Small businesses wary of health care legislation

WASHINGTON -- Like many small business owners, Pedro Alfonso struggles to maintain the health insurance he provides to his 85 employees — an effort he says is worth it partly because "it's the right thing to do."

But rising costs and a weak economy have left workers at Alfonso's Washington telecommunications firm, Dynamic Concepts Inc., with higher out-of-pocket health costs. The company once paid 70% of health insurance premiums but now, he said, it can afford only half.

"This is the one cost we can't control," Alfonso, 61, said of health benefits. "It's a hardship on employees. It's hard on us."

Small companies paying lower wages such as Alfonso's are exactly what the non-partisan Congressional Budget Office (CBO) had in mind this month when it estimated as many as 15 million people could lose the benefits they currently receive through their jobs under a Democratic proposal to overhaul health care.

The estimates were based on an incomplete draft of a bill in the Senate Health, Education, Labor and Pensions Committee, but they touched off a broader debate about who might lose health benefits received through their company. Workers at small firms could be more vulnerable, especially if they pay high premiums.

"The health insurance system doesn't really work well for small employers," said Greg D'Angelo, a policy analyst at the Heritage Foundation, who said the number of people who lose insurance will depend on factors lawmakers are still negotiating.

According to the Congressional Budget Office estimates:

• As many as 10 million lower-wage workers would choose to drop their employer-provided insurance because, with proposed government subsidies, it could be cheaper to buy insurance on the open market, especially if they are paying high premiums now.

• Partly because of that exodus, some companies could find it no longer cost effective to offer insurance to the remaining employees, dragging another 10 million people into the open market. If half of a company's employees voluntarily dropped insurance coverage provided by their job, for instance, some businesses might decide the cost of insuring the remaining employees isn't worth it.

• Another 5 million people could go in the opposite direction, signing up for health insurance through work where it was not offered before. One reason some firms might begin offering insurance is to take advantage of tax incentives in the draft bill.

Employees who lose insurance from work could buy new policies in a proposed "health exchange." Exchanges, which have bipartisan support, let consumers compare policies side by side and pick the plan that fits their needs.

Republicans, including Senate Minority Leader Mitch McConnell of Kentucky, have focused on the CBO predictions, arguing that "millions of Americans will lose the health insurance they have and like." Democrats say the final bill will include protections to keep that from happening.

"The president feels very strongly that if you have a plan you like, you should be able to keep it," Health and Human Services Secretary Kathleen Sebelius said on Fox News Sunday. "We want to discourage employers from dumping coverage."

Nearly 10% of small business owners say they are considering dropping health coverage next year, regardless of what happens in Congress, a survey by the National Small Business Association shows. Spokeswoman Molly Brogan said the group has not taken a position on the Senate bill because it is incomplete.

Experts say it's difficult to predict how people will react to changes in the health care system. Employees make decisions based on more than cost. Douglas Elmendorf, CBO's director, said his office assumes in its estimates that not everyone will take the cheapest option.

"There's a huge amount of uncertainty in these forecasts," said Katherine Baicker, a health economics professor at Harvard University. "It's so different from anything we've observed in the past that it's difficult to forecast how things might look in the future."

For now, business owner Alfonso is watching the debate and the economy with a wary eye. He said he does not intend to drop benefits for his employees, but also said that if costs continue to rise, he may forced to make more cuts to what he offers now.

"There's no argument from me that health care needs to be fixed in America," he said. "Just not on the back of small businesses."