"Exempting" Small Businesses From Health Insurance Reform?

One of the cheesier tactics in the legislative process over the past twenty years has been the "small business exemption." Essentially, to overcome small business' opposition to various legislative mandates and regulations, legislatures exempt companies with fewer than, say, 25 employees, from compliance with the new law. This way, sort of by reduction, the Congress can take credit for tough new sanctions on business, while at the same time giving over 80% of American companies a get-out-of-jail free card.

We'll put off till another day the question of the value of enacting regulations which most companies don't need to follow.

Apparently part of the House leadership's deal with Congressional "Blue Dog" Democrats, who were dragging their feet on the bill eventually reported out by the Energy And Commerce Committee, is a provision which would exempt companies of a certain size (whether either fewer than ten employees or fewer than 25) from either a mandate on employers to provide coverage to their workers or from any tax or penalty which might be imposed on employers which don't offer coverage to their employees.

In general, small business owners are happy enough to avoid more government regulation, but in this case, there's a reason to wonder whether exempting small business from health care reform is such a great idea.

Even in the current marketplace, fewer than half of companies with fewer than ten employees offer health care coverage to their workers. This is a big reason that a reported 26 million of the 47 million Americans without health insurance work in very small companies.

For those small employers which DO offer health coverage, the cost of premiums is an average of 18 percent higher than large employers would pay for comparable coverage.
That's because administrative costs for small group health care coverage can be as much as six times higher for small businesses than for big ones; administrative costs typically run 25-27% of premiums for small businesses, and can be as high as 40% of premiums for self-employed individuals.

A health care reform plan which merely exempts small employers from compliance, without fixing some of the problems which result in high prices and limited availability of health coverage for small businesses, wouldn't be much health care reform at all.

Not fixing those problems would absolutely result in small employers migrating in large numbers to a public health plan option which, at the very least, would be expected to operate on smaller administrative margins than private insurers.

Or, it could just lead to the end of the small group market, as employers drop their group health plans in favor of helping their employees shop for individual health plans...with those 30-40 percent administrative cost margins.

Either way, exempting small business as a substitute for helping solve their problems would be a wimpy reform strategy guaranteed to undermine the private market and raise costs for everyone.