The Wall Street Journal-20080115-Running a Business- Starting Up- Low-Cost Health Care- Online edition
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Running a Business: Starting Up: Low-Cost Health Care; Online edition
From smSmallBiz.com
FOR MANY ENTREPRENEURS trying to build a business, the high cost of health insurance can slam the brakes on growth. To help ease the burden, some states offer generous subsidies aimed at helping small companies provide health care to low-income or rank-and-file workers.
In Massachusetts, for example, "subsidies for low-income folks are better than any other state right now," says Michael Doonan, a professor at the Heller School for Social Policy and Management at Brandeis University in Waltham, Mass. Driving the subsidies is the state's landmark 2006 Health Care Reform Law, which requires all residents to obtain or purchase medical insurance. New rules widened the eligibility rules for lower-income uninsured individuals to receive subsidized health care <mdash> and boosted savings for small businesses that provide the coverage.
Now, employers with 50 or fewer full-time workers who each earn pretax family incomes up to three times the federal poverty level (that's $30,630 for an individual and $61,950 for a family of four) can participate in the Insurance Partnership, a federal and state subsidized insurance program. The new rules expand the income limits, which before October 2006 had been set to two times the poverty level.
Under the Insurance Partnership program, Massachusetts employers may receive up to $400 a year when they pay at least 50% of the cost of a single employee's insurance coverage and up to $1,000 per year for an employee with a family plan. Under the plan, employees who haven't received health insurance from their employers in the past six months can receive up to $150 for a single person's coverage and up to an additional $210 per month per child covered under a family plan.
Other states such as Vermont and Maine also provide employer- sponsored plan subsidies. Through the Employer Sponsored Insurance Premium Assistance Program, Vermont offers premium assistance to workers to help them purchase insurance through their employer. Maine, via its program Dirigo Health, usually does as well, however, according to the director of the governor's office of health policy and finance, Trish Riley, the program recently ran out of funding. Dirigo Health, she says, will continue to pay on previously held policies and is still open to small businesses that don't need subsidies. For instance, a business owner might still proceed to purchase health care through the program to take advantage of group rates, she says.
Massachusetts, Maine and Vermont are all on track for offering near- universal coverage for individuals, and the governors of California, Pennsylvania and Illinois have proposed similar plans. Critics of the plans say that since these programs typically require businesses to offer health care to employees or pay penalties, small businesses may resort to raising prices or laying off workers.
Some agitated small-business owners have fought for more breaks, and appear to be gaining ground. In Massachusetts, for example, the state's unsubsidized health-care program called Commonwealth Choice is expected to open to small businesses this summer. While the program doesn't offer direct subsidies, those workers who earn higher incomes can participate in the program, which will allow workers to join larger health-care pools and give them a choice among providers.
Meanwhile, business owners in states including New York, Oklahoma, Montana and New Mexico can take advantage of health-care incentives ranging from tax credits to direct subsidies for providing health-care coverage to lower-income workers. Additionally, some states offer to pay a portion of workers' claims. This benefits employers and workers alike, says Jennifer Tolbert, a principal policy analyst for the Kaiser Family Foundation in Washington, because providers are taking on less risk and in turn may offer lower premiums. "It's a backdoor way of reducing the premium costs," she says. At the same time, these programs also offer a wider array of coverage choices and policies.
The income limits for these programs are set at or below two times the poverty level, but still offer big incentives for eligible small businesses, says Doonan, the Brandeis professor. "If you have low- income employees and you didn't provide insurance, these states may help subsidize the employee and employer share," he says.
For instance, Montana's program, called "Insure Montana," provides refundable tax credits for small businesses with two to nine full-time employees that currently provide group health insurance to their employees. Employers will be refunded $100 a month per employee and another $100 each for every covered employee's spouse, as well as $40 a month each for other dependents, as long as no employees earn more than $75,000 a year. These employees' policies will also be added to a larger pool of workers, which may provide additional savings as more workers can usually negotiate lower premiums.
New York's small businesses with 50 or fewer employees that haven't provided employees health insurance in the last 12 months may be able to participate in the Healthy New York program. Through this program, insurance companies offer participants lower health-care premiums because the state agrees to pay 90% of all the claims that fall between $5,000 and $75,000. According to Tolbert, those claims represented 27% of the total in 2006. For a business to be eligible, at least 30% of its employees must earn $36,500 or less.
In Oklahoma's Insure Oklahoma program, and similarly in New Mexico's New Mexico State Coverage Insurance, independent health insurers have agreed to offer similar health plans to businesses with 50 or fewer eligible employees. In both states, the eligible income range among participating employees amounts to two times the federal poverty level. For their part, employers must offer one of the qualifying plans and pay at least 25% of the premium. The state will then pay up to 60% of the premium while the employees pay the rest.
("Starting Up," a weekly column written by Diana Ransom for smSmallBiz.com, follows entrepreneurs through the early stages of launching a business. Write to her at [email protected].)
