Press Releases

NASE To Congress: Health Care Costs For Micro-Business Must Be Addressed

NASE Senior Health Advisor Highlights Health Reform Proposals Beneficial To Self-Employed

Washington, D.C., February 5, 2009 – As discussions on health reform progress in the 111th Congress and within the Obama Administration, the National Association for the Self-Employed (NASE) is speaking out about how the ability of micro-business owners to obtain quality coverage rests on two key components: affordability and choice. The cost of health coverage for micro-businesses plays a significant role in why so many self-employed business owners go without or purchase a minimum coverage policy.

Michael Beene, NASE Senior Health Advisor, informed members of Congress that, according to a 2008 NASE study, micro-businesses are spending a median of 5.5% of their total sales on health insurance benefits. That number has increased by nearly half (48.6%) since 2005.

“The escalation of health costs is most strongly felt by solo practitioners, who are spending more of their total sales on health insurance compared to three years ago,” he commented before the House Committee on Small Business. “With such a large percentage of revenues going to health coverage, we can see why this expenditure is one of the first to be decreased or cut when business owners are faced with hard economic times.”

Premium costs are the single most important factor that determines whether a business owner will insure himself and provide coverage for his or her employees. Most importantly, if a micro-business owner cannot afford insurance for himself and his family, it is not likely that that health benefits will be extended to employees.

Beene mentioned the following proposals to make health coverage more affordable to the self-employed and micro-business:

• Self-Employment Tax Deduction on Health Insurance: According to the IRS, there are approximately 21 million sole-proprietors in the United States. Currently, these self-employed business owners do not receive a full deduction for their health insurance costs. Employees and the owner pay for their health insurance premiums pre-tax, and therefore they are not subject to FICA taxes. However, a sole-proprietor’s premiums are not paid with pre-tax dollars and are exposed to the 15.3% self-employment tax. In these difficult financial times, removing this inequity would be a significant economic stimulus for the self-employed.
• Health Reimbursement Arrangements (HRAs): HRAs are a flexible benefit option that allows small business owners to reimburse employees for out-of-pocket medical costs, including health insurance premiums. At present, self-employed persons are not eligible to participate in an HRA. Expansion of HRAs to allow the self-employed business owner to take part in the plan would likely significantly increase the number employees of micro-businesses receiving health benefits and financial assistance with medical costs. Additionally, HRA annual reimbursement amounts would likely be more generous if the self-employed owner receives the same benefit. 
• Health Tax Credits: These incentives would assist owners and individuals employed in businesses that do not have employer-sponsored health plans to afford health insurance. An effective tax credit must be advanceable, allowing eligible individuals to receive their credit every month, rather than in a lump sum at the end of the year, to let them buy coverage without incurring extensive costs during the year. The credit should also be refundable, allowing individuals that do not pay income taxes but are subject to payroll taxes to be eligible to receive the credit as a refund from the Internal Revenue Service.

Beene also addressed the effect that individual/employer mandates may have on health insurance affordability. An employer mandate to purchase and provide health coverage that does not exempt micro-business, those with ten or less employees, would be destructive to this important sector of the economy. Based on NASE’s 2008 health study, only one in five micro-businesses nationwide are currently providing employer-based coverage to full-time employees. Consequently, an employer mandate would put millions of owners out of business and leave millions of workers unemployed.

For more information, view the NASE’s full comments or see the hearing on YouTube.