June 21, 2004

June 21, 2004 | News Releases on Health Care

Expert Outlines Plan for Providing Insurance to Small-Business Workers

WASHINGTON, JUNE 18, 2004-Employees of small businesses account for half of those without health insurance in America. But if the small businesses themselves didn't have to find and purchase the plans for their workers to get tax help to pay for coverage-and if Congress could make a few regulatory changes-much of the problem would take care of itself, says a new paper from The Heritage Foundation.

Stuart Butler, vice president for domestic and economic policy studies at Heritage, a well-respected health-care expert and author of the paper, suggests three steps:

  • Create a health-care refundable tax credit for workers in small firms. A refundable credit-which lets workers reduce their tax burden by the amount they pay for, in this case, health insurance and receive a refund if they reduce it by more than they owe-would eliminate bias against allowing them to select their own coverage. It also would subsidize those who need the most help.
  • Establish alternative insurance pools for employees of small firms. In addition, allow workers to buy insurance through churches, unions and other intermediaries rather than requiring them to buy insurance from their employers.
  • Remove tax and regulatory obstacles that effectively prevent employees from finding the plans that best suit their needs and that discourage employers from merely handling the transactions through payroll deductions, etc., rather than having to organize the coverage themselves.

"The high rate of uninsurance among working families in small firms are a testament to the limitations of the employment-based health system in small business," says Butler. "Today, the tax system and government insurance rules discourage other, better arrangements for these uninsured families. This needs to be changed."

One key, says Butler, is for small employers to stop thinking in terms of actually organizing health benefits-trying to provide a certain level of coverage with certain benefits-and adopt a different approach. Today, employers must shop for health insurance regardless of whether they can get a good deal or whether a plan meets the disparate needs of all employees. These hassles cause many small employers to reject providing benefits.

Under the approach Butler advocates, employers still handle the transactions, but they don't have to shop for the insurance in order for their workers to get a tax subsidy. Employees benefit because they retain the subsidy and get the plans of their choice. The Federal Employees Health Benefits Program, one of the most well-liked health systems offered to employees anywhere in the country, has used this approach for nearly 40 years.

"We're making it increasingly difficult for small businesses to offer health insurance, and we're doing so at a most inopportune time," says Butler. "In the future, more and more employees will work for these small firms, and, thanks to advances in medicine and other factors, their health needs will be more disparate than ever. These reforms would make coverage available to far more working Americans than ever before.

"But for this to occur, Congress must recognize that while the place of employment is the most convenient place to obtain health insurance, it isn't critical to make tax relief to families contingent upon their employers sponsoring their coverage."

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