From our Haley Nelson Associates June 2009 newsletter...
Mr. Keating is the Chief Economist at the Small Business and Entrepreneurship Council in Washington, DC. For more information about SBE Council, visit the group's website at http://www.sbecouncil.org/.
HNA: If health care reform takes the form currently presented by the Obama administration and Congress, what would be the immediate impact on small business?
RJK: The impact would be felt by small business owners and their employees on several fronts. For example, new mandates and regulations would raise costs, and reduce competition and choice in the health insurance market. New government health plans would mean increased and/or new taxes. All of this intervention by government through more regulation, mandates and spending will mean diminished quality of health care. The bottom line is that there is no free lunch when it comes to government intervention in the economy. Small businesses and their employees will pay one way or another for increased government control of health care.
HNA: Could you describe the concept of "play or pay"?
RJK: The "play or pay" mandate means that employers either have to provide health coverage for their employees, or pay a tax so the government can do so. Either way, businesses face increased costs. The assumption behind this kind of mandate is that small business owners do not want to provide health care coverage for their employees. In reality, of course, many businesses simply cannot afford to provide such coverage. Government imposing a "play or pay" mandate does not change this economic reality. As a result, such a mandate will mean that many businesses will have to reduce other types of compensation, cut employees, cutback plans for investment and expansion, or simply go out of business.
HNA: The Senate Finance Committee recently released a list of potential tax increases to pay for the program. Which, if any, would directly impact employers?
RJK: The tax hikes floated by the Senate Finance Committee as possible means of paying for health care reform most certainly would impact the entrepreneurial sector of our economy. In a recent analysis, I noted some problems with these measures:
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Limiting the tax deduction for employer-provided health care plans was one option. That, of course, could wind up increasing costs for employers or workers, depending on how it would be structured.
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Also on the list was limiting or eliminating itemized tax deductions for medical expenses. That wouldn't work out too well for individuals and families with high medical expenses.
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Health savings accounts - tax-free savings accounts linked to traditional, high deductible insurance plans - are the type of consumer-controlled measures needed to help redress the third-party payment problem in health care. Yet, increasing taxes on HSAs was in the mix.
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Assorted beverage taxes were on the agenda as well. Existing taxes on alcoholic beverages could be increased, along with a new tax on "sugar-sweetened beverages." That new tax would hit nondiet sodas, fruit and vegetable drinks, energy and sports drinks, iced tea, iced coffee, and flavored milk and dairy drinks. Those tax increases would raise costs for consumers and mean lost business - and along with it fewer jobs - for the various industries and firms targeted.
HNA: In your opinion, is it possible for private carriers to compete with a public health care program as is being proposed?
RJK: Given the power that government would wield over health care, it's hard to see how private carriers could survive against a government plan. Private carriers would face a wide array of mandates and regulations - including coverage mandates, plan design and operations dictates, as well as price controls - while the government plan would be subsidized courtesy of the taxpayers. In the end, that will mean enormous costs for taxpayers, and rationing of care for patients.
HNA: In your opinion as an economist, how might the concept of health care rationing benefit or hurt the quality of care available?
RJK: There is absolutely no upside to health care being rationed by government. It's important to understand this process. As government gets more involved in running and funding health care, costs will explode for two main reasons. First, neither the health care provider nor consumers have any reason to be concerned about utilization and prices. Second, politicians and government bureaucrats are spending other people's money, which is a surefire path to waste and higher costs. As costs mount, government responds by rationing care. That means politicians and their appointees will decide what kind of care is being dispensed and how quickly that service is provided. Long waiting lines are the norm, not the exception, in nations that have adopted socialized medicine, as are denials for certain treatments.
And make no mistake, the policies being discussed and debated right now would place the U.S. firmly on the way to socialized medicine.
