Small Businesses Worry That Costs Of Health Plan Will Strain Capacity

Lobbyists say the Clinton proposal mandating that employers provide health insurance to all employees could jeopardize millions of jobs

CIVIL engineer and 12-year construction veteran Jeanne Morrissey has undertaken a challenging venture. She is starting a business, confident that her skills as a problem-solver can overcome the recession's economic uncertainties.

Her biggest problem is shared by almost all start-up firms - guaranteeing sufficient working capital to tide her through the first few years. Thus, she is "somewhat mixed" on the president's proposal to mandate that all employers provide health insurance.

"Health insurance creates additional overhead expenses that puts an additional strain on start-up companies," the Burlington, Vt., native says. "Lack of capital is the No. 1 reason new companies fail."

At the National Governors' Association conference in Tulsa, Okla., Tuesday, President Clinton contended that building on the present employer-based system is the only reasonable way to extend coverage to 37 million uninsured Americans and control the system's spiraling costs. He also called for significant reform of the health-insurance industry, subsidies to support small businesses that may have difficulty paying for health insurance, and a period of five to seven years to phase in mandates.

The proposal already has fierce opposition from small businesses, which contend that mandating that firms provide health insurance will put millions of jobs at risk. More than 60 percent of the uninsured work, many at low-wage jobs in businesses with slim profit margins.

Small-business lobbyists contend that mandating that such companies provide insurance could force some out of business. A study for the National Federation of Independent Businesses (NFIB), which represents 600,000 small businesses, estimates that as many as 18 million jobs could be lost, depending on the type of mandate enacted.

"The cost of health insurance is the No. 1 problem for small businesses," says Michael Roush, NFIB's chief Senate lobbyist. "They want the system changed. The status quo is not acceptable, but mandates are off the table. It's very intensely felt. They'll take almost anything other than mandates."

Mr. Roush says the small-business community's pragmatic economic concerns are bolstered by a more fundamental problem: The community does not believe it is their responsibility to provide health insurance, and they resent being told what to do.

Advocates of employer mandates contend that the community's resentments and fears are unfounded, and they point to Hawaii, which implemented mandates more than 20 years ago. The White House notes that job growth in that state continues to be strong, with new business start-ups outpacing the rest of the country. More important, health-care costs have grown at a slower rate in Hawaii compared with the national average.

Lobbyists for larger companies that provide health insurance are also inclined to favor mandates as a way to stop cost-shifting. Instead of absorbing losses incurred by serving the uninsured and underinsured Medicaid and Medicare recipients, health-care providers now shift those costs to patients with private insurance. This has fueled the dramatic rate of increases in health-insurance costs during the last 10 years, and frustrated the estimated two-thirds of businesses that provide health insurance.

"Ninety-seven percent of our members provide health-insurance benefits so we're often the recipient of the cost-shifting," says Sharon Canner, assistant vice president for industrial relations at the National Association of Manufacturers. "We look with interest at a system that will require everyone to participate and deal with the free-riders."

A study done for NAM estimated that cost-shifting accounted for $17.1 billion, or 10 percent of the overall amount businesses spent on health insurance in 1991.

Small businesses would prefer that the administration push through health-insurance reforms, streamline the Medicaid and Medicare bureaucracies, and impose spending caps on providers before discussing mandates. "Let's try to fix things you can identify now, and see if that, in itself, doesn't rectify the problems of cost and coverage," Roush says. "Do no harm, like the doctors say, that's the first criterion."

But the administration and many health-care experts contend that minor reforms are not enough to bring the health-care system back under control.

"That's somewhere between dangerous and propagating myths," says Alan Sager, a professor at the Boston University School of Public Health, who contends that health-care spending will surpass $1 trillion by 1994.

Mr. Sager is an advocate of major reform, but he also questions the impact mandates will have on health-care spending. By forcing companies to insure the previously uninsured, the administration will add to the cost of health care, ironically fueling the already-rapid rate of increase in health-care spending. "There is just no way to guarantee costs will be controlled under the proposal, unless public authorities are given much more control over budgets," Sager says.

Like 90 percent of small-business owners surveyed by the NFIB, Ms. Morrissey believes that health insurance is becoming prohibitively expensive, and something must be done.

She believes that employer mandates could help level the competitive playing field by ensuring that companies take on the responsibility and overhead required to provide health insurance. But she still doesn't support mandates.

"Ideally, I'd just like to see the government set goals and let the private sector implement them in the most creative and efficient means possible," she says.