polilical process, ' John W. Himes, Du Font's
vice president for human resources, said.
Coalition president Henry E. Simmons
said that some more members may yet
sign on and that in any event, the group's
membership continues to grow. Almost a
third of the signers have joined during the
pasi year—many of them steel companies—and more have signed on since the
plan was announced, Simrnpns-said,
thouah he declined to make a list available."
The coalition, some of whose members
paid $10,000 last year to belong, plans to
continue in business to issue a proposal
for long-term health care, recruit more
adherents to its plan and help sell the proposal io politicians and ihe public. "Tins
is JUSI ihe fiisi siep,'' Simmons said.
"'No«. we have to tell people why (the
plan] makes SCUM: and coniimie lo build
(iiideKia.iKline and sunnon ''
•
7
Vl - 39
�Finding
away
in the
health care
thicket
^
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^
^
^
^
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BY J I M FUQUAY
Fon Wonb SUfT<lc«nn
FORT WORTH — Restaurateur Jesse
Sanchez sends meals twice a week to a
nearby medical dinic. Then he sends the
dinic his employees when they get hurt or
sick.
For ihe owner of Tejano restaurant on
Camp Bowie Boulevard in west Fort
Worth, swapping meals for healing is the
best heaith care coverage he can provide
his 16 employees.
At pcrbaps $280 per month per worker
for minimal health insurance, he said, paying for health caie would put his business
. on the critical list
Sanchez is far from alone in not offering
conventional heahh care for employees. The Health Insurance Association of
Araericaestlmates that about two-thirdsof
the nation's uninsuied workers are employed i t businesses with 25 or fewer employers.
Only about one in three companies with
fewer than 25 employees provides health
insurance to workers, says HIAA, a trade
association representing U.S. health insurance companies;
It all helps add up to approximately 35
million uninsured Americans.
AiTordability clearly is a high hurdle.
HIAA says the average health insurance
premium in 1990 cost $3,816—$318 per
month — to cover a family.
NationaKSmall Business _United, a
:Washinpon, D.C, group with 60,000
lmtmbeis,"ialt] its members in an August
survey ranked health care cost and availability their No. I problem, ahead even of
lederal regulation ana taxes. I he group
s£iJ lis ffleillbm reported an average 21
percetil increase in health insurance premiums in 1991.
As the cost of health care rises — to
about $733 billion as measured by the
federal government during its past fiscal
year — and with the arrival of a presidential eleclion year, debate on heallh care has
escalated.
President Bush is expected lo touch on .
the issue tonight in his Stale of ihe Union
address.
"In the last six months . . . sales have
slowed down in heallh insurance. Thai's
the first time I've seen that in 30 years,"
said Jimmy Walker, whose Laymen Nalional Life Insurance Co. of Fori Worth
wriles heallh insurance for small businesses.
T w o m a j o r T a r r a n l C o u n l y health care
providers, Harris Methodist
Heallh
Plan
and Hufuley Heallh Plan, this year initial-
W^mm^m/mm?M
•
Fon Wont S u ^ T ^ k p u i / GutOLYN B A U M O J
Mike Clark says Harris'Small Group Health Plan will cater to small businesses
How small
businesses deal
with increasing
health insurance costs
Increase the
tteducUbte level
Switch i n s u r a n c e
companies to
lower rales
increase the
p r e m i u m p a i d by
the e m p l o y e e
C a n c e l the p l a n
R e s l r i d the
n u m b e r of
employees w h o
have i n s u r a n c e
. •• . - ^ . d . i i .
o "'"id
%
Percent
Results of a 1991 National Small B u s i n e s s s u r v e y
of 1.107 U.S. c o m p a n i e s .
Totals e x c e e d 100 porcent t j e c ^ u s e s o n i e
c o m p a n i e s p u r s u e d several oplions
ed health insurance programs for employers with up lo 25 workers. Both organizations say they are trying to fill a crudal
need, but warn that they won't solve the
problem alone.
"If we write [accept] 20 percent ofthe
people we look at, we're doing pretty
good," said Mike Clark, head of marketing
for Harris Methodist Heallh Plan.
Harris has plenty of experience in health
insurance, covering about 77,000 North
Texans with iis Harris Health Plan HMO,
or health maintenance organization.
Harris' Small Group Health Plan, Clark
said, will be Ihe only HMO in the smallemployer market It is ofTering one plan of
standardized benefits with no deductibles
or ceiling on lifetime benefits, along wilh
fixed co-payments for physician visits and
80 percenl hospitalization coverage up lo
$4,000.
The plan will be compelitive on price,
Clark said, bul keeping premiums afTordable demands light underwriling — and
thai means many companies won'lqualify
(More on HEALTH on Pace 4)
VI - -10
�Heaith
From Page 1
for coverage.
" I f you force me to do it [accept all
applicants], HI write a policy—but
you can't afford it," Clark said.
Other insurers support Clark's
view that taking on poor health risks
is a prescription forfinancialills.
"You can't charge enough for a
person with a pre-existing condition," said Jimmy Walker, who
heads Walker Financial Corp.,
owner of Laymen National Life Insurance Co. of Fort Worth. The
company specializes in health insurance forthe self-employed and businesses with up to 10 workers.
A pre-existing condition describes a medical problem such as a
heart condition, that portends future medical complications.
Unfortunately, that means some
people are considered uninsurable
or that their insurance mil exclude
coverage related to the condition.
Their best hope for landing health
insurance is to join a large company
whose group insurance plan requires that every employee be eligible for coverage.
Bill Robertson, senior vice president of Huguley Memorial Medical
Center, said Huguley's insurance
plan aims to be both affordable and
available to most applicants. Currently, Huguley is covering its own
workers under that plan and soon
will offer it to other employers.
"Our goal is to take thecommunity at large with a community-based
rate, so we don't write people out,"
Robertson said. But even then there
will be underwriting standards.
"There have to be. You can't go
blindly accepting risks," he said.
The goal is to get, say, 100 employers with 20 workers each, so the
risk isspreadovera larger number.
"As the group gets bigger, it's easier to deal with," Robertson said.
Easier, but never easy, insurance
executives say.
"It's not a very good business to
be in when all your customers are
mad at you all the time because of
the rate increases," said Garland
Lasater, president of Transport Life
Insurance Co. in Fort Worth. Transport, once one of the biggest underwriters of small-business health
insurance, stopped writing policies
for the smallest companies.
"We feel that if you ran it perfectly, you could make a small profit
margin," Lasatersaid. "But it didn't
take much of a slip in that business
to move it into a loss."
Transport is developing a policy
for companies with between 50 and
250 workers, which it hopes will be
more predictable and profitable.
Insurers are modifying their policies to make them more affordable,
but that can mean the' employee
must pick up more of the expense.
For example, one way to hold down
premiums is to go with higher
deductibles, like on auto insurance.
"Our most frequent deductible is
$2,500. As recently as four or five
.years ago, it probably was as low as
$1,000," said Stephen Beckman,
president of American Service Life
in Fort Worth.
Employers can trim the cost of
health care by asking workers to
shoulder a bigger share of the load.
On average, companies pay 74 percent of the premium for a policy
covering a worker and dependents,
according to HIAA.
At Radford Manufacturing, a
Fort Worth maker of specialty machines, employees enjoy a relatively
low $250 deductible, but must pay
50percentofthepremium,said Nell
Radford, co-owner of the business
with her husband, Troy.
Some insurers also are taking advantage of so-called bare-bones policies allowed in 23 states as of last
September, according to the Employee Benefits Research Institute
in Washington, D.C. Texas is not
one of the states that allows insurers
to sell small employers a policy that
offers minimal coverage in return
for lower premiums.
Walker said bare-bones plans are
one of the few policies showing
growth at Laymen National.
Far from offering a bare-bones
plan, insurers say Texas mandates
relatively comprehensive health
coverage. For example, as of Jan. I ,
1990, the state required that group
insurance plans cover chemical dependency as completely as they cover any physical illness.
" I bet that if Texas did not have
any mandates, you would see the
cost go down 20 percent," said Clark
of Harris Health Plan.
How about providing more coverage for more people?
" I dont see bringi ng all those people into the system without higher
taxes," Clark said.
Indeed, most proposals for reforming health care call for government revenues, typically starting
with added taxes paid either by employers or health insurers.
House Speaker Thomas Foley
said congressional Democrats like a
"pay or play" system that requires
employers to pay for health insurance for their workers or chip in to a
federal pool that would cover the
uninsured. Republicans have supported tax credits for buying health
insurance.
HIAA proposes a small-business
system that offers universal access
with relatively little variation in
premiums, under which all insurers
would share the costs of high-risk
individuals. That plan would exempt such policies from state-mandated coverage rules and boost tax
incentives for employers.
Insurance executives say they
don't expect any of the proposals to
beadopted duringthis election year.
v
V I -41
�i i l i - IHUHSUAY. JUNE 13. 1991 - USA TODAY
A large
By Kevin Anderson
USA TODAY
The soaring cost of health insur. ance hits no one harder than small
businesses and their employees.
The smaller the firm, the "fewer
healthy people there are to absorb
the risk of even one serious illness.
Even average-priced coverage for
firms without employee-risk problems are beyond the reach of many
smallfirmssimply because the soaring cost of medical care has pushed
the average so high. Fewer than half
of businesses with fewer than 25 em-,
ployees can -afford even average^
priced coverage. Most" are Jow-wage
businesses with thin or; unsteady
profit rnargirre _ gas stations, small
stores, bars and restaurants. About
half the 37 million Americans without health insurance are full-time
employees of such firms or their dependents
The 4awm&ers who ihave been
searching three years for an answer
to the problem of the uninsured have i
rallied around what small-business
owners consider to be ah ironic —
and terrifying — solution; Requiring
all employers to provide health covrage. Mandates, in a word.
"Mandates are like aiming a\
steamroller at the wounded," says/
John B. Hexter, owner of a Cleve-j
land, Ohio, printing firm and an a c j
strong provisions for overall heallh
cost containment, won it cautious
praise as a good first step toward reforming the overall health-care system. But some small business advocates are still wary.
"Many elements will be harmful
care reform bill called for firm mandates and reforms to lower overall
.insurance costs. The Democratic reform bill introduced in the Senate
last week is a "pay or play" plan.
Employers could either "play" by
providing employees a package of
,- basic private coverage — estimated
to cost $1,680 a year per employee,
with the employer paying 80%. Or
they could "pay" by paying a percentage of payroll into a national insurance program called AmeriCare.
AmeriCare would replace Medicaid to provide free coverage for the
. poor.-Above the poverty line, employees whose employers chose lo
• a pay into AmeriCare cotild buy basic
- coverage for a, premium that would
vary with, income. The self-employed would have the same option,
and would get tax breaks on any coverage they buy. Low-wage, low-profit
employers would get subsidies.
But the bill's phase-in provisions
softened its impact so much that crittivist on small-business health care. ics already are openly questioning
'Nobody's denying the problem of the Democrats' seriousness. The first
the uninsured, but putting it on the year affects only those employers
|backs of the businesses that provide with 100 or more employees — more
most of the job growth makes the so- than 95% of whom already provide
lution worse than the problem. You'd coverage. Firms with 25 to 99 em,see unemployment soar."
ployees get four years grace. Only afly because of such objections. ter five years would all firms be reSenate Democrats have tempered quired to pay or play. New firms
their mandates proposaL In the last would get a two-year grace period.
Congress, the major Senate healthThose concessions, and the bill's
to small business," says John Galles,
executive vice president of National
gmaJl Business United, a trade group
forjhejsmallest empibvers. "Neither
an employer-based mandate nor a
huge "federal entitlement program
will solve the problem." He notes
that the optional AmeriCare payroll
contribution, tentatively set at 8%,
would cause droves of employers
now offering private coverage - at
an average cost of 14% of payroU —
to drop it and flood into the public
program.
VI -42
�ILV 16. 1990
(SfKtoasjjingtonpost
Health Plans Go Back to Basics
HEALTH INSURANCE: SMALL BUSINESSES
SEEK TO CONTAIN RISING COSTS
New Ih. Law Gives Firms More Coverage Options
By Jennifer Caspar
WMlii^iiinHmSmlMn
state to enact such legislation, but many
states are coosidenng ahiiilar proposals.
Marytand ts coosidefBig seven! measures
induding ooe Bee Virginia's aBowtog insur-
hen Gerald Roscoe started his general contracting firm ia Lexington.
Va., two years ago, ooe of the small companies. The District, which manexpenses he decided not to take oa right dates f e w benefits anyway, is cooskfenog a
away was health insurance. He said he knew hifl that ^voutd joafldasbeflmuommstsmaooe
that by oSering it to prospective empJopees coyeiagcforall employees.
^ "x
he wooW be able to attract better candidates,
but the high cost cf group and individual /—Most nape eatpeoses Ut a small busbess
ice jhatforoedIran to put the expense harder than A bige ooe* but the high cost of
off
the oooipaiQr had more moocf in the msncance is twice as deadly becaose rates rise
1
*'"^**/ do sot have
. He inteoded to purchase < plan for Quicfafy and SDoall 1 Bm*
later this year and set op a group .plan bargaining dout with mm amy providersJohn GaDes, executive. vice president of
for bis employees next year.
Natiooal Small Business United, said that
But earlier this month, Roscoe's insurance premhuns paid by small hti'jue^^es average
ajl^^ifonned him that Blue Cross/Blue 40 percent higher than those paid by large
! ^ ^ B f Virginia would be selling a bare- firms.
i •—^
bl^Ppan covering only bask preventative
health measures and with an annual payment "* David Sverduko, who runs an organic buffabmh of $50,000 per employee. The prenuums lo farm in Craig County, said he intends to buy
cost abort a third less than those on other Blue Cross/Blue Shield's new plan to cut his
costs. Before the new plan was available, he
insurance plans he had reviewed.
Blue Cross/Hue Shield is able to otfer this couldn't End a company that would write a
plan because of a new law that went into group plan for himself and his four employees.
effect this month in Virginia. The law allows He bought individual plans for each worker,
m
ice companies to martet cheaper group but the plans continued to rise " price. Last
plans, that do not cover the list of mandated year, one employee's policy wentfrom$239
to $551 a month. Although Sverduko said he
benefits in the state, to corporations with
fewer than 50 employees. Virginia has 20 never considered cutting off an employee's
mandated benefits, including visits to an op- insurance, he was starting to think about
t<
ist and manunograni screening. Mary- drastic action.
"They can't keep going up that much or
has the highest number ol mandated
benefits, requiring 35 specific benefits in ev- what are you going to do?" he said. "What can
ery plan. By requiring every policy to cover you do if you've already told somebody you're
going to pay (or it? If somebody new came to
such services, it increases the demand lor
me_then maybe we'd do sonvthinf; diffrr>nt *
certain services and drives up the cost of
ISBU's Galles said the Virginia law was "a
insurance.
"You like to ofler people and yourself bene- huge step in the right direction." Small-business lobbying groups traditionally oppose any
fits to attract good, qualified, responsible people," Roscoe said. The only way to maintain a mandates that increase the amount of insurreputation is to hire good people . . . Now I ance that companies have to provide.
Galles said the ideal state system would
can attract people and say we pay heaith
insurance and do it without going bankrupt on require companies to buy insurance to cover
catastrophic illnesses, with individual employthe idea."
A Virgmia legislative subcommittee on ees paying for basic for basic preventative
healthcare', which worked to pass this law, care and whatever other medical treatment
estimated that 35 percent of the people em- they choose to buy.
ployed atfirmswith 51 employees or fewer do
"If you expect insurance to provide for
not have insurance Virginia is the second every first dollar expense, people are going to
W
H W MAKY INSURANCE CARRIERS
O
NSBU MEMBERS HAVE KAD IN THE
LAST 10 YEARS
H W PREMIUMS ROSE
O
FOR KAIWKSL SMALL BUSINESS UNITED
MEMBERS LAST TEAR
UP 0-15%
ONE CARRIER
24% OF MEMBERS
-
I
MORE THAN 8 CARRIERS
0%
REASON FOR CHANGE
BETTER SERVICE
OP MORE THAN 60%
H 6
%
UJWER RATES
NOIfc Numtea m»r M mtt upto100X beaux
eeoont wncy^ did m* smwer ewy question.
Ti!w»^>-*v?:csi'.?e •- 2
•7 %
BLUE CROSS/BLUE SHIELD'S PROPOSES PLAN UNDER VIRGINIA'S NEW LAW
TYPE OF COVERAGE DESCRIPTION
PLAN PAYMENT
Preventive care
Well baby care (to age 5)
Physician visits (two annual vesits/person)
Dental exam and cleaning
(one annual visit/child)
100% Co-insurance after S10
per visit co-pay
Maternity
Prenatal and postnatal care
Risk management
SZSO/Admissian deductible
80% co-msutance
Accidents
for unexpected treatment
60% co-insurance (inpatient)
S150 maximum payment
(outpatient)
Marx^Sbcnte^^mita^
Benefit limits
Calendar vear limit
:
$50,000
^SOURCES: Nitoul SmjU Bupneg Uniied mttnbcr ajngy^Biuc CiPB/gug Shield < Va.
y
go out and create that expense simply because
it's available to them." he said. "We've grown
to expect that whatever we want out of heallh
care, the insurance companies are going to
pay for."
With skyrocketing premiums, many small
companies are choosing not to provide health
insurance to their employees, leaving them
unatle to compete for qualified employees.
"Our work force is not growing like it once i
was," Galles said. "Competition for workers is \
going to be increasingiy tight in the next len 1
years, and small businesses will have lo offer
compelitive benefits." or lose out to larger
firms.
.
VI -43
�JOHN PAUL GALLES
IN PERSON
MAKING A SOFT SELL PAY BIG DIVIDENDS
BY JULIE KOSTERLITZ
mall business, as most Members of
Congress know, is more than just a
cherished American institution; it's
also a powerful political force. Broadsides
from such organizations as the National
Federation of Independent Business and
the U.S. Chamber of Commerce can send
Members diving for cover.
So, many legislators and policy makers
have taken spedal notice of the softer-sell
approach often employed by National
Small Business United (NSBU), a fouryear-old small-business lobby, and by
John Paul Galles, the group's executive
director. In the midst of several major
controversies, Galles has staked out a role
for NSBU, and for himself, by being willing to negotiate when other groups will
not "It doesn't do a lot of good to only
say no," he said. "Sooner or later you've
got to become part of the solution."
Last year, for example, when business
groups rallied their troops to repeal the
controversial "section 89" tax provision
that small business said was onerous,
Galles was one of a few small-business
leaders invited by House Ways and Means
Committee chairman Dan Rostenkowski,
D-Ill., and other congressional leaders to
try to negotiate a compromise.
When the U.S. Bipartisan Commission
on Comprehensive Health Care—known
as the Pepper Commission—was at work
on a plan to get small businesses to insure
more of their employees, commission
aides spent a lot of time talking to Galles.
"We hold Galles and his organization in
very high esteem," said Jeff Trinca, a legislative aide to Sen. David Pryor, D-Ark.,
who was active in negotiations over both
section 89 and the Pepper Commission
plan. Although NSBU supported repeal
of section 89, Tnnca said, "the way he
handled things was productive. He was
always in here, talking, always willing to
roll up his sleeves and work."
Although the compromise efforts on
section 89 were swept away by a grassroots revolt by small businesses—Galles's
stock remains high with Pryor. "When
John Galles calls and needs to talk about
something, his call is returned and lie is
listened to," Trinca said.
Galles and his staff were "willing to sii
down with us and and help us work our
way through the issues. Uul he also said.
'Let inc explain our concerns,' " said
S
M o n i c a \~ M c F a d d e n , an aide l o the Pop-
per Commission. Indeed, she said, Galles an economic recession. Small-business
helped draw commission attention to the owners regarded many of the governor's
problems that many small businesses face proposals as pro-labor and potentially
in trying to insure employees, setting the harmful. Instead of merely opposing the
stage for congressional discussions about measures, Galles said he approached state
officials with counterproposals that
reforming the insurance market
Still, his group strongly opposes pro- would aid small-business start-ups and
posed government mandates on employ- expansions. "We were amazed at how reers to provide health insurance and to ceptive and responsive they were," he
grant employees unpaid leave to care for said, adding that many of his suggestions
family members. Also, NSBU objects to were adopted.
parts of a bill that would grant civil rights
At NSBU, the 43-year-old Galles, who
protections to disabled people in the works with a Washington staff of 13 peoworkplace, saying these are too costly for ple, has had to help mesh the two composmall businesses.
nent groups and help rebuild their fiWhen push comes to shove on such nances. One of the groups, the National
matters, Galles's "style, that openness, Small Business Association, was a leader
in the small-business movement from its
has yet to be tested," McFadden said.
Formed in 1986 from a merger of two formation in 1937 until the late 1970s,
other groups, the association has a mem- when its fonunes began to decline followbership of individual businesses and re- ing the accidental death of its president.
gional and local business organizations
Since his arrival at NSBU, Galles says,
that, combined, represent roughly 50,000 membership has grown by 25 per cent, as
small businesses.
has the organization's budget. The
Galles grew up in Michigan City, Ind. group's public profile has also been raised.
By teaming up with the National AssociaHe earned an undergraduate degree in
business administration from Indiana tion of Women Business Owners—its
University—he has never run a busi- membership and NSBU's overlap—
ness—and was recruited for the NSBU Galles's group got President Bush io adpost from Michigan, where he was head dress its annual conference in early May.
ofthe state's Small Business Association.
That success, he said, proves the value
At the Michigan group, Galles re- of reaching oul lo a variety of groups and
called, he had learned (lie promise of tak- individuals—outside as well as within the
ing a conciliatory approach to govcrn- increasingly diverse small- business comnieni when, in the earlv 1980s. Donio- nitinily. Small businesses musi built! coeraiicGov. James J. !31aiichard proposed alitions, he said, "ralher than just standa hosi of moasme> lo pull the stale oul of ing oul llieie on om <mn "
•
N.A
IV'AI. Kii.:i<\'.\l.
1617
VI -44
�VE. Statistical Data
�Small Business and the
Economy
Small business continues to be a vital and growing economic force in America.
Approximately 20 million businesses — nine out of ten — are considered small.
According to the U.S. Department of Labor, the number of new and "successor" firms
with employees increased by 876,000 in 1991.
Small businesses are the driving force of the economic recovery:
* Each year, they create half of the new jobs in the U.S.
* In 1992, they created 40 percent of the nation's new high technology jobs.
* They employ almost 60 percent of the private workforce in the nation* They provide two of every three new workers with their first jobs.
In addition, small businesses contribute 54 percent of all sales in the country and
are responsible for 50 percent of private sector products.
Small firms contribute to the economy by applying new technologies, introducing
new products, serving new markets, substituting better working conditions and
creating new jobs. Small businesses and self-employment also function as a "safety
net" for workers laid off by larger firms, helping stabilize the economy during
downturns.
According to the most recent statistics available from the U.S. Small Business
Administration, total civilian employment contracted by 800,000 during 1991. A larger
percentage of these job losses came from large business dominated sectors than from
small business dominated sectors. Many of the losses were in the manufacturing and
construction sectors. The small firm sector also lost jobs—particularly in residential
construction—but posted gains in business services and recreation and amusement
services. In fact, the latest data on job growth by firm size for the 1988-90 period
indicate that small firms with fewer than 20 employees contributed most of the
employment opportunities: 4.1 million new jobs.
Source: The State of Small Business: A Report of the President, 1992 Edition
VII - I
�Businesses Without Health Insurance
Fewer than 10 employees
Wl ll I ^ IIIIIIIIII.
liimjlJii^ipiVf
—\.
f
I
f e
^"l
—
• ii ^ ^
t
f
10-20 employees
25-99 employees
100-499 employees
500-999 employees
1,000 or more employees
Source: According to the Employee Benefit Research Institute
(EBRI), the larger the business, the more likely it is to cover its workers.
VII - 2
�NATIONAL SMALL BUSIVBS Uvmo
Arthur
Andersen
Enterprise
Group
Survey of Small and Mid-Sized
Businesses
Trends for 1993
Conducted by:
Arthur Andersen's Enterprise Group
National Small Business United
I Line 1993
Vll -3
�Foreword
As part of an ongoing effort to address the needs and represent the concerns of small
and mid-sized business owners, Arthur Andersen's Enterprise Group and National
Small Business United (NSBU) announced the results of their third nationwide research
project in June, 1993.
This survey sought to determine the economic outlook of small and mid-sized business
owners, challenges to their survival and growth, and their recommendations for the new
administration and Congress. The challenges are many, including a persistent recession,
spiraling health care costs, high taxes, high labor costs, regulatory burdens, and limited
sources of capital.
And yet, six out of ten small businesses expect revenues and profits to.increase over the
next twelve months; one in four expect to increase the number of people they employ;
and four in ten have improved quality, productivity or both. Furthermore, these expectations are consistent with past performance. During the past five years, small and midsized businesses created all of the nation's net new jobs, nearly six million, while tough
economic times forced larger firms to reduce their workforce by over two million employees.
A key objective of this study is to identify the needs and concerns of businesses in
various stages of growth, including small start-up businesses, companies in the process
of expansion and businesses which have stabilized and matured. In some key areas
such as financing, health care, and economic outlook, we found many important distinctions relating to the size of the business. Additional contrasts arose based on the age of
the business, its regional location, and the pace of growth it experienced in the past
twelve months.
It is our intent to present the findings of this survev and future surveys to the business
community, key policy-makers, the media, and the general public to increase the awareness of the economic importance of small and mid-sized businesses and to affect federal
policy-making that will support U.S. economic growth.
Nancy C. Pechloff
Managing Director
Arthur Andersen's Enterprise Group
1010 Market Street
St. Louis, MO 63101
(314) 425-9257
John C. Rennie
President
National Small Business United
1155 15th Street, Suite 710
Washington, DC 20005
(202) 293-8830
VII -
�Methodology
Arthur Andersen's Enterprise Group and National Small Business United contracted with L.C.
Williams & Associates, Inc. of Chicago, Illinois, to conduct a national research study of small
and mid-sized companies.
A mail survey was used to gather data for this project. Surv eys were mailed to 5,000 small and
mid-sized businesses. To leam more about the different segments within this population, the
mailing was divided so that equal numbers of surveys went to businesses with 1-19, 20-99, and
100-499 employees.
A total of 687 completed surveys were returned to L.C. Williams & Associates in April, 1993.
Percentages reported in this years study have been computed from a "valid case base" which
excludes minimal levels of non-response on an item-by-item basis. The 1992 percentages that
appear in this year's study have been recomputed to exclude non-response as well.
To ensure that the results represented a proper distribution by company size, the results were
weighted by the most current U.S. Bureau of the Census business establishment data.
For more information or additional copies of this report, contact Laurence Hayward of Arthur
Andersen at (312) 507-1295 or Marcia Bradford of NSBU at (202) 293-8830.
June 1993 Survey of Small and Mid-Sized Businesses
Page IM
Vll -5
�Labor Issues/Health Care
The Health Care Challenge
Health/medical insurance benefits are a growing concern for
small and mid-sized business
owners. 40% cited health/
medical insurance benefits as one
of their most significant challenges, compared to 22% a year
earher. "Health/medical insurance benefits" was ranked just
behind the "recessionary environment" as one of the most significant challenges to the future
growth and survival of small and
mid-sized businesses.
The Rising Cost of Health Care
Health care insurance costs have
risen dramatically over the past
year. 85% cite increased costs
and the average increase was
22%.
Percentage of respondents reporting health care
insurance benefits as one of the most significant
challenges to the future growth and survival of small
business
Jun-92
Jim-93
Percentage of respondents reporting the following
increases in their health care insurance costs over the
past year
Average Increase = 22%
y*E71
lune 1993 Su rvey
f Smnll and Mid-Sized Business^
aue
Vll - 6
�Benefits Offered by Small and
Mid-Sized Businesses
Health/medical insurance-is one
of the most commonly offered
employee benefits, exceeded only
by paid vacation.
Companies that reported the
greatest increases in profits,
revenues, and employees over
the last 12 months were significantly more likely to offer bonuses and flex-hours, but not
necessarily the other benefits.
For example, 57% of the companies that had reported an increase
in profits of 10% or more, offered
bonuses, compared to 43%
overall. 46% offered flex-hours,
compared to 34% overall.
Percentage of respondents offering the following
to their full-time employees
Paid vacation
75%
Health/medical insurance
Paid sick leave
Bonus
Flex-hours
Dental insurance
Retirement plan
Employee leave
Unpaid parental leave
Profit-sharing plan
Tuition reimbursement
Paid parental leave
Other
Stock ownership plan
4%
Child care reimbursement | 2%
Don't offer these benefits
80%
Benefits by Size and by Region
Overall, larger firms were more
likely to offer the benefits listed
in the chart on the right. One
exception was they were less
likely to offer flex-hours.
54% of the firms with 0-19 employees offered hea Ith /med ical
insurance, compared with 99% of
those with 100-499 emplovees.
Companies in the Northeast were
more likely to offer health/
medical insurance but less likelv
to offer paid sick leave. Companies in the West were more likely
to offer flex-hours.
. Number of Employees
Region
0-19 20-99 100-499
Paid vacation
Health/medical insurance
Paid sick leave
Bonus
Hex-hours
Dental insurance
Retirement plan
Employee leave
Unpaid parental leave
Profit-sharing plan
Tuition reimbursement
NE NC S
71%
54%
40%
39%
36%
15%
12%
14%
11%
10%
9%
71%
71%
37%
32%
29%
23%
21%
13%
20%
18%
15%
94%
99%
94% 99%
52%
77%
57%
55%
25%
26%
39% 63%
54%
68%
25% 44%
34% 53%
36% • 49%
24%
55%
W
76% 76% 73%
65% 54% 61%
46% 46% 46%
50% 46% 39%
33% 32% 40%
21% 20% 24%
28% 16% 18%
21% 18% 20%
17% 15% 20%
17% 14% 15%
18% 13% 13%
lime 1993 Survev of Small and Mid-Sized Businesses
VI] - 7
�Health Care Insurance Premiums Borne by Employers
On average, small and mid-size
businesses cover 58% of their
employees' health care insurance
premiums. More than half pay
76-100% of their employees'
health care insurance premiums.
Percentage of respondents indicating they cover the
following portions of their employees' health insurance
premiums
60%
Average coverage = 58%
507o
in
40%
30%
20%
10%
0%
None
Premiums Borne by Size
Larger companies tend to cover
more of their employees' health
care insurance premiums.
;
1-25%
26-50%
51-75%
76-100%
By number of employees
0-19
20-99
100-499
53%
72%
77%
Percent of healthicare...
insurctnce premiums borne
.by employer- average
Premiums Borne by Region
Companies in the Northeast tend
to cover more of their employees'
health care insurance premiums.
By region
Northeast
Percent of health care
insurance premiums borne
by employer - average
North
Central
South
74%
59%
52%
Wesi
51%
*
June ']99?> Survev of Small and Mid-Sized Businesses
I'a-e 17
VI I - c
S
�Vm. Notes
�
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
A name given to the resource
Health Care Reform
Identifier
An unambiguous reference to the resource within a given context
2006-0810-F
Description
An account of the resource
<p>This collection consists of records related to Hillary Rodham Clinton's Health Care Reform Files, 1993-1996. First Lady Hillary Rodham Clinton served as the Chair of the President's Task Force on National Health Care Reform. The files contain reports, memoranda, correspondence, schedules, and news clippings. These materials discuss topics such as the proposed health care plan, the need for health care reform, benefits packages, Medicare, Medicaid, events in support of the Administration's plan, and other health care reform proposals. Furthermore, this material includes draft reports from the White House Health Care Interdepartmental Working Group, formed to advise the Health Care Task Force on the reform plan.</p>
<p>This collection is divided into two seperate segments. Click here for records from:<br /><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0810-F+Segment+1"><strong>Segment One</strong></a> <br /><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0810-F+Segment+2"><strong>Segment Two</strong></a></p>
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
Clinton Presidential Records
Publisher
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William J. Clinton Presidential Library & Museum
Text
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Original Format
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Paper
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
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National Small Business United Presents Health Care Reform: The Small Business Perspective, July 1993 (Binder)
Creator
An entity primarily responsible for making the resource
First Lady's Office
Pam Cicetti
Identifier
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2006-0810-F Segment 1
Is Part Of
A related resource in which the described resource is physically or logically included.
Box 7
<a href="http://clinton.presidentiallibraries.us/items/show/36144" target="_blank">Collection Finding Aid</a>
<a href="https://catalog.archives.gov/id/2124771" target="_blank">National Archives Catalog Description</a>
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
Clinton Presidential Records: White House Staff and Office Files
Publisher
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William J. Clinton Presidential Library & Museum
Format
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Adobe Acrobat Document
Medium
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Preservation-Reproduction-Reference
Date Created
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5/5/2015
Source
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42-t-2124771-20060810F-Seg1-007-002-2015
2124771