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Access to Affordable Health Coverage

The NASE Position:

The National Association for the Self-Employed (NASE) strongly supports proposals such as health care tax credits, a self-employment tax deduction on health insurance premiums, expansion of both Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs), and pooling arrangements for small business as important steps to creating an equitable environment for micro-businesses and the self-employed to purchase affordable, quality health coverage.

Many micro-business owners cannot afford the expense, in time or money, to seek out and offer quality insurance plans for their employees. In a 2008 survey, the NASE found that micro-businesses are spending a median of 5.5% of their total sales on health insurance benefits, an increase of 48.6% since 2005. Additionally, this increase is most strongly felt by solo practitioners – they are spending 28.1% more of their total sales on health insurance compared to three years ago. As a result, a significant number of the uninsured (60%) are owners and workers in small businesses.

Health Care Tax Credits:
The NASE supports proposals for health care tax credits to assist the self-employed and micro-businesses in purchasing health insurance. Tax credits would assist individuals employed in businesses that do not offer employer-sponsored health plans to access health insurance. Specifically, the NASE supports a tax credit that is 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. This would permit lower income workers who do not owe income taxes to receive the full value of the tax credit. The credit could be used to purchase coverage through the individual or group market, to buy into state purchasing pools, or to join an insurance pool in the private sector or one established by a state for high risk patients.

Several pieces of legislation were introduced in the 110th Congress that would offer tax credits to micro-businesses when purchasing health insurance, such as the Tax Equity and Affordability Act of 2007 (S. 397/ H.R. 914) and the Affordable Health Care Expansion Act (H.R. 5784). In the 111th Congress, health tax credits have been discussed extensively as part of the health reform debate.

The NASE will continue to work with the Coalition for Affordable Health Coverage to gain passage of a refundable health tax credit to assist individuals and families in purchasing health coverage.

Expansion of Health Savings Accounts:
Health Reimbursement Arrangements are a flexible benefit option that allows small business owners to reimburse employees tax free for out-of-pocket medical costs, including health insurance premiums.

There are many benefits for a micro-business owner to set up an HRA for her employees. HRAs are often set up by small businesses in coordination with a high deductible health insurance plan. However, since many micro-business owners are unable to afford employer-based health insurance, a key benefit of an HRA is that they do not require the business owner to purchase a group health plan. Thus, business owners unable to afford insurance can offer some financial assistance to their employees.

HRAs are extremely flexible and easy for a micro-business owner to set up and administer. This is an important feature for a business owner who is responsible for managing every aspect of their business. Plan designs are limitless as long as they are consistent with IRS guidelines. A small business owner can write their own plan or obtain assistance from numerous vendors that offer prototypes of written HRA plans.

Since cost is such a crucial factor for micro-business when it comes to health benefits, an HRA gives the owner consistency when it comes to benefit costs. An HRA allows the business owner to determine the maximum amount of annual reimbursement an employee will receive, whether the HRA funds may be rolled over to the next year and if so, how much of an employees’ HRA funds can be rolled over to the next year. Furthermore, the reimbursements are tax-deductible for the business.

At present, self-employed persons are not eligible to participate in an HRA; an inequity that negatively impacts millions of business owners and employees. While there are a myriad of generous self-employed business owners out there, a key rule of thumb is that an owner is unlikely to set up a benefit for employees that he is unable to participate in as well.

An important component of HRAs is the non-discriminatory rules that apply to them. If an HRA is set up, the benefits must apply to all employees. A business owner is not allowed to offer the benefit to only certain employees or allow some to have a higher amount of annual reimbursement. What is set forth in the plan will apply to all those working in the small business. Therefore, expansion of Health Reimbursement Arrangements to allow the self-employed business owner to participate 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.

The NASE is working to legislation introduced in the 111th Congress that would allow for the expansion of Health Reimbursement Arrangements (HRAs).

Pooling Arrangements for Micro-Businesses:
The NASE supports the creation of pooling arrangements for the self-employed and micro-business which would improve access and choice of health coverage options for themselves and their employees. These arrangements, would offer business owners effective and comprehensive health care coverage by allowing them to purchase health insurance as a collective, large group allowing them to better negotiate with insurance providers.

In the 111th Congress, House Small Business Chairwoman Nydia Velazquez (D-NY) and Ranking Member Sam Graves (R-MO) have introduced the Small Business CHOICE Act (H.R. 859) which would allow small businesses to form health insurance cooperatives. These cooperatives would function similar to risk pools and provide insurance against high-cost or catastrophic claims. Additionally, the bill offers a key incentive in the form of a refundable tax credit of 65% to small businesses that choose to join a cooperative. The bill will also allow entrepreneurs to negotiate better rates for coverage for their employees and themselves. Self-employed individuals could save up to $5,000 per year on health coverage costs. The NASE supports this important legislation.

In addition, Rep. Rep. Henry E. Brown (R- S.C.) introduced the “Small Business Empowerment Act” (S. 93). The bill would establish a national program to make quality, affordable health insurance available to small employers and the self-employed in a manner that will spread risk on a national basis.

Self-Employment Tax Deduction on Health Insurance Premiums:
The self-employed are not able to deduct the cost of their health insurance premiums for the purposes of self-employment tax. The self-employed are the only business entity that does not receive a full deduction of health care costs. This inequity causes the self-employed to pay 15.3% in additional taxes. The NASE will continue our efforts with the coalition supporting Equity for Our Nation’s Self-Employed to actively advocate for legislation that will bring parity to the self-employed. For more information and the legislative history of this issue, please see our detailed position paper on this issue.