Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

26 July 2009

Health Care Reform Effects on Small Businesses

The Council of Economic Advisors released a report entitled "The Economic Effects of Health Care Reform on Small Businesses and Their Employees" on 25 July 2009. This report is an effort to enlist support from small businesses for the Obama - Democrat Congress health insurance reform plans.

Much of the report is about how many people are employed by small businesses and that a smaller fraction of small business employees are covered by company provided health insurance plans than are by bigger companies. It says that the "U.S. health care system imposes a heavy 'tax' on small businesses and their employees." What does it mean by this? Well only that small businesses pay up to 18% more per worker than large firms do for the same health insurance coverage. First, I wonder what the average % additional cost is. This up to 18% more is meaningless. In fact, I am sure there are small companies paying much more than 18% more, just as there are apparently small companies paying a smaller than 18% differential with respect to large companies. If my house costs more because I live in the Washington, D.C. area than it would if I lived in Tulsa, Oklahoma, should I run around saying I am paying a home tax because of that? Well, maybe I should since so much of the cost differential is due to government restrictions on housing in the Washington area. As we will see, small business is to be offered a subsidy for providing health insurance to its lower paid employees to offset this so-called 'tax.'

It turns out, that in order to get the nationalization of our health insurance system done, the initial offering from the Obama crew is a bribe to small businesses. The 'vast majority' of small businesses will not be subjected to the 8% payroll tax if they do not offer employee health benefit plans. But, if they do, they will be given a 'tax credit' which is a higher percentage of their health benefit costs the lower the average pay of their employees. Hmmm.... seems like a good reason to hold down your employees pay, well except that market supply and demand do not really allow that. This brings up some interesting questions.

You see, Washington always thinks of every business as being a corporation. Corporations pay taxes on their net income. But, almost all small businesses report their income on the owners' personal tax returns. Does this mean that each business partner or stockholder must submit all the proof of payouts on employee health plans and on their average compensation to the IRS? How does the IRS then pay out the tax credit? If the company has no net income, as many small businesses do not, is the tax credit paid out? Is it paid out proportionately to each business owner as a check to them personally? Or, will there now be a whole new tax filing system for small businesses under which the money will be sent to the business directly? No matter what, this will be another government nightmare of paperwork for small businesses. This alone will be good reason to drop health insurance coverage for employees. Governments will never understand how heavy the hand of their paperwork lies on the head of the small businessman.

Now, there will be many small business owners naive enough to buy into this bribe, but in time this system will surely be changed and it will be changed to be more and more burdensome to small businesses. Just as the carbon cap and trade bill proposes expense offsets to many and attempts the really big energy reductions only after 2020 in order to get that program established, we can be sure the deal on health insurance will become more bitter with time.

There is no mention of reforming one of the big problems that small businesses have today with respect to offering health insurance to their owners, who are a substantial part of the workforce of small businesses. If an owner owns more than 2% of the stock of his company organized as a S-corporation, he is not allowed to treat company payments for his health insurance as a tax deductible expense of the company, though he does so for his employees. Many small business owners have no health insurance for this reason. And many have none because the small business cannot afford the expense. But, of course, the government hates business owners, so this may well not be changed.

The report talks about how various levels of reduced health insurance costs will help small businesses to become more profitable and to offer their employees more pay. They pick percentages of reduction out of the hat and calculate savings. But, there is no reason to think that health insurance costs will actually go down given that the government is going to dictate added benefits be added to the insurance coverage. I suppose, as long as the subsidies are offered, companies with many low-paid employees may save money if they are among those few companies with low-paid employees who already offer health insurance. The report notes that the lower the average pay of a small company's employees, the less likely that the company offers health insurance benefits. Most small companies may simply be tempted to stop offering health insurance and tell their employees to turn to the government health insurance exchange.

Under the House bill, a worker with a spouse and two children whose family income is $40,000 per year would pay approximately $1,700 for a policy that in a non-group market would cost $12,000 or more. This will be a huge government subsidy. Of course the government is figuring some reduction in cost because the insurance companies entering the plan are supposed to give up their profit! Ha!!! Perhaps they think the policies will be sold for less than what insurers would charge large companies. Let us use this 18% differential to calculate that part of the savings, though that figure may not have any validity. So 18% of $12,000 is $2,160. This means that the government subsidy for this family will be $12,000 - $1,700 - $2,160 = $8,140. Note that this is a huge transfer of wealth from some Americans to other Americans for no reason but that they are less productive individuals! This is the core of Obama's share the wealth philosophy.

This exchange plan is a lot better in some ways than most company offered plans. The family will have to make no more than $850 or less in out-of-pocket expenses. A family of four making less than 133% of the poverty level income of $22,050 will be put on Medicaid. Above this 133% level, they will go into this government exchange. At the starting income for the exchange of $29,300, this family of four will pay about $400 (approximately, estimated from the graph in Fig. 8 in the report) for the $12,000 insurance plan. Wow, what a transfer of wealth!!! The family of four making up to 400% of the poverty level will also receive a subsidy. This is an income of $88,200 and the subsidy will be about $2,200, again estimated from a graph.

As I see this, it would appear that most small businesses, except those with average employee compensation well above the average, will be better off ending their employee health benefit if they now offer one and letting their employees go into the government exchange. This frees them of the headache of doing a lot of paperwork, and many of their employees will be eligible for very large subsidies.

Of course, those subsidies come from taxes levied in some way upon the economy. It is clear that Obama and the Democrat Congress will levy those taxes on the most productive people in America and then transfer that money through these massive subsidies to those who are much less productive. The same is to be done in the carbon cap and trade scheme where the government will give subsidies to lower income families to offset their higher energy bills, while more productive people will pay the full cost of their skyrocketing energy bills.

Frankly, if the health insurance redistribution bill and the energy use tax redistribution bill are passed into law, there is no reason for productive people to bother being productive. They should go on strike. Going Galt is the only answer. It will be time to do some reading, go fishing, go hiking, and sleep in late, but there will be no point in working for money. Perhaps we should all retire to Galt's Gulch and prepare for the collapse of this socialist monstrosity that Obama and his fiendish Democrat Congress are fashioning. There we might create our own money with no convertibility into U.S. dollars and claim we have no income and hence should pay no taxes to the Socialist Republic of the United States.

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