Health Care for Small Business – Obama’s Plan
Many Americans, especially those without health care coverage are concerned about how they might be able to get health insurance coverage. There are a lot of promises being made about health care insurance and I want to take a close look at the one that looks the most appealing to many Americans. I want to break down the cost of health care insurance for small business and their employees based on some conversations I have been having with small business owners who do not currently offer their employees health care insurance. Barack Obama is quoted as saying, “since 1990 companies with fewer than 20 employees have created 80% of new jobs in America”.
Small Business Health Care Cost Example
To set the stage, let’s say a services related business grosses $500K and makes $50K profit after the expenses, taxes, benefits, and salaries (including owner/operator) are paid. This business employs 16 people who average making a gross wage of $12 per hour. Before we go too far let’s take a realistic look at what an employee’s household budget might be in this small business.
Employee’s Household Budget:
| Monthly | Annual | |
| Gross | $ 2,250.00 | $ 27,000.00 |
| Income (Net) | $ 1,800.00 | $ 21,600.00 |
| Rent | $ 500.00 | $ 6,000.00 |
| Food | $ 400.00 | $ 4,800.00 |
| Car | $ 300.00 | $ 3,600.00 |
| Gas | $ 200.00 | $ 2,400.00 |
| Utilities | $ 200.00 | $ 2,400.00 |
| Misc.* | $ 200.00 | $ 2,400.00 |
| Total Expense | $ 1,800.00 | $21,600.00 |
* Misc includes clothing, toys, cable, phone, entertainment, gifts, charity, savings, etc.
I created the above household budget example based on a single income family of four including two preschool age children where the mom cannot obtain a full-time job to make enough to pay for childcare for two young children. I added $250 per month that might come in the form of overtime or an evening part-time job by mom or day that supplements the budget.
Barack Obama’s Promise for Health Care Coverage
Barack Obama’s says that his health care plan would provide small businesses “tax credits to cover up to 50% of employee insurance” premium costs. How will that work for this company and the employee’s family listed above? Let’s pull data from a very popular health care plan offered to federal government employees that is available throughout the United States. Since that is what Barack Obama offers as example in his speachs it is only fitting. One of the standard plans offered to feds is by Blue Cross Blue Shield and costs a total of $1027 per month in premiums. That plan costs approximately $12,000 per employee in premiums per year. Please note that the federal government picks up 70% of the premium and there are thousands of employees in this group plan. To get this level of coverage for a company of 16 employees, you are almost guaranteed that employee coverage in this company will cost well above $1027 per month per employee.
Health Care Cost:
| Total Cost | |
| Monthly Premium | $ 1,027.00 |
| Yearly Premium | $ 12,324.00 |
| Totals for 16 Employees | |
| Monthly Premium | $ 16,432.00 |
| Yearly Premium | $ 197,184.00 |
| Obama up to 50% credit | $ 98,592.00 |
| Net Premium Left to Pay | $ 98,592.00 |
| Per Employee Premium Cost Remaining | $ 513.50 |
Now remember that the business only has $50k profit to apply to the Net Premium Left to Pay. If the employer decides to purchase as much premium as possible, each employee will still be required to come up with at $256 for in premiums.
With Company Help (No profit left to grow company)
$98k prem – 50k profit = $48k remaining
$48k remaining / 16 employees = $3k per employee per year
$3,000 per employee / 12 months = $250 per employee per month
No Company Help ($50k profit used to grow company)
$98,592k prem / 16 employees = $6,162 per employee per year
$6,162 per employee / 12 months = $513.50 per employee per month
The employee’s household budget will not support this premium and will likely not choose to purchase health care insurance in a similar scenario. This is not just a speculation for small business employees that I know, but this is a fact. These are the Plumber Joe type of folks who are already running on tight budgets and will likely pocket the $250-500 per month and pray that they don’t have health care issues that cost more than they have stuffed in the mason jar. Every employee who has been offered health insurance where they would have to sacrifice premiums out of their check has passed on this option. The result shows that the average small business employee cannot afford health insurance even with Barack Obama’s health insurance plan for small busniess. The average family making wages in the range listed above simply cannot afford to fork out $250-$500 per month in heath care premiums if, IF the employer can get decent health care coverage at this price per employee.
Barack Obama says that for small businesses he will “help them not just create new jobs but good jobs with health care”. What we can clearly see it that Barack Obama is out of touch with reality when it comes to how many small businesses and households operate in this country.
References:
http://www.barackobama.com/issues/healthcare/
http://www.opm.gov/ [PDF] – U.S. Office of Personnel Manaement
November 3rd, 2008 at 10:38 am
I recently ran the numbers on McCain’s plan for my particular situation.
My employer has an HSA plan, which they front-load with a certain amount of money. It’s a high-deductible plan, so I’m paying out of the HSA up to the deductible, after which I’m off the hook. So, in addition to my premiums (about $130 a month), I contribute enough money (tax-free!) to the HSA to cover the remaining amount of my deductible and any qualified expenses that I know we’re going to incur. This works out to about $3600 a year.
My employer’s cost for the plan is in the 8-10K range. So let’s assume I get taxed on that at 15% (although my average tax liablity has been far less than that in recent years thanks to the tax cuts enacted a few years ago). So I get hit with a tax liability on my health benefits to the tune of $1200-$1500. Deduct that from McCain’s $5000 credit, and I’m left with $3500-$3800. Which about nicely covers my premiums and HSA contribs, which currently come out of my pocket. So I end up with health coverage in the end that is effectively free.
And if I leave this job (not sure why I’d do a silly thing like that!), I take my HSA money with me, get my own HSA plan, which would run me on the order of about $6000 a year (I had one when I was self-employed before this gig), I still have my deductible money saved, and I’m still only on the hook for a small amount of my coverage.
It amazes me how many people freak out when they hear that I have this “huge” deductible that I have to meet before anytheing gets covered, and then in the same breath complain that they get hit with a $50 Rx copay every month for some new-fangled medication they’re on, and that I have to pay $70 for an office visit at my Dr.
The difference is, they still have to pay 20% regardless of how high their medical bills go. 20% co-insurance on a $100K hospital stay is a sizable chunk of cash… I hit my $3000 deductible (or $500 for Rx), and that’s *it*. Everything else is covered. So I know going in, exactly what the maximum amount of money is coming out of my pocket, and plan accordingly. But because it’s an HSA and it’s coming out of my pocket, there’s also a solid incentive there for me to be judicious about my healthcare spending, because any money left over in the account at the end of the year is still mine. if I have a $10 generic copay regardless, it doesn’t matter where I get my prescriptions filled. On the other hand, when I’m paying for it, it makes a difference whether I go to CVS where it’s $20 for a fill, and $6 at Wal-Mart for the exact same thing from the exact same manufacturer. In the copay model, the insurance company gets nailed for that difference, and we all feel it in the premiums.