A Small Biz Health-Care Headache

With the midterm elections approaching, states are clashing on the best way to address businesses' rising health insurance costs

by Jeffrey Gangemi

Eileen Wheeler Sheehan, owner of Able Associates, a staffing company based in Fall River, Mass., is concerned about her state's new health-care bill that was passed in April. Sheehan employs five full-time workers, and works with about 100 others on a part-time or temporary basis. She says state governments shouldn't have any say in whether she provides health care to her employees, many of whom earn just above minimum wage.

Under the Massachusetts legislation, all uninsured adults in the state will be required to purchase some kind of insurance policy by July 1, 2007, or face a fine. Massachusetts employers of 11 or more will be required to provide a pretax health-care option, and although the plan is certain to incur some costs for small businesses, it reallocates state funds to help individuals and small businesses find insurance they can afford and subsidizes insurance for lower-income workers.

Those employers that don't have 25% of their eligible employees in an employer-sponsored health plan may be subject to assessments of up to $295 per employee per year. "I think it builds on the employer system but doesn't put a gun to the employer's head," says Michael Widmer, president of the Massachusetts Taxpayers Foundation, a nonpartisan policy organization that helped develop the plan.

Top Priority

Conscious of the small business vote in the Nov. 7 midterm elections, state legislators are fighting over the best way to address the rising cost of health insurance for business owners. While a federally funded universal system is not in the cards, employer-mandated insurance plans, where employers will be required to bear at least a portion of their employees' health-care bills, are being considered in at least 17 states. Many small business owners, who say such mandates would seriously impair their ability to compete with other businesses, are against the legislation and want their state governments to protect them against employer-mandated systems.

A 2005 poll by Small Business California, a nonpartisan advocacy group, showed that 64% of small business owners in California polled say they think the availability and rising cost of health care should be the top priority of state lawmakers. "No small business wants an employer mandate—absolute zero. What they feel is that the state's going to let the employer deal with it and prices will rise," says Scott Hauge, the president and founder of the organization.

Large Businesses Today…

In most states, proposed employer-mandated insurance schemes would only affect larger companies, at least in the short term. In Maryland, for instance, the U.S. 4th Circuit Court of Appeals on Nov. 30, 2006, will consider the constitutionality of Maryland's Fair Share Health Care Act, also called the "Wal-Mart Bill" because it would only apply to Wal-Mart (WMT). The act would require large employers to increase spending for employee health care up to 8%, and is the first state law enacted for the purpose of penalizing employers who fail to contribute a state-mandated minimum percentage of their payroll costs toward funding of employee health insurance.

On July 19, 2006, Judge J. Frederick Motz of the U.S. District Court for the District of Maryland decided the Wal-Mart bill violated the Employee Retirement Income Security Act (ERISA), which is aimed at preventing businesses from being subjected to a patchwork of different state laws regarding health care and retirement. "Even though it's a Maryland law that only targets large employers, we fear that small businesses will some day face similar mandates," says Beth Gaudio, senior executive counsel for the National Federation of Independent Businesses (NFIB) legal foundation, which is against the bill.

Small Businesses Tomorrow?

While the Wal-Mart Bill would only affect large employers, small businesses worry that they may soon be affected.