March 14, 2007
Testimony of Todd Stottlemyer
National Federation of Independent Business
before the House Committee on Small Business
On behalf of NFIB, I want to thank Chairwoman Velazquez for inviting me to discuss the unique challenges facing small businesses ability to access affordable health insurance. As the voice of the leading small business association, nationally and in all fifty states, NFIB is uniquely positioned to talk about this issue.
I would like to focus on three areas. First, identifying the barriers to small business health insurance. Second, offering a multi-pronged approach to increasing access and affordability. And third, explaining why NFIB believes it is critical to take action now.
Defining the problem
The ever increasing cost and lack of availability of health care might be a new topic to many – but not to the 27 million working uninsured in the small business sector. Nor is it a new problem for America’s small businesses – all of whom struggle to afford health insurance. NFIB members represent both of these communities.
For two decades the cost of health insurance has been the top concern of our members. In 2004, two-thirds of those asked said health-care costs were the most critical problem they faced.
The small business community pays, on average, 18 percent more in health insurance premiums for the same benefits as those in the largest firms, according to a Commonwealth Fund-supported study published in 2006.
Why? The answer is four-fold: a lack of competition, a lack of bargaining power, a lack of administrative efficiencies and expensive mandates.
There is inadequate competition among insurance carriers in the small-group market. A recent GAO report found that in 2004, in a typical state, the largest insurer had 43 percent of the market for small group coverage, up from 33 percent in 2002. In nine states, the largest carrier — a Blue Cross and Blue Shield company — had more than 50 percent. In fact, in North Dakota a Blue Cross Blue Shield carrier had over 90 percent of the market. With few options in the small-group market, the smallest employers and employees are held captive to premium increases because there really is nowhere else for them to go.
The next problem is lack of bargaining power. Due to their size, small businesses are unable to spread risk across a larger population (as large businesses and unions are able to do) and end up with far less bargaining clout. The result of few options and even less bargaining power is higher prices.
Third, increased costs are also linked to a lack of administrative efficiencies. According to a 2001 GAO report, about 20 to 25 percent of a small employer’s premiums are dedicated to administrative costs. Similar administrative costs for a large employer average about 10 percent. These costs include things such as marketing and billing functions – non-health functions. High administrative costs often make health insurance prohibitive for the smallest of our nation’s businesses.
Finally, an abundance of mandates further drive up the cost of health insurance. Today, there are more than 1,800 state health insurance mandates on the books, an increase of about 600 since the early 1990s. More mandates mean higher costs. While a single mandate may increase prices by less than 1%, once all the mandates in a state are totaled - about 40 for most states - they can quickly escalate the cost of coverage. The result? There will be an increase in the number of people who decide the price tag is just too high and forgo insurance altogether – an outcome that is the opposite of what we are all working to achieve.
A Roadmap to Better Health
NFIB supports a comprehensive approach to helping small businesses find affordable and quality health insurance. Our approach has three specific steps: pooling, tax-based incentives and cost containment measures.
First, Congress should take steps to develop health insurance purchasing pools for small businesses. Increasing the size of the pool increases the clout and bargaining power among small businesses. This helps decrease cost and increase coverage.
In previous Congresses NFIB has aggressively urged the enactment of legislation to permit Small-Business Health Plans. Although action in the Senate was stymied in the last Congress, NFIB and the small-business community remain focused on achieving a pooling-based solution. NFIB will continue to explore all pooling proposals that are designed to significantly increase the purchase of private health insurance for small business employers, employees and their dependents.
Beyond pooling, NFIB will look to tax-based incentives that will encourage fairness and equality for all purchasing health insurance.
Today, we have a tax system that allows employers to enjoy a full deduction for the cost of health care they purchase for their employees. Employees with employer-provided health care enjoy the same tax benefit because they can exclude the full cost of their health care from their taxable income. Unfortunately, for those who cannot receive their health care in the employer-based market, their tax benefit is greatly limited.
Rather than continue to rely on a tax system that primarily benefits those who obtain their health care in the employer-based system, we need a tax system that offers the same incentives to everyone purchasing health care.
Today, the fastest growing segment of small business is the Single Owner Home Office (SOHO) business. Not only are they the fastest growing part of the economy, but the most diverse as well. For the past two decades women-owned firms have continued to grow, and 81 percent of women-owned firms have no employees. It is clear that our tax system needs to reflect these changing demographics in order to benefit everyone in the workforce.
NFIB is considering several different tax proposals that provide incentives for small businesses to provide health care. We are looking at various combinations of tax credits and deductions, all with the same goal in mind: allowing Americans to gain greater access to affordable health insurance.
Finally, a sustainable solution must include cost containment measures designed to encourage a greater degree of personal responsibility.
As a former small-business owner, I always made a point of making sure my employees understood the financial value of their benefits. I wanted them to know that we valued them as individuals, and believed strongly that investing in their health care was an investment in the future success of the company. I also believed in educating them about how their prevention, wellness and lifestyle choices influenced all of our health care costs. This practice encouraged them to become personally vested in the decisions they made about their health care.
We must broaden that knowledge to the larger population. To that end, it is important that steps be taken to increase the availability of information associated with cost and quality of health care so we can all become better customers and consumers.
Encouraging individuals to be more informed health care consumers can be achieved by implementing a more transparent health care system that makes information on cost and quality more readily available. We can flip open the latest issue of Consumer Reports to find information on performance, reliability and affordability for automobiles, but not for health services and providers. To use health-care dollars wisely, one needs to have access to information about the quality of doctors and hospitals and the cost of a procedure. Similarly, steps can also be taken to improve health information technology (IT) so we can put tools in place that allow us to more efficiently manage medical information. Both transparency and health IT can increase efficiency and improve the long-term affordability of our health care system.
Finally, no discussion about cost containment is complete without focusing on mandates. If we have any hope of addressing costs, then we must draw a line in the sand and understand there is a real difference between what we want and what we need. All mandates are not created equal. In our minds there is a difference in the value of every woman having access to a mammogram, and everyone having access to hair transplants.
These cost-containment measures, implemented in tandem with pooling approaches and appropriate tax-based incentives can significantly improve the access and affordability of health care for the small-business community.
Why Action is Necessary Now
In just the first few months of 2007, many different ideas have been unveiled to address the complex issues impacting America’s health care delivery system. Some have advocated for tax credits, others for more government involvement, and still others for scrapping the employer-based system altogether.
Many of these ideas have merit. But to be perfectly blunt, the largest portion of the nation’s uninsured population – small business – can’t wait any longer. They need solutions now.
NFIB believes we must take action now to reach the goal of universal health care by increasing access to affordable health care. This does not mean that the government takes over. But it does mean taking necessary steps to transform the marketplace by injecting choice, competition and value for those services. Those actions will result in a climate that enables more people to purchase private, quality, affordable health insurance that is portable for all phases of your career.
A universal approach to addressing the health care cost crisis is not easy to achieve. It will require people sitting down together and hammering out ideas that are bound to lead to robust and passionate debates. NFIB welcomes the challenge of working with lawmakers and others from the business and advocacy communities to craft meaningful solutions that ensure we address the crisis we are facing – now, not later. Because the longer we wait, the harder the task and the more the uninsured population increases.
Thank you again for holding this hearing today. NFIB appreciates your support for small business and we share your commitment to taking timely and significant action to address the health care cost crisis that is plaguing America’s small businesses. Working with you and others, NFIB pledges to do all that it can to increase access to affordable health insurance.
