Dangling a carrot to small businesses to offer health care didn’t work in Maryland. So the prospect of Congress forcing small employers to fund health care through a payroll tax sounds even less promising a route to covering the majority of America’s work force.
To understand why, it’s worth looking at Maryland’s program. Passed in the 2007 special session, the Working Families and Small Business Health Coverage Act anticipated insuring 15,000 new small business employees each year at a cost of about $30 million annually.
Enrollment started last September of 2008. As of March, 150 employers had enrolled with 703 people covered.
Why didn’t this government solution work?: Because businesses couldn’t and can’t afford it. The bill extends health care subsidies to businesses with two to nine employees. Salaries must be an average of $50,000 or less. The maximum subsidy is $2,000 per employee or $4,000 per family.
A Department of Legislative Services fiscal note for a 2009 health care bill said the average premium in 2007 for the most common plan purchased among small businesses was $4,560 for employee-only coverage and $12,204 for family coverage — an increase of 17 percent and 19 percent respectively over 2006 premiums.
So even with the maximum subsidy, it means that small businesses and their employees would have to share the extra $8,204 or more for family coverage each year per employee and $2,560 for singles. Given that the statistics are two years behind, the cost is even higher.
Aside from the price, it also means owners of these micro businesses would have to spend days choosing a health care provider and complying with state regulations – at the expense of building their business.
Unlike government, small business owners can’t just hire someone to manage regulation unless their bottom line permits it. And last, given the state budget, businesses have no assurance the subsidy will last. If cut, it would mean shouldering the full burden of health care costs instead of a portion, regardless of their ability to pay.
That’s the problem with the federal bill recently approved by the House Energy and Commerce Committee. It will force businesses who do not currently offer health insurance to their employees to pay a tax starting at 2 percent of the wages of the employee and rising to 8 percent as the payroll increases even if they can’t afford to pay it. The original bill exempted businesses with a payroll less than $250,000 from the tax. The $1 trillion bill that passed the committee raised the minimum payroll triggering the legislation to $500,000.
In Maryland, where the per capita annual personal income is $48,091, the tax means a worker with that salary will take home $3,847 less each year. Writers of the bill included a provision prohibiting employers from docking employees’ pay to accommodate the law. But they did not say how businesses were supposed to come up with the extra money for their employees.
Again, businesses, unlike government, can neither hire more people, nor raise salaries by fiat. So the likely outcome of the federal legislation is that small businesses will choose to hire fewer people, pay them less, rely more frequently on contractors to keep their payrolls under the threshold – or let people go. None of these options is one Congress anticipates.
The bottom line is that the state and country needs reform that makes it more affordable for businesses to purchase health care, not laws to subsidize programs employers can never afford without government largesse or ones that force them to pay for federal coverage or pay fines and go to jail.
In Maryland that translates to cutting the number of state mandates included in every health plan so that more businesses can provide core coverage for employees. In vitro fertilization and acupuncture treatments are just two of many mandates that can be dropped without injuring public health.
The bottom line is that there are many low-cost alternatives to expanding health care coverage that do not require forced spending nor trampling on the life, liberty and pursuit of happiness of millions. Members of Congress and Maryland legislators should try those options first.
Examiner columnist Marta Mossburg is a senior fellow with the Maryland Public Policy Institute and lives in Baltimore
