Kansas Health Institute | Information For Policy Makers. Health for Kansans.

TOPEKA — GOP gubernatorial candidate Sam Brownback has pledged, if elected, to fight federal health reform. The law, he said, should be "repealed and replaced."

In statements earlier this month he spelled out some of his reasons why. This is the last in a series of five stories examining those reasons. It focuses on health reform's expected impact on businesses.

Brownback's claim: “Kansas small businesses employing 50 or more people and 2,956 Kansas construction companies employing five or more, will pay either higher health care costs or a new penalty because of new government mandates.”

It is true that some companies face potential penalties, but not the small ones that account for the largest number of Kansas firms.

More than 52,000 of the state's estimated 62,000 firms have fewer than 20 employees. The reform law specifically exempts from penalties all employers with fewer than 50 workers. Most small businesses in Kansas and across the nation (5.8 million out of 6 million total firms, according to federal statistics) employ fewer than 50 people.

Effective Jan. 1, 2014, the health reform law would require companies that don't offer health insurance but have more than 50 workers to pay a $2,000 tax penalty per full-time worker, if any of the company employees received a federal subsidy or tax credit to purchase health insurance on their own through the new insurance exchanges.

Relatively few

According to the Agency for Healthcare Research and Quality, 95.9 percent of Kansas workers in companies with 50 or more employees are offered health insurance benefits by the employer. That means relatively few employers are likely to face the penalty, though some may conclude that the penalty is cheaper than the cost of providing insurance.

According to estimates by the U.S. Department of Health and Human Services, less than .2 percent of all firms nationwide, about 10,000, would likely face the penalty. Kansas-specific projections were not available.

An estimated 30 percent of uninsured adult Kansans work at places that employ 100 or more, according to the Kansas Health Institute's Annual Insurance Update 2010. Though larger businesses typically offer health insurance, they may have restrictions on eligibility, sometimes only offering coverage to full-time workers or managers. Cost also is an issue. Workers offered coverage may not be able to afford their share of the premiums.

An uncertain percentage of those Kansans currently uninsured but working for larger employers are expected to gain coverage with the help of new federal subsidies for purchasing private insurance in the state exchanges, which are to be operational by 2014. Those workers' employers would then be subject to the penalty.

"Shared responsibility"

"In 2014, as a matter of fairness, the Affordable Care Act requires large employers to pay a shared responsibility fee only if they don’t provide affordable coverage and taxpayers are supporting the cost of health insurance for their workers through premium tax credits," said Melissa Nitti, a spokesperson for the U.S. Department of Health and Human Services, the agency charged with implementing the new law.

The Brownback campaign cited the “U.S. Census,” as the source of the information for its claim. But there is no Census Bureau report that supports it.

The campaign's claim about penalties for "construction companies employing five or more," was an error.

While the reform law has significantly different provisions for companies with more than 50 workers, it has no special provisions for construction companies, regardless of size.

“That part about the construction companies was a mistake,” said Sherriene Jones-Sontag, a spokesperson for the Brownback campaign. “But it's still an issue.”

It is still an issue, she said, because labor unions will continue pushing to have the construction-company provision added to the law at a later date.

The mistake has not been corrected on the campaign's website.

50 or larger

In any event, companies with more than 50 workers fall in what is called the “large-group” insurance market.

The nonpartisan Congressional Budget Office concluded that premiums in the large-group market would most likely hold steady or decrease slightly as a result of health reform.

“In the large group market, which is defined here as consisting of employers with more than 50 workers, the legislation would yield an average premium per person that is zero to 3 percent lower in 2016 (relative to current law). Those overall effects reflect the net impact of many relatively small changes, some of which would tend to increase premiums and some of which would tend to reduce them.”

Many large employers, including Koch Industries of Wichita, which supports the Brownback campaign and has funded political action groups that oppose the law, have been among the first to embrace some of the reform law's benefits.

For example, in June, the federal government began making available about $5 billion in subsidies to companies that agree to provide insurance coverage to their early retirees. According to federal statistics the percentage of companies offering early-retiree coverage dropped from 66 percent in 1988 to 31 percent in 2008.

That meant a growing number of retirees still too young for Medicare benefits were having trouble getting health insurance.

Koch was in the first round of firms to sign up for the early-retiree benefits.

Small businesses

For the small group market, which includes employers with fewer than 50 workers, CBO estimated that the change in premiums could range from an increase of 1 percent to a decrease of 2 percent.

But the reform law also offers bigger benefits to small employers.

Beginning this year through 2013, employers with 25 or fewer workers with average pay up to $50,000, can receive tax credits to help buy insurance, up to 35 percent of premium costs. In 2014, the credit grows to 50 percent, if insurance is purchased through the new exchanges but is only available for two years.

According to the National Federation of Independent Business, a small business lobbying group, the tax credit, “will help some small businesses. But because of the many conditions attached to the credit, its impact is limited.”

Among other things, NFIB has criticized the tax credits for not lasting longer.

According to HHS, 50,600 small Kansas companies will be eligible for the credit this year.

According to the Commonwealth Fund, small businesses and non-profits could receive an estimated $40 billion in federal support for the premium credits over the next 10 years.

Some analysts predict many small businesses will stop offering health insurance altogether and be spared that expense by instead letting their workers buy coverage directly through the new insurance exchanges.

The reform law has no tax penalty for small employers (fewer than 50 workers) who do not offer health coverage.

1099s

There is a reform provision that has drawn loud criticism, particularly from small businesses. Democrats in Congress, who passed the law without a single Republican vote, have promised to alter or repeal that clause but so far haven't done it. It seems likely to be changed before it becomes effective because that is one aspect of the law upon which Republicans and Democrats seem to agree.

The so-called "1099 provision" would require businesses to report annually to the Internal Revenue Service all purchases of $600 or more from a single vendor.

Farmers and other business people already are required to file 1099 forms when they spend $600 or more on services. A veterinarian's bill would be an example of reportable services for a farmer. But the health reform law, starting in 2012, would expand the 1099 reporting requirement to also cover the purchase of goods such as seed or fertilizer.

The idea behind the provision was that expanding the reporting requirement would give the IRS a stronger tool for cross checking whether businesses were accurately reporting income and paying their fair share of taxes.

The Kansas Farm Bureau and other business groups have called for repeal of the provision.

"We don't even consider this part of health reform," said Pat Wolff, a tax specialist for the American Farm Bureau in Washington, D.C. "It's almost so inconsequential to health reform. There are some major issues we have with the health care bill. But we're treating this as a tax issue. This is a government-regulation issue for us.

"You can fix it without having anything to do with health care," she said. "We just need to get it off the books before it starts, so business doesn't have this burden. It's even questionable whether the paperwork burden would have any difference on the amount of taxes collected."