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For some small businesses, health-care reform solves one big problem -- high cost of premiums

This article first appeared in the St. Louis Beacon, April 11, 2010 - When Anthem Blue Cross of California recently proposed double-digit hike in some insurance premiums, the news jolted Arlene Zarembka, a lawyer in Clayton. The owner of a solo law practice, Zarembka has watched helplessly as the cost of health insurance has risen over the years for herself and her office employee.

Zarembka was concerned because she usually hears about her own premiums this time of year. But this year, she and other small business owners are getting a little good news about health-care costs for their employees. The federal health-reform law is expected to make insurance more affordable for some small businesses.

Under the Patient Protection and Affordable Care Act, some small businesses are now eligible for tax credits of up to 35 percent of what they pay in premiums if they employ fewer than 25 workers at salaries of less than $50,000. The law applies to employers who pay at least 50 percent of the premium, and it allows tax-exempt small businesses to get credits of up to 25 percent of the employer's contribution. The tax credits will be even more generous after 2014 when most provisions of the health reform take effect.

Right now, no one knows how many small businesses will benefit from this year's tax break. An estimated 250,000 small businesses in Missouri employ fewer than 25 workers each. But it's unclear how many workers earn less than $50,000 a year and how many companies pay at least half of premium -- assuming the businesses offer health benefits.

For small business owners offering -- or wanting to offer -- health benefits, the tax break doesn't come a day too soon. Zarembka is one of them. She says that health-care costs of more than $12,000 a year for herself and an assistant are her law firm's second largest business expense, behind salaries.

"Absolutely, this will make a difference," she says. "I already have a high-deductible plan for myself and for my employee. But the premiums just keep jumping."

While she's grateful for the tax credit, she says she still pays more for insurance than many of her acquaintances, including some at area universities. The difference, she says, is that a university has the purchasing power to negotiate rates for employees and help workers cover premiums.

"Small businesses don't get the benefit of that negotiating power that larger employers have," she says, adding that circumstances will change in 2014. That's the year businesses can enroll workers in insurance exchanges that will include large pools of workers and, in theory, will reduce the cost of premiums.

"Small businesses are the engine of growth in this country," Zarembka says. "We're being slaughtered by health insurance premiums. I pay more than $1,000 a month for myself and my employee. This doesn't cover children, just two adult individuals. That's a lot per month," and Zarembka notes that neither she nor her assistant has a chronic or serious illness.  

Eric Friedman of Friedman Realtors Group of St. Louis in the Central West End also believes small businesses are treated unfairly. His company insures two office workers.

"For the last three years, our premiums have gone up 20-25 percent a year," he says. "We provide health insurance because we think that's very important for getting good talent and to be competitive. The problem is that, nationally, small business pays probably 18 percent to 20 percent more for health insurance than large companies."

The difference in pricing "makes absolutely no sense in terms of economic policy. It ties the hands of the job-generating engine of our country."

To try to hold the line, Friedman says he hasn't reduced the amount the company contributes for health care. Using the example of his personal assistant, he says he gives her the choice of deciding the level of care and deductions. She can then use use any resulting savings to cover out-of-pocket expenses for health care.

"We're not going to reduce our cost, but we want to give her some options and, above all, we want her to stay healthy," Friedman says.

He says he welcomes the tax break that could reduce what his company pays to cover health care for employees.

"But the most important issue is that the cost of health care makes us noncompetitive, not just for small businesses but large businesses as well," he adds. "If our country and our state are going to be competitive, we have to deal with this health-care issue. Every other industrialized country in the world has a better health-care system. There's something drastically wrong with this picture."

Skeptical of health reform

Jim Henderson, president of Dynamic Sales of St. Louis, is among those small business owners who opposed the health legislation -- and still does. He has seven workers, and the company covers 70 percent of their health costs.

Henderson says he hasn't read enough of the fine print to know whether his company would qualify for the 35 percent tax break. But even if it does, he says, the law does too little to address the real reasons for the triple-digit rise in his health insurance premiums in a decade.

"Instead of a tax break, we need to focus more on bringing down the cost of premiums as a way of addressing the health insurance," Henderson says.

"Health insurance now costs the company $45,000 a year. In my book, that's pretty steep. While what (Congress) did may be well-intentioned, it's not the right solution. I feel this will only lead to higher payroll taxes, and the fees that insurance companies will be charged under the legislation will be passed on to us."

The one thing that would work, Henderson insists, is an injection of more competition in the private insurance industry. Instead, he argues, Congress has moved the nation "closer to government-run" insurance system.

"A lot of small businesses that I talk to share the same concerns that I have," he says. "They feel that the law does nothing to address escalating premiums in the private insurance market. They need to give us other options by allowing more competition. You do that by looking at the Commerce Clause of the Constitution and allowing companies to sell insurance across state lines.

"I have four companies bidding on my insurance. Why not let 200 companies take part in the bidding? That would add to the competition and lower the cost of my premiums."

A provision to allow companies to sell insurance across state lines was excluded from the final bill. The idea had been strongly endorsed by Republicans, but many Democrats opposed it. President Barack Obama had argued that selling insurance across state lines would lead to a "race to the bottom in benefits" among insurers. The Democratic leadership wanted insurers to be required to offer minimum benefits as a condition for being allowed to sell their policies across state lines.

Although not all small businesses embrace the new law, many of them have by joining the Small Business Majority, a national organization that lobbied Congress to pass the health legislation.

John Arensmeyer, the group's CEO, says the new federal law addresses the top concerns of small business owners: affordability and accessibility of health insurance.

Over time, he notes, small businesses will be able to join state pools or exchanges that give small businesses the leverage to negotiate coverage and lower costs.

The legislation, Arensmeyer says, offers the self-employed "peace of mind, and extra money to put back into the economy." In the long run, he says the federal legislation "will prevent insurers from hitting (small businesses) with double and triple-digit rate hikes every year."

For now, he says the immediate relief through the tax credit will help make insurance affordable for many more business owners and their employees.

Funding for health reporting is provided in part by the Missouri Foundation for Health, a philanthropic organization whose vision is to improve the health of the people in the communities it serves.

Robert Joiner has carved a niche in providing informed reporting about a range of medical issues. He won a Dennis A. Hunt Journalism Award for the Beacon’s "Worlds Apart" series on health-care disparities. His journalism experience includes working at the St. Louis American and the St. Louis Post-Dispatch, where he was a beat reporter, wire editor, editorial writer, columnist, and member of the Washington bureau.