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Small Business Digest


State Requirements To Issue Healthcare Insurance Add To Costs Of Smaller Businesses, Employees

Many states such as New Jersey now mandate that healthcare insurance can only be provided to workers who are fully integrated into the company.

In these states, proof of payroll taxes being paid is being demanded in order for a healthcare insurance provider to issue a policy.

With this requirement comes the need for workmans compensation insurance and the payment of payroll taxes. 

One Houston economist estimates that this trend adds about 14% to a workers total compensation, not to mention reduced take-home pay for the individual.

These changes put an added burden on smaller businesses, economist Kenneth E. Lehrer believes.

This trend will be exacerbated if a national one-payer system is adopted.  That possibility grew larger in April with the introduction by Senator Edward Kennedy (D-MA) of a new bill in April to install a national healthcare mandate for all Americans.

As proposed by Kennedy and Rep. Charles Dingell, (D-MI), under the congressional proposal businesses would have to pay 7% of payroll with workers contributing 1.7% of their pay, but the proposal would not add to current private spending, the sponsors said. By comparison, businesses providing coverage today spend an average of 13% of payroll to cover their workers, according to a statement on the bill.

Of more immediate concern is the trend by states requiring owners seeking to cover themselves to eliminate contract employees and pay-in payroll and other taxes for all staff.

This trend will materially affect smaller, under-50 employee firms most dramatically in coming years.

These firms, he says, have traditionally utilized contract workers to build their companies in the initial years.  However, as owners seek or are required to purchase healthcare and other insurance, they will be forced to add payroll taxes and other costs that they have avoided in the past.

A recent Information Strategies, Inc.s (ISI) polling of small business found that within the growth cycle of company, healthcare is often the third insurance purchased after workmans compensation and fire/casualty.

As more states follow Massachusetts and move towards requiring all citizens to purchase coverage, the costs to smaller firms will rise, either by being forced to pay for their employees insurance or through mandated contributions to the insurance pool.

While the private insurers providing coverage under these mandates will have commission schedules, the state programs are adding to company benefit costs and Kennedys proposal will shift significant portions of business healthcare funds into a federal program.

Not surprisingly, proponents of universal healthcare have not fully quantified how much private healthcare insurance premiums will still be required due to competition for workers under these plans.

Some companies use benefits as a means of attracting good workers, Lehrer pointed out. With all companies within a state having a form of healthcare insurance, it would behoove some firms to add features that would still cost added funds.  This will eventually mean a net rise in total benefit costs for these firms.

Lehrer argues many millions of insured citizens will move into the state or federal programs.  They will look to employers to pay for all or part of their premiums.

Before these mandates, many workers accepted not having healthcare insurance, he said. Now they will look to their employers for helping paying these premiums.

Employers will be faced with a decision as to how much and in what form they will pay the insurance cost.  With states such as Illinois, New York, New Jersey and California actively exploring mandated programs, employers will need to face a choice, pay into the state pool or subsidize their workers premiums.  Either way more monies will flow out of the companies, reducing profits.

Lehrer believes that even the smallest companies will be caught in the middle of this trend and it will be exacerbated by the confusion caused by mandated requirements, particularly as proposed in California and elsewhere.

In the next two years, as these scenarios play out, company managers will have a lot more questions about the changing in state laws that are, if Massachusetts is any guide, confusing and launched with a paucity of clear direction.

The Chinese have a saying. May you live in interesting time.
Given the balance of power between the two political parties and their differing ideologies concerning healthcare, interesting times are ahead.


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