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by Bertrand M. Gutierrez, AARP VIVA, September 2009
Business is good for Clodomiro Falcon. In 1997, he turned his basement in Trumbull, Connecticut into a home office. That year, he published 30,000 copies of La Guía Hispana, Spanish yellow pages for the local area, and had 100 clients. Today, the Venezuelan-born entrepreneur publishes 130,000 copies, serves about 1,000 clients, and employs about 14 people. But business would be even better, he says, if not for the high cost of health care. He can’t afford to offer the same health insurance coverage that larger companies do, so it’s harder to hire talented people.
“Things just can’t stay the way they are,” Falcon says. “I want to be in a position to retain good quality people, because the business has the potential to keep growing. The Hispanic market is going to keep growing. But I’m tied [to the current size] because I can’t compete. It’s too much. It’s just too much.”
Many Democratic and Republican lawmakers in Washington agree that the health care system should be changed, even if they disagree on how to change it. So far this year, President Barack Obama and congressional leaders have announced a total of 11 proposals to overhaul the estimated $2.5 trillion health care industry. Meanwhile, Hispanic business owners like Falcon are waiting to see whether reform will help alleviate costs.
The Health Care Problem
Health care costs have increased at twice the rate of inflation in the last two years, says U.S. Rep. Nydia Velázquez of New York, chair of the House Small Business Committee. “All of our work to bring the economy back on track will be undermined if we do not rein in health care costs,” she says.
And health insurance premiums have doubled in the past decade. A 2008 study by the Kaiser Family Foundation and the Health Research & Educational Trust found that the average premium for family coverage jumped from $5,791 in 1999 to $12,680 in 2008, with the employers’ average share going from $4,247 to $9,325, while each worker paid $3,354. That means business owners with 15 employees with family coverage paid $139,875 last year for premiums; in 1999, the same coverage cost employers $63,705.
Small businesses suffer even more. Businesses with fewer than 10 employees pay 18 percent more for health care than those with at least 1,000 workers, according to a study supported by the Commonwealth Fund. It’s no wonder that more small businesses are opting to go without coverage. Last year, only 49 percent of businesses with three to nine employees offered health benefits—down from 57 percent in 2000—according to the Kaiser Family Foundation/HRET study.
Hispanic workers are among those most hurt by that drop in coverage. U.S. Labor Secretary Hilda L. Solis says Latinos are among the least likely to have employer-sponsored health insurance. More than 15 million Hispanics are uninsured, about one-third of the estimated 45 million uninsured Americans. “I hope that we can all work together to ensure that health care will be affordable for small businesses and for workers and their families,” Solis says.
How Small Businesses Deal With the Problem
Dan Calhoun, who was raised in Mexico by his missionary parents, offers health care coverage to his workers because his workers need it and would otherwise simply do without. “That’s why it’s the right thing to do,” he says.
Calhoun has 70 employees at La Tortilleria Inc., a company based in Winston-Salem, North Carolina, that distributes products such as its own brand of Cuervito Morado chorizo and Virgin Mary candles to tienditas and larger stores such as Wal-Mart.
While daily shipments chug along at steady rates, health care costs are running higher. Calhoun deals with rising costs by offering “catastrophic” health insurance that covers any kind of illness or accident but imposes high deductibles—$10,000 for family coverage and $5,000 for individual coverage. “It’s very expensive. There’s just no way around it,” Calhoun says. “We manage costs by assuming more risk when buying insurance.”
On the Table
House and Senate committees, led by Democrats, passed landmark proposals this summer to overhaul the health care system. The proposals are based on the notion of “shared responsibility,” which means employers and individuals would be required to pay for at least some portion of the coverage. How the proposals might affect Hispanic businesses depends largely on the size of the business.
Certain small businesses that don’t offer coverage now won’t have to offer coverage under the proposals’ shared responsibility provisions. America’s Affordable Health Choices Act, proposed by three House committees, would exempt businesses with payrolls of less than $250,000. Similarly, the Affordable Health Choices Act proposed by the Senate Health, Education, Labor, and Pensions (HELP) Committee would exempt businesses with 25 or fewer employees.
With less than 25 employees, Falcon would be exempt under the Senate proposal, and with a payroll under $250,000, he would be exempt under the House proposal as well.
Research groups such as Small Business Majority, based in Sausalito, California, say that if the proposals work as envisioned, Falcon’s employees could buy affordable health coverage through a new health care exchange proposed by both the House and Senate. President Obama described the exchange as “a marketplace where [employees and small employers] can compare the price, quality, and services of a wide variety of plans...They can then pick the one that works best for them.”
Such an exchange, it is hoped, will increase competition, lower premiums, and improve coverage. That means Falcon wouldn’t be at such a disadvantage against larger companies when trying to recruit employees. It also means people would be more apt to start their own business without the fear of leaving their current employer’s health plan, according to the research group. “The proposed reforms could help spur entrepreneurial activity by increasing the incentives for talented Americans to launch their own companies, and could increase the pool of workers willing to work at small companies,” according to the President’s Council of Economic Advisers study “The Economic Effects of Health Care Reform on Small Businesses and Their Employees.”
Many Hispanic-owned businesses stand to benefit from the exemptions included in the congressional proposals. According to the U.S. Census Bureau’s latest statistics, Hispanic entrepreneurs owned nearly 1.6 million small businesses in 2002, and 99 percent had fewer than 100 employees; only 1,510 firms had at least 100 employees.
Employers who do not qualify for an exemption would have to offer health coverage or pay a penalty. With about 70 employees, Calhoun’s La Tortilleria would have to offer health coverage. Under the House plan, he’d pay at least 72.5 percent of premium costs for individual coverage and 65 percent for family coverage. Under the Senate plan, businesses with more than 25 employees would have to offer health coverage and pay at least 60 percent of their employees’ monthly premiums. Under the new proposals, small firms still wouldn’t have to be quite as generous as companies with more than 1,000 workers, which in 2008 paid 84 percent of the premiums for single coverage and 73 percent for family coverage, according a report by Families USA. Penalties for noncompliance under the House plan start at 2 percent of payroll and rise to 8 percent for employers with payrolls above $400,000. Under the Senate plan, penalties run $750 per full-time employee and $375 for each part-timer.
Despite its obvious advantages for employees, the small business community isn’t sold on the proposed legislation. According to the National Federation of Independent Businesses, a small business lobbying group, “This legislation levies new burdens during trying economic times, harmful penalties on the firms that can least afford them, and new taxes on businesses struggling to create and maintain jobs.” The group believes the reforms would impose a punitive payroll tax on employers who couldn’t afford to offer their employees health insurance and punish employers who currently provide insurance to their employees but don’t satisfy the law’s premium contribution requirements.
Calhoun and other employers who are already providing adequate coverage won’t see much change in terms of cost and may even see reductions, according to Phillip Cryan, who researched employer mandates for his master’s degree at the University of California, Berkeley.
“At the very least, there’s no change for the majority of employers who are providing good coverage to their employees today,” Cryan says. In the best-case scenario, he adds, employers could see some savings if the proposals manage to rein in costs.
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