Problem

• According to the president's Council of Economic Advisers (CEA), small businesses with fewer than 20 employees account for nearly one-fifth of private sector jobs. Further, small firms represented 25 percent of job growth in the economy from 1992 to 2005. However, the status quo in U.S. health care acts as a kind of tax on small businesses. Fixed broker's fees and administrative costs force small employers to pay more than their larger counterparts pay for the same insurance plan. According to the CEA, less than half of businesses with fewer than 10 employees offered health insurance coverage in 2008. Among companies with 10 to 24 employees, the proportion offering insurance was about 75 percent in 2008.
  
  

Proposal

• A proposed National Health Insurance Exchange (NHIE) forms a centerpiece of the Obama health care reform proposal. Through this exchange, small businesses can purchase health insurance for their employees. According to the administration, its proposal will offer small firms better insurance rates and more plans from which to choose than the options they have had in the past.
  
  

Features

• The Obama health reform plan for small businesses emphasizes using tax credits to help them purchase coverage for their employees. To qualify for the tax credits, small firms must offer quality health coverage for their employees and cover a share of the premiums. The tax credits would be available on a sliding scale. CEA estimated in 2009 that the credit would extend to companies with fewer than 25 employees and an average annual wage per employee of $40,000, but that the credit would be greatest for firms with fewer than 10 employees and an average wage of less than $20,000 a year. A firm with fewer than 10 employees could claim a tax credit equal to 50 percent of the employer's contribution to worker health coverage.
  
  

Effects

• The Obama plan requires medium-sized and large companies, the majority of whom offer health insurance to their employees, to offer coverage or be subject to a payroll tax that funds coverage for the uninsured. The plan exempts small businesses from this "pay or play" requirement.
  
  

Expert Insight

• The Urban Institute's Health Policy Center analyzed the Obama plan and concluded that it would reduce the proportion of uninsured Americans, but still leave about 6 percent of the population uninsured. Analysts expressed concern about the plan's pay or play provisions. They concluded that such provisions would raise business costs and engender the political opposition that helped defeat previous health care reform proposals.