Small businesses pay for plan's shortcomings

'No good deed goes unpunished." This phrase passed over the lips of many small businesses owners in Massachusetts last week, as the Patrick administration moved to increase penalties on small businesses in its effort to raise money to fund the state's healthcare law.

Why increase penalties on small businesses? This move would be explainable if they had not embraced reform and not offered their employees affordable, reliable healthcare options. But in reality, they have done both.

When the law was crafted, the proponents estimated that the state would collect $45 million in the first year and $36 million this year in penalties from business that refuse to offer healthcare to their employees. Instead, businesses overwhelmingly embraced the law and offered healthcare benefits to their employees. So the state collected no payments in the first year and only $7 million this year.

The result is that we find ourselves with a great success story on access and coverage. The law has delivered in expanding coverage - a very good thing.

So why punish the small business owner by changing the rules when she's been doing everything that has been asked of her? Doing so is completely unfair. Should the administration's change be implemented, fewer businesses, not more businesses, will offer their employees health benefits.

The proposed change is a disaster waiting to happen. Current law requires employers of 11 or more full time equivalent employees to offer health benefits or pay a penalty of $295 per worker. To avoid paying the penalty, businesses must cover 33 percent of the cost of the premiums or have 25 percent of their full-time workers enrolled in their company's plan. The new policy simply changes that "or" to an "and." But the consequences are enormous.

Many small employers - including stores, restaurants, services, tourism entities, and nonprofit organizations - have work forces composed of retirees (on Medicare) and secondary wage earners (on parents' or spouses' plans). So it is very difficult for them to achieve a 25 percent participation rate because their employees are covered elsewhere. But by meeting the requirement to pay 33 percent of premiums, they can avoid paying a penalty. The new policy makes it almost impossible for those business to avoid paying the penalty - for reasons that are completely out of their control.

These small business owners are frustrated for another reason: The law has had no impact on the endless increases in annual premiums for those buying health insurance. Family health insurance policies for small businesses with little bargaining power cost as much as $23,000 today. Those rates are unaffordable. There is no indication that relief is in sight.

The difficult truth is that small businesses pay far more for the same coverage than do big purchasers, thus creating a disproportionate funding of the healthcare system by smaller businesses than by large companies or by government payers. Unfortunately, group purchasing discounts are available for public employers but are prohibited for small businesses. The state's Commonweath Connector still hasn't delivered on the promise of low-cost small business plans, focusing to date only on taxpayer-subsidized plans for individuals.

Add to that the effects of the soft economy, pessimistic consumers, the highest electricity rates in the continental United States, and current gasoline, fuel oil and food prices, and it is easy to see why many small businesses are struggling in Massachusetts.

Barely staying in the black, they get frustrated when they're told that "employers are not doing their fair share." So now, rather than steps being taken to ease their health care costs and mandates, they are now looking at a far greater likelihood of state imposed health care tax assessments on top of the growing premiums.

For those affected, the consequences will range from dropping their offer of coverage altogether and just paying the tax, to discriminating in the hiring process, to giving up and closing their doors.

In the real world, government mandates can determine winners and losers in the competitive marketplace. The Patrick administration's proposal will do exactly that. The result will be small business losses, diminished support for healthcare reform in the business community, fewer jobs for our citizens, and fewer offers of health insurance by small employers.

Jon B. Hurst is president of the Retailers Association of Massachusetts.