NASE Blogs

Baucus Approach to Health Reform May End Up Costing the Self-Employed [Commentary]

Sep 22, 2009
Posted by Kristie Arslan - The long awaited health reform proposal by Montana’s Senator, Max Baucus, who resides as Chair of the Senate Committee on Finance has finally been released and is already being debated within Congress.

America's Healthy Future Act may not provide such a robust future for the self-employed.  But let's start off with the positive before I dwell on how the self-employed are once again neglected in health reform.

Highlights of Baucus Plan:

  • Market reforms such as banning health status from being used by insurance companies to determine whether an individual or small business gets access to health insurance.
  • Creation of state-based insurance exchanges where small businesses and the self-employed can shop for health coverage.
  • No public option. Instead of introducing a federal government-run health plan, the Baucus bill creates authority for the formation of the Consumer Owned and Oriented Plan (CO‐OP). These plans can operate at the state, regional or national level to serve as non‐profit, member‐run health plans to compete in the reformed non‐group and small group markets.
Now on to the problems with Baucus' approach to health reform.

We find in America's Healthy Future Act the creation of standardized benefit plans.  Similar to the "qualified" or "essential benefits" packages required in the other reform proposals, this legislation will define four benefit plan types.  All insurance must meet the qualifications of these four plans to be offered in the exchanges and consumers must purchase these type of plans in order to receive any of the tax credits.  The concern is that delicate balance of cost versus richness of benefits.  We must ensure that there are affordable options available for the self-employed.

Another feature in the Baucus bill is health affordability tax credits for individuals and families as well as small employers (those with 25 or fewer employees). It was obvious that Baucus and his cohorts decided keeping the cost of the bill down was more important than helping Americans afford health insurance because these credits are the least generous of all the reform proposals.

The self-employed will be specifically excluded from accessing the small employer tax credit in the Baucus plan:

"Self employed individuals, including partners and sole proprietors, two percent share-holders of an S Corporation, and five percent owners of a C Corporation would not be treated as employees for purposes of this credit. There will also be a special rule for sole proprietorships to prevent them from receiving the credit for the owner and their family members. Thus, no credit would be available for contribution to the purchase of health insurance for these individuals and the individual would not be taken into account in determining the number of employees or the average full time equivalent wages."

So for all you sole-proprietors out there with employees, you may be able to get assistance in paying for your workers' health insurance, but for your own health care you're out in the cold.  Additionally, you won't even be able to qualify for the individual/family tax credit if your income is more than $32,490 for an individual or $66,150 for a family of four. 

If you are self-employed or a micro-business that employs family members, then you are even worse off because you will receive absolutely no financial assistance to afford group health coverage.  Considering that family businesses account for 50% of U.S. gross domestic product, generate 60% of the country's employment and provide 78% of all new job creation, Senator Baucus might want to reconsider his choice to exclude them from receiving assistance to afford group health coverage. (Statistics courtesy of University of Southern Maine's Institute for Family-Owned Business.)

Again absent from the Baucus legislation, as with all of the other reform proposals, is the ability for the self-employed to receive a business tax deduction for health insurance like all other businesses and the expansion of Health Reimbursement Arrangements (HRAs) to allow the sole-proprietor owner to participate.

To sum up, what do the self-employed receive from the Baucus plan?  Access to health insurance they likely will be unable to afford, yet required to buy. 

Who would have thought Congress could actually make things worse for the self-employed?