Alabama Small Businesses Wary Of Insurance Changes

Hal Shepherd fears small businesses will shoulder the financial burden of recently passed health insurance reform. The owner of The Kennion Group, a Birmingham compensation and benefits consulting and management firm, joins many local small business owners who are greeting reform with skepticism and anxiety.

The legislation is expected to help 32 million Americans gain access to health care. However, many small business owners are afraid federal mandates, higher taxes and penalties will cripple their growth opportunities. A specific concern surrounds the mandate for individuals to secure health care coverage and the penalties that can be levied on companies if their employees receive coverage through a government-run insurance exchange.

Shepherd – whose firm provides compensation and benefits plan development and management for large and small companies – said the health insurance reform bill recently signed by President Obama might be well intentioned, but he believes it will place additional financial stress on small businesses, particularly those with slim profit margins.

“While it may be a good idea, there’s a cost to it and that will be borne on the backs of the small business owner,” Shepherd said.

And the cost of offering health care insurance or paying penalties will be passed along to consumers and could prompt some firms to avoid adding employees, said Shepherd, whose 10 full-time employees have company-sponsored health insurance. “The pressure on the bill is for employers to make sure employees are covered,” Shepherd said. “If the company doesn’t make it sweet enough to get the employee on the group plan, they will be penalized.”

While there is concern about penalties for not providing health insurance, Terry Gardiner, national policy director of the Small Business Majority, said the new law will not fine companies with fewer than 50 employees. Companies with 50 or more employees would be subject to fines up to $3,000, excluding the first 30 employees, if they do not offer insurance and their workers purchase it through a government-run exchange after 2014. In Alabama, 96 percent of companies would not be affected by the federal insurance mandate, said Gardiner of the progressive health care advocacy group. He said 47,000 of the state’s 77,000 companies with less than 100 employees are eligible for tax incentives to provide health care for their employees.

Those incentives work off a sliding scale starting with a 35 percent tax credit for companies with 10 or fewer full-time employees earning an average of $25,000 annually. The incentives scale down with rising number of employees and average salaries. The companies eligible for tax credits are capped at 25 employees and average annual wages at $50,000. Many local small business owners are leery of the government’s involvement. Forte Inc. President Glenn Phillips believes new regulations will cost his technology consulting firm time and money. He said Washington’s influence will ultimately hurt his eight-employee Pelham-based company.

Forte offers health insurance to its employees. On the other hand, Phillips’ wife, Doris, runs a company that provides title insurance, closing and contract management for Realtors and lenders and does not provide insurance benefits. Phillips said his wife is trying to determine how to pay for insurance for her employees. “The only thing we can do is figure out how to make more money to offset it,” Phillips said. “That’s the only way it doesn’t hurt us. We can’t wait until all this hits us.”

Forte has seen its BlueCross BlueShield of Alabama premiums rise between 8 and 12 percent annually the past few years. He expects those rates to rise more upon the implementation of the federal insurance overhaul. Uncertainty is what scares Stacy Flippen. Flippen, owner of Birmingham-based children’s clothing company Hollywood Baby, said the bill’s language and length make it nearly impossible to decipher what is required and what impact it will have on her business.

She said if she is required to provide health insurance, the costs will come out of her 13-employees’ paychecks. “I don’t want to raise my prices to the consumer,” Flippen said. “I’m still wary of it. The common person can’t read it and understand what is going on. That’s the scary part of it.”

The national focus on reform is having a beneficial impact on health care software development firm Point Clear Solutions. Lee Farabaugh, director of user experience for Point Clear, said three of the seven employees of the local firm receive health insurance from the company. The others are covered by spouse plans. The health care bill will not affect Point Clear negatively, Farabaugh said. Point Clear has contract work for the Centers for Disease Control, which should see an uptick in business because of national reform, she said. “This is nothing but good for our business,” Farabaugh said.

Reform advocates claim small businesses will save money by purchasing insurance through state-run exchanges, but Forte’s Phillips doubts that will drive costs down. He said BlueCross’ market control has done little to contain rates and doesn’t believe the government plan will have a positive impact. A federal focus on so-called “Cadillac Plans,” also worries Phillips. The government plans to charge a 40 percent excise tax on health plans valued at more than $10,200 for individuals and $27,500 for families. That tax could hurt small businesses who pay more for coverage, for fewer benefits, than big businesses, Phillips said.

“You’re going to take small businesses like mine who are already paying a higher cost and tax them,” Phillips said. “The big companies can spread that risk. They won’t pay that tax, it will be the small businesses that pay it.” The new law does not address cost, choice and competition, according to Rosemary Elebash, state director of the National Federation of Independent Business. Elebash said her group wanted the right to pool together across state lines to gain purchasing power. National reform will deter small business growth, Elebash said. “They’re not going to hire,” Elebash said. “This is a job-killing bill for small business owners. When you have fines or mandate coverage for part-time workers, this does not encourage people to hire.”