10/04/2005
Testimony before the Ohio Senate Insurance, Commerce and Labor Committee
Senator Jay Hottinger – Chairman
Mr. Chairman and members of the Senate Insurance, Commerce and Labor Committee:
My name is Ty Pine and I am here on behalf of the more than 36,000 members of the Ohio Chapter of the National Federation of Independent Business to provide a small- and independent-business perspective related to proposed health-care mandated benefits. I want to thank you in advance for your commitment and sensitivity to small-business issues.
NFIB/Ohio is the state’s largest small-business advocacy organization dedicated exclusively to the interests of small- and independent-business owners. Our membership represents the entire spectrum of the business sector, ranging from one-person operations to quite substantial enterprises. The typical NFIB/Ohio member employs fewer than 10 workers and has average annual gross sales of about $450,000. In aggregate, our organization’s members employ nearly 440,000 Ohio workers.
By way of background, employers began voluntarily providing health insurance to employees several decades ago as a supplement to their compensation package and continue that voluntary practice today. Typically, small employers are more sensitive to the benefits contained in the healthcare package as they policy serves as their personal family coverage as well.
Ohio’s consumers would benefit from a competitive health insurance market as they do in many other facets of our economy. Unfortunately, government intrusion into the day-to-day operations of health plans and benefits contained in their policies has left consumers with almost no choice. Today the prudent consumer or consumer of modest means can decide little more than the amount of co-pay or supplemental benefits provided for in their policy. NFIB/Ohio strongly believes that a free market system, void of excessive government intervention, is the only way to obtain a healthcare system that provides the highest level of care, by the highest trained medical professionals, at an affordable price.
Before outlining the core principles by which NFIB/Ohio opposes state mandated health benefits nor do we doubt that the given constituency may benefit by mandating insurance coverage. However, as public policy makers you must understand that even the most popular and noble legislative proposals have real world ramifications that are particularly acute for small businesses.
Cost
The No. 1 concern of small-business owners, above government regulations, paperwork requirements and even taxes, is the cost of health insurance and has been since 1986.
There are many factors that have contributed to the rapid increase in health-care premiums, including factors that we are unable to address in the public policy arena. In addition to medical inflation, utilization and poor life style decisions by consumers, just to name a few, Ohio’s public policy decisions to enact nearly 30 mandated benefits and hundreds of administrative mandates have added additional cost burdens. I am here on behalf of my members to ask that you not make a bad situation worse. The proponents of these mandates often have very compelling stories, and cite cost impact studies that show their proposal, in aggregate, will only increase premiums marginally. The reality of a “marginal” increase is that every one percent increase in healthcare premiums equals $140 million (2003 data). Moreover, a very small employer is disproportionately affected by a mandate, as they are unable to spread the risk. While an insurer’s entire block of business may on average receive a one percent increase in premiums, the premium impact on a given small employer whose employee utilizes the mandate may be much more significant.
An argument is made that a more productive workforce, and reduced need for ancillary medical care by employees will, over time, offset the costs associated with a mandate. This argument fails to meet the reality of today’s insurance market. A transient workforce that goes in and out of health-care coverage, or moves to a federally exempt employer that is not mandated to cover the mandate mitigates any long-term positive benefits of a mandate. These potential cost savings are further mitigated as consumers simply do not adhere to the medical providers treatment regiment.
One unintended consequence of mandates is uninsured Ohioans. Ohio is home to more than 1.3 million uninsured individuals. Many of those 1.3 million uninsured are not low income, elderly or employed by a large employer or union shop. Rather, nearly two-thirds of the uninsured population have a family head of household who is self-employed or works for a small business. Again, small-business owners almost exclusively cited the high costs of health insurance as the reason for not providing coverage.
Fairness and Equity
State mandated health insurance benefit requirements raise a serious question of fairness and equity. State mandated benefits under Ohio law are very unfairly applied to only small group and individual policyholders. Employers with union employees, or large employers that are self-insured (where the employer directly pays for their employees’ health insurance claims without an insurance contract) are exempt from any state imposed mandate under the federal Employee Retirement Income Security Act. Congress understood that employers and employees need the flexibility to construct and/or negotiate benefit packages that meets their specific needs while remaining cost effective. In recognition of the fairness and equity issue, the 119th General Assembly enacted a provision whereby no new state mandated health insurance benefit could apply to any employee benefit plan unless the Superintendent of Insurance verifies that the mandate will apply fully and equally to all employee benefit plans. Unfortunately, this legislation demonstrates the legislatures unwillingness to play by the rules set into place only nine years ago by inserting “notwithstanding” language in each mandate proposal and thereby circumventing the equity provision.
Flexibility
Each mandate places small businesses at a greater competitive disadvantage. Small employers are competing to attract the same high quality employees, to sell the same or similar products, and make a profit from the same dollar as larger federally exempt companies. However, small employers do not have the financial means and personnel resources to compete with large and even mid sized companies, and each government mandate puts “one more nail in the coffin.” Employees continue to place demands on employees to provide a variety of benefit incentives including health insurance benefits. Employers must have the flexibility to negotiate with employees in order to remain in business. More importantly, a mandated benefit does not increase the employee benefits “pie,” rather, it merely redirects the benefit dollars to mirror the state legislatures desires and away from benefits the employee may actually want or utilize. While some do not believe it to be true, employees pay for health insurance in the form of lower wages and/or reductions in other forms of compensation as premiums rise.
In summary, mandated health benefits, while understandable and noble in theory unfairly target individuals and small business owners who are undoubtedly the least able to absorb additional costs. NFIB/Ohio wants to challenge Gov. Taft and the 126th General Assembly to place a moratorium on additional mandated benefits and redirect efforts toward crafting proposals that will make health insurance more affordable. Public policy efforts should lead Ohio to a point where all Ohioans can enjoy the peace of mind that comes with having health insurance coverage rather than only creating a benefit package full of mandates that only a privileged few can afford.
